SEC’s Cox Weighs In On Accounting Standards

How long will it take to combine and integrate U.S. based GAAP accounting standards with the International Financial Reporting Standards (IFRS)?

There seem to be contradictory statements coming from regulators, but SEC Chairman Christopher Cox is setting the record straight in an attempt to end the confusion:

While the push toward merged accounting standards has gained considerable momentum in recent months, finance chiefs may not need to start boning up on principles-based accounting—yet. In fact, Securities and Exchange Commission chairman Christopher Cox stated last week that U.S. generally accepted accounting practices (GAAP) aren’t going away anytime soon.....Mr. Cox stressed that there are too many imperfections in international accounting standards to switch wholesale to IFRS at this point. Additional work must be done—including changing language in the Sarbanes-Oxley Act—before the SEC would be able to recognize the International Accounting Standards Board as the sole accounting regulator. Financial Week

FASB might want to hire a few more lobbyists to plead their case. But adopting IFRS is not a cure all, and would not necessarily cure what ails us.

Indeed, IFRS might even permit more latitude for unsavory earnings management”:

U.S. managers effectively control the “independent” directors and auditors; and prior to Regulation FD, analysts bartered glowing assessment in exchange for tidbits inside information.  Without empowered gatekeepers to prevent accounting fraud, we have had to place our hopes on very inflexible accounting rules, and sheriffs like the SEC and private attorneys to catch the cases where management has attempted to surreptitiously cross the bright line.

In short, it would be a grave mistake to adopt IFRS in the U.S. simply because it seems to work well elsewhere.  As corporate ownership patterns in Europe change, it may well be that IFRS may evolve to look more like U.S. GAAP.  Only after that occurs may it make more sense to have a single worldwide financial reporting regime. The Accounting Onion

The issue is likely to continue remain in the public eye, particularly with cross-border investing becoming more prevalent by the day. There is no perfect system, and merging the two approaches, and adopting IFRS, will move forward at a slow pace. Perhaps GAAP is not the scapegoat, but moving from a “rules-based” system to a more principles-based approach might, might make an imperfect approach more palatable to practitioners and, eventually, regulators.

Based on last week’s FASB conference call/podcast, it would seem the process could take five to seven years.

Bye-bye, GAAP? Not yet
Financial Week

Is IFRS Compatible with U.S.-Style Corporate Governance?
The Accounting Onion

A Theory of Corporate Scandals: Why the U.S. and Europe Differ
John Coffee, Columbia Law School

Towards a Global Reporting System: Where are We and Where are We Going?
FASB Podcast

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