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A panel discussion titled, ” Concerns Over U.S. Adoption of IFRS” will take place on Monday, Monday August 2, 2010 – 10:15 am-11:45 am at the annual meeting in San Francisco for the American Accounting Association (AAA).  The AAA is the primary professional organization for American accounting professors.

The panel discussion will feature internationally renowned accounting experts who have expressed concerns over some aspects of U.S. adoption of IFRS.  Tentatively scheduled participants are Ray Ball (University of Chicago), Shyam Sunder (Yale University), Charles Niemeier (PCAOB), Robert Jensen (Trinity University, retired), David Albrecht (Concordia College).  The session is moderated by David Albrecht (Concordia College).

The American Accounting Association’s 2010 Annual Meeting will be held in the Hilton San Francisco Union Square and the Parc 55 San Francisco in San Francisco, California, July 31 – August 4, 2010.  Registration for the annual meeting is required to attend this panel discussion.

Debit and credit – – David Albrecht

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In this essay I explain why I blog and list all the other accounting professors who blog.  There aren’t many.

I posted my first blog entry nearly four months ago, on September 3.  At long last I have joined a very popular trend, professors who blog.  Fifty posts/essays later, I’m more committed than ever.

blogkeysWhy didn’t I do it before?  Ignorance.  Until just recently, I didn’t even read blogs.  RSS feed?  Don’t even know what that is.  Just give me a journal or magazine article that I can conveniently cite when I write a journal or magazine article of my own.

I finally realized that I’ve been blogging for quite a while.  How so?  About 1,000 accounting professors belong to an e-mail list called AECM (Accounting Education using Computers and Multi-media).  I’ve been subscribed since the get-go.  The list currently generates 30-60 e-mail posts per week on a variety of topics.  Bob Jensen (emeritus of Trinity University) sends more than half. That’s OK with most of us.  He is a prolific web surfer.  He usually finds interesting articles that in some way relate to either accounting or accounting education and sends in links to them, sometimes accompanied by either his opinion on it or a series of questions designed to get us thinking.  After about 10 years of this, those who don’t like to receive so many e-mails or so many of his e-mails have left the list.

I don’t lurk.  This apparently means I don’t mind embarrassing myself if I send an e-mail to the group.  Over the past few years, whenever attending a conference I’d usually meet someone who liked reading my posts to the list.  Hmmm, I have an audience.  It’s best never to admit that to a professor.  So, I’ve slowing been increasing the rate of my submissions, and over the past year I might have sent in 200 e-mails.  That was too much for both me and the list members.  At the last conference I attended, a friend came up to me and said, “I think of you every day, when I open my e-mail program and see that you’ve filled it with so much crap.”  Although he might have been trying to be funny, I still winced.

Sending any unsolicited e-mail, let alone too much of it, is definitely not the way to keep friends and influence enemies.  So it is off to the world of blogging that I go.

Why should a professor blog?   See the next essay, Why Accounting Profs Should Blog, to find out.

Here is a listing of accounting professors that are using blogs or in some cases, have used blogs.  The ten current bloggers differ greatly from each other.  However, they all have something in common:  They have something to say that can no longer be bottled up.  I recommend that you bookmark them all.

  • The Accounting Onion (USA) – retired Thunderbird professor Tom Selling.
  • Andy’s Teaching and Learning Blog (USA) – tenured instructor and department chair at Edmonds Community College.
  • The AGA Weblog (USA)- Willamette assistant professor Kenneth Smith has written a blog since March, 2008, for the Association of Government Accountants.
  • Bob Jensen blogs (USA) – retired Trinity University professor.  Prolific contributor to AECM.  His most relevant blog is Tidbits.
  • Prem Sikka (UK)- Accounting professor at University of Essex blogs at The Guardian (London newspaper)
  • Professor Elam (USA)- University of North Texas at Dallas professor Dennis Elam blogs on every day events from the world of business, linking them to the classroom.
  • Professor Gerald Trites (CAN)- (FCA, CA*IT/CISA) is a Professor of Accounting and Information Systems at St. Francis Xavier University in Nova Scotia. He was the first Director of the Gerald Schwartz School of Business Administration and has served as Chair of the Department of Information Systems.  Maintains Canada XBRL Blog.
  • Really Engaging Accounting (USA)- Central Florida accounting professor Steve Hornik.
  • The Summa (USA)- commentary on Financial Reporting and related matters by David Albrecht.
  • Tick Marks (USA)- an Austin Peay tax accounting professor, Dan Meyer, that has blogged continuously since 2005. When blogging about accounting, his posts focus on tax (surprise, surprise, surprise) and personal finance. He also blogs about accounting students.

Here is a review by accounting students who blog

  • CPA Pledge: Accounting student Jim Chapman chronicles his experience at Central Connecticut University. Is currently centered around studying for the CPA exam.
  • NJSCPA Exam Cram Blog: Recent College of New Jersey grad Priscilla Jenkins, has blogged since July, 2007, about studying for the CPA exam. Is sponsored by New Jersey Society of CPAs.

Dormant academic blogs

Over and out – – David Albrecht

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SEC pitching GAAP in the trash

SEC pitches GAAP in the trash.

The Securities and Exchange Commission (SEC), charged with the responsibility to regulate all aspects of the American financial markets, has recently announced a tentative road map for the transition from requiring companies to prepare their financial statements under American generally accepted accounting principles (GAAP) to requiring the use of international financial reporting standards (IFRS).  Reactions range along a continuum from enthusiastic acceptance of the plan one end to the opposite end of rejection and shock over having beloved GAAP thrown in the proverbial trash can. Many have observed that the transition is like a frenzied rush.  There has been no opportunity for a consensus to develop that a move from GAAP to IFRS is the right thing to do.  The SEC simply announced its intention of making the switch.  There have been no answers provided to public questions. 

Why now?  Why so fast? Some have commented (I was one of the first) that SEC chairman Christopher Cox hopes to commit irrevocably the U.S. before President Bush leaves office and a new SEC chairman is appointed.  Recognizing the impact of partisan politics provides a reasonable rationale for the SEC push when there are no obvious economic benefits for the U.S. to make the switch.

Before getting to the meat of today’s post (reviewing important remarks by Robert E. Jensen), let me provide some background to this regulatory issue. The U.S. financial system is based on the bedrock principle that investors can make the best decisions and are best protected if all have equal access to accurate financial disclosures.  The result of applying this principle has been the creation of financial markets that are the unbridled envy of the world.  Compared to financial markets in other parts of the world (i.e., Europe), U.S. investors experience the highest rates of return and U.S. companies incur the lowest costs of raising capital.  A key reason for such success is GAAP.  The U.S.  has made and continues to make expensive investments in the creation of its GAAP.  It has evolved over time to a set of uniform rules with embedded bright lines.  Why so?  Precise rules are needed by the legal system as regulators seek to enforce corporate obedience to disclosure requirements. IFRS, created by the International Accounting Standards Board, differs from GAAP in several important regards.  First, IFRS is created to make it easier for companies to raise capital across national lines.  IFRS is not intended to assist investors in making decisions, it is intended to assist companies in raising capital.  Second, IFRS permit companies to use judgment in reporting results from operations.  Investors are not secure in knowing that all companies followed IFRS in the same manner.  Third, much less money has been invested in the creation of IFRS.  There is an adage that reminds, you get what you pay for

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Robert E. Jensen

Robert E. Jensen

Enter Robert E. Jensen, Trinity University emeritus professor and American Accounting Association 2002 Outstanding Accounting Educator.  A prolific commentator on financial reporting and its regulation, derivatives and all matters related to accounting professors, Bob has been a leading critic not only of the S.E.C.-led rush to adopt IFRS, but also of adopting IFRS in at all.  Retirement to a New Hampshire mountain does not seem to have slowed him.

Does this issue pass the smell test?

It doesn't for Robert E. Jensen.

In a landmark post to AECM (the international listserv for accounting professors) on Monday, September 14, Jensen states clearly and unequivacably, “For me the IFRS transition just does not pass the smell test.” Jensen starts his post with a poignant history of the U.S. audit industry.  He summarizes;

The poor [quality of] services of auditing firms became a focal point in the U.S. Congress when equity markets appeared of the verge of collapse due to fear and distrust of the financial reporting of corporations dependent upon equity markets for capital. The Roaring 1990s burned and crashed. In a desperation move Congress passed the Sarbanes-Oxley Act (SOX) of 2002.

SOX was a shot in the arm for the auditing industry.  SOX forced the auditing industry to upgrade services with SOX legal backing that doubled or even tripled or quadrupled fees for such services. Clients continue to grumble about the soaring costs of audits, but in my opinion SOX was a small price to pay for saving our equity capital markets.

He then introduces a new development:

In 2007 and 2008, the international auditing firms commenced to lobby intensively for worldwide adoption of the “IFRS” international accounting standards of the International Accounting Standards Board (IASB).

Jensen convincingly explains that IFRS cover the same topics as GAAP, but leave out many of the “bright line” rules.  Hence [IFRS] generated a reputation for principles-based standards instead of rules-based standards”.  He then points out:

Many of the nations, especially in Europe, that adopted IFRS do not have strong equity capital markets given their historic traditions of raising corporate capital via banks instead of individual investors buying and selling shares of common stock.  Protection of investors has not had the same priorities for these nations as it has in the U.S. where faith in equity capital market integrity is vital to our market-based capitalism.

The bottom line is that IFRS is a weaker set of equity capital market accounting standards than the present FASB standards in the United States.

To summarize.  Jensen started with a history that leads to a conclusion that the large U.S. auditing firms have a poor track record of influencing corporations in the United States to make honest financial disclosures.  This explanable in part because there was more financial reward for providing consulting services than auditing.  So auditing was deemphasized.  He then contrasts how the needs of American financial markets have led to creation of strong accounting standards.  Because European financial markets are different in many ways, Europe has accepted a weaker set of accounting rules. He then observes that the large auditing firms are strongly in favor of moving the U.S. toward weaker accounting standards and have a willing accomplice in SEC chairman Christopher Cox.

This begs the question of why the large auditing firms are lobbying so hard for IFRS standards to replace FASB standards? There are legitimate reasons given the complexity of auditing international firms having operations subject to varying domestic and international accounting standards.  And there may be less litigation risk when bright line rules are replaced by principles-based standards that give auditors and clients much more flexibility in accounting for transactions.

But for me there are also smell test concerns here.  Auditing firms love the soaring revenues from SOX, but they will love even more the soaring revenues from clients having to transition from FASB standards to IFRS international standards.  Firstly, auditing firm clients will not understand IFRS such that auditing firms will make fortunes educating and training each of their clients about IFRS.  Secondly, accounting systems, including enormous databases and software systems, will have to be overhauled.  For example, all the firms in the U.S. who use LIFO inventory valuation will have to be changed to something else since IFRS does not allow LIFO. Walla — the consulting service revenue surge becomes remindful of the Roaring 1990s.

The added auditing firm revenue from the IFRS transition may be as much or more than the added revenue from SOX.  … But to me this whole IFRS transition in the U.S. and the race to lock it in place just does not pass the smell test.

So there you have it.  The entire issue of transitioning to IFRS is about money.  Great, big, heaping, towering mountains and mountains of money. Eventually the large firms will donate a fraction of this wealth to university accounting programs, and I will be much less than thrilled. Coincidentally, Floyd Norris has blogged that the Big Four are intensely lobbying Christopher Cox to appoint a Big Four accountant to replace Charlie Niemeier on the PCAOB.  No decision has yet been made, but for some reason I’m worried about what it will be.  I leave you with an image that expresses my concern.

Over and out – – David Albrecht


Just in–Tom Selling published a post on the top 10 reasons not to adopt IFRS in the U.S.  It is well written and compelling.

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