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SEC Adoption of IFRS: An Inconvenient Truth

SEC Ignores Concerns in Roundtable Discussion

The much anticipated SEC Roundtable discussion about IFRS adoption in the U.S. has come and gone and the world is still standing. I estimate that there was a 1,000,000:1 ratio of Americans interested in the verdict in the Casey Anthony trial when compared to the results of the roundtable discussion that took place in Washington, D.C. on July 7, 2011. From what I have read, the panelists largely ignored important concerns about IFRS adoption raised by small businesses, public investors, and those claiming the costs of implementation outweigh any benefits to be derived from adopting an IFRS regime in the U.S. Even the idea of "condorsement." that I have blogged about before, is not universally supported.

One consistent outspoken critic of the IFRS regime is Tom Selling. He has served a year as Academic Accounting Fellow in the Office of the Chief Accountant at the U.S. Securities and Exchange Commission and has a distinguished career in academe. Dr. Selling, a retired accounting professor, writes a popular blog on financial accounting -- "The Accounting Onion." Tom attended the roundtable and writes about his perceptions of its accomplishments in his blog, I highly recommend reading it for an insightful view of the shortcomings of the discussion and the process followed. Selling astutely questions the motives of supporters and one-sided perspective of support for IFRS adoption in the U.S. He labels followers of the SEC as “zombies” because they fail to think independently about the problems of IFRS adoption and seem to have drunk the adoption/condorsement cool-aid. He points to the Certified Financial Analysts (CFA), a group with 70-percent non-US. membership, as a strong endorser of IFRS but without details of membership support to back it up . The CFA’s blind endorsement of condorsement (sorry, I couldn’t resist) seems motivated by the largely international membership that practice in countries that have adopted IFRS as their global reporting standards.

Selling praises Gaylen Hansen, the NASBA representative, whoshot down every stated reason and unsupported assertion for incorporating IFRS into GAAP into oblivion.” Here is a summary of Hansen’s concerns:

  • The SEC hasn’t established that IFRS itself is at least better than U.S. GAAP, if not far superior, to justify such a radical change with so many unknown (and uninvestigated) variables.
  • The notion that one version of IFRS (i.e., the Holy Grail) has been gaining currency in the rest of the world is a myth. The claim that over 120 countries worldwide have adopted IFRS issued by the International Accounting Standards Board is simply not true. He points to Canada where some of the companies are not doing anything other than wrapping the IFRS name around Canadian GAAP, and conversion to IFRS was extremely costly, and without benefit.
  • Adoption of IFRS in the U.S. has become a political issue as IFRS-supporters, especially in the European Community, pressure U.S. regulators to climb aboard the IFRS bandwagon. 
  • Finally, Hansen contends that: "I have never had a lender or investor request international standards. I have never even heard of such pleas. On the contrary, the call for IFRS always seems to be from the suppliers [of financial statements], primarily large multinationals and international accounting firms."

What is the future of  IFRS adoption/conversion/condorsement in the U.S.? I’m not sure but one thing I can tell you is the uncertainty does not help the goal of integrating IFRS into the accounting curriculum at hundreds of colleges and universities. The SEC seems to be following the time-honored practice in the U.S. of kicking the can down the road. The problem is too many universities are happy to put off the decision about when to incorporate IFRS into the curriculum and the efficacy of developing a stand-alone course in international accounting. Even if you are against IFRS adoption in the U.S. or even the idea of condorsement, the SEC needs to act as quickly as possible to make a final decision to bring certainty to the issue. If sanctioning IFRS in some form or another is to be the final decision, then make it now and establish a reasonable time table so that accounting faculty have the ammunition they need to approach college and university administrators to gain their support for any resources that may be needed to implement IFRS coverage into the curricdulum.

Blog posted by Steven Mintz, aka Ethics Sage, on July 14, 2011