Way back in November 2008 when Christopher Cox was calling the tune, the SEC issued its proposed "Roadmap" for achieving a "single set of globally accepted accounting standards." That was the point at which the IFRS-adoption-is-inevitable" pot banging reached deafening levels. Thankfully, however, it has been mostly downhill from there:
- Both boards and their staffs have racked up many vacations' worth of frequent flyer miles in their efforts to "converge" U.S. GAAP with IFRS; but there has been little else to show for it, leaving a trail of abandoned, stalled, half-done and half-baked projects in their wake.
- The Financial Accounting Foundation (which has no legitimate claim to power since Sarbanes-Oxley funded the FASB from issuers' fees) first shrunk the FASB and then re-expanded it, in a series of futile gambits to grease the IFRS adoption skids, but to no avail.
- In February 2010, after months of virtual silence, the SEC issued a statement reiterating and defending its commitment to a single set of global accounting standards, and committing its staff to a putatively rigorous examination of that possibility. Six months later, the Staff issued what was clearly a hastily cobbled together report right at the only deadline to which it had been committed (end of October 2010). It is now almost seven months hence, and not another peep from the Staff has been heard.
But, only a couple of months after that clearly embarrassing report – both for the admission that precious few countries have fully adopted IFRS and given up their sovereignty over accounting standards, and for its vacuity otherwise – the SEC seems to have switched to face-saving mode. I mean that in two respects.
First, the SEC has sat on the sidelines for far too long, and far too often. If progress on the Memorandum of Understanding (MOU) between the FASB and IFRS to converge of their accounting standards is so important to the process of moving to a single set of accounting standards, why has the SEC chosen to be so passive during that process, practically abdicating its role by stating that a converged standard would presumably be a "high quality" standard? Sarbanes-Oxley does not permit the PCAOB to issue a new auditing standard without explicit SEC approval. If the same were required for FASB/IFRS accounting standards, you can bet that the Commission, and hopefully even individual commissioners, would be staking out their positions well in advance, instead of sitting on the fence while issues are interminably batted back and forth by the boards and its "constituencies."
Second, the political hold on global accounting standards seems to emanate from the G-20, which (for its own political purposes) has called for converged accounting standards to happen post haste. The notion of outright IFRS adoption may have become passé, especially as it has become widely known and acknowledged that so few countries are actually doing it; but the Obama administration, perhaps with good reason, does not want to be seen as the dissenter on this issue, particularly if it is relying on cooperation on other issues that could be more important to the U.S.
Face-saving mode was effectively launched by Deputy Chief Accountant Paul Beswick in a speech last December, as he described a hybrid convergence and endorsement approach, which with evident impish pleasure he dubbed, "condorsement."
Beswick – "[A] new set of priorities would be established where the FASB would work to converge existing U.S. GAAP to IFRS over a period of time for standards that are not on the IASB's agenda." [emphasis supplied]
Me – This is tantamount to re-visiting all of the many topics for which convergence was already given the old college try and failed. Bad idea.
Beswick – "At the same time, the FASB would have a process where they would consider new standards issued by the IASB for incorporation into U.S. GAAP … However, criteria would need to be established for [incorporation] – for example whether incorporation of a given standard is in the interests of U.S. investors or the U.S. capital markets." [emphasis supplied]
Me – In concept, "incorporation" doesn't sound so terrible, perhaps because I'm still trying to stop the ringing in my ears brought on by the pot bangers. But, I object to any suggestion that the U.S. should be reduced to seeking converged standards instead of superior standards. The whole notion of convergence rests on the presumption that it can be expected to result in enhanced comparability, and I think that presumption has already been demonstrated to be specious. Attaining convergence is never going to be any sort of valid rationalization for failing to promote a better standard than IFRS has offered.
And so it came to be a few weeks ago that the SEC announced that it would be hosting public roundtables this coming July on the question of "incorporating IFRS" [italics supplied] into U.S. GAAP. If "incorporation" is going to mean what Beswick said it means, I might be able to live with that outcome, so long as it doesn't mean that the SEC stays off the hook in determining any of the substantive issues – such as "whether incorporation of a given standard is in the best interest of investors," or whether a different standard would serve U.S. investors better.
So, I say let the "incorporation" discussions begin! But, whatever the outcome, the one thing that has to change is the SEC's passivity with regard to standards setting. And, let's start now: if "incorporation" is what the SEC is really down to, why wait until July or later to inform the accounting standards setters that their convergence MOU is hereby rendered null and void?