IASB Accountability and Independence

Regulators around the word, including the U.S. Securities and Exchange Commission, have recognized International Financial Reporting Standards as being a high quality, internationally accepted set of accounting standards. As countries around the world adopt IFRS, the argument for adoption of IFRSs in the U.S. seems to be shifting from which set of standards is the best, to the merits of global comparability of financial statements.

The more serious risk to adopting IFRS is not the quality of the standards, but the accountability and independence of the International Accounting Standards Board. The second milestone in the SEC’s roadmap discusses accountability. National accounting setters have traditionally been accountable to national regulators. In the U.S., the SEC oversees the Financial Accounting Foundation, parent of the FASB. Historically, the International Accounting Standards Committee Foundation has not had a similar link with national securities regulators.

The IASC Foundation Trustees have proposed amendments to its constitution that would create a Monitoring group composed of securities authorities. The Monitoring group will work with the IASC Foundation on oversight of the IASB and areas for consideration by the IASB in its ongoing work.

Even if a monitoring group is established, will an international accounting model be strong enough to fend off political pressure from governments around the world and are we in the U.S. ready to give up our direct regulator relationship with the accounting standards setter?

What is your opinion about the risk of an international accounting model?

- Paul Parks

Comments

[GreginOz]

Ok you asked for it. An example of the stupidty of IFRS. In Australia staff are entitled to 4 weeks annual leave. If they resign without taking the leave it's paid out. Note this is not what the standard on employee benefits provides for. For this example assume all staff have 2 wks accrued annual leave at the end of every year, they are paid exactly the same every year and use their leave before resigning. None of this is relevant but explains the point. In our balance sheet we must show at the end of every year this current liability (the two weeks annual leave accrued)for all staff. The liability never changes as the journal entry is only needed in year 1. Here is the problem. This liability effects your liquidity ratio negatively. Liquidity in a nutshell means your short term available cash. Well this is the stupid part. This liability never converts to cash and never results in a cash outflow. Your actual cash payroll every year never changes whether someone is on leave or not. So why is it there!!!
Some will say, yes but if the business closes you must pay that out. WRONG Financials are prepared on the Going concern basis. OR Yes but some staff may resign and you will have to pay them out. Maybe but the standard requires ALL annual leave to be accrued as a liability not annual leave based on logical estimate of payouts. In most businesses this liability is real but miniscule compared to what the standard requires. So here we have a liability that sits on your books forever, screws up your liquidity ratios but never results in a cash outflow...? Dumb but indicative of this world we live in.

[GreginOz]

Australia adopted IFRS a few years ago. What a joke. (we have changed the name for income statement and balance sheet alone about 5 times) If financial statements before IFRS were difficult to understand then they are now completely unintelligible. Read the latest IASB ED on leases. Capitilising Ops leases and showing the lease obligation as a liability and the leased assets as an asset! (I mean a real Ops lease not pseudo) Gee under that logic why don't I captilise next years payroll and show it as a current liability. Anyway their standards are nothing more than theoretical waffle and the more financial statements depart from cash and are based on theory rather than fact the less people will trust them. Keep in mind you are talking about a bunch of accounting theoreticians sitting around all day with nothing to do rather than real accountants who operate in business. I admire the fact that at the moment the US and the UK have their own standards. Trust me. keep it that way. You won't be happy accountants with the IFRS / IASB. A few EU countries are looking at departing from IFRS altogether. Good luck to them and hope they get it right. I hope our Board figures out what a crock these standards are. My thought for the day; under IFRS we have to show the value of annual leave as a current liability. Why? (note the standard doesn't require part recognition because you may have to pay some out if they resign, that would be far to logical.)

[Ana From Financial Accounting]

Have read some comments on the IFRS for small business. Yeah, agree this an issue. Small companies do not have a motivation to really apply them. So the issue would not be so important for them, either in US, or all over the world

[Phil]

IFRS for small business sucks. It is not easily understood and non one seems to care enough!

[SjSterk]

Ifrs for small business stinks. My clients do not know, don't care and their bankers and bonding agents also do not understand, or care to understand Ifrs. (Internatioanal fk reporting system) I will do ocboa(GAAP) as it is now known till I retire!!!!!

[Dan Crawford]

Anyone getting hammerred by auditors for impairments of hybrids. treating perpetual preferreds like equities rather than debt instruments

[Mark]

For Mr Pecora
FYI - if you refer to the amendment to IAS 39 that permits entities to reclassify out of the FVTPL categoty, well, IFRS has been aligned to US GAAP. IAS 39 expressely prohibited such a reclassification. US GAAP allows such reclassification in "very rare" circumstances.
As a matter of fact, IFRS was much tighter than US GAAP. Europeans claimed that US GAAP was less rigorous - there is no doubt about that - and gave rise to unfair competition.

[Nicholas E.Pecora]

IFRS just recently eased their Fair Value Standards,
while FASB remained steadfast that the rules for Fair Value under GAAP should not be changed.
Am I the only one who thinks that this is proof that the breaks need to be put on IFRS?
Until the International broad proves they will not yeild or be subject to political pressure then we need to stick with US GAAP as determined by FASB and not IFAS.

[Ronald Shearer, CPA]

Go slow in the switch. You will note the EU involvement in changing rules already. I'm afraid we will allow our standards to decline and thus lose the public's confidence in our profession and thus the output of our information. What impact will that have on free markets?

[Jack Gallagher]

The flaw in this question "global comparability of financial statements" lies in the premise that non-US companies that now report on the basis of IFRS are comparable with each other. This is false.

The IFRS text is less than an inch thick. This is telling. The overarching distinction between IFRS and GAAP is that IFRS allows for an enormous amount of "judgement" in areas where GAAP requires attempts at objective measurement through highly detailed rules, regulations, and published guidance. "Judgement" as we learned in our lessons many, many years ago, leads to subjective opinions being expressed - especially when the item in question is "fair value." Subjectivity in reporting allows management to brow-beat the auditor with the threat of "auditor shopping". We all know what happens here. The auditor balks and gives management its way. This should intuitively tell you that financial statements produced in such an environment are NOT comparable. This is true even for companies in the same industry and the same geographic locations. The counter argument is that financial reporting will be comparable because the companies make a commitment to follow "best practices" when making their judgements. As we all know intuitively, this idea only works when times are good. Witness the overnight re-writing of some rules by the IASB due to the screaming by politicians in the European Union in the wake of their banking crisis. And witness this quote from a Washington Post article: "International rules rely on broad principles, giving companies greater leeway to make their own judgments. An extensive review of international accounting standards published last month by Moody's Investors Service found significant differences between two French companies on one key issue -- even though they used the same accounting firm." Here is the link to that article: http://www.washingtonpost.com/wp-dyn/content/article/2008/12/26/AR2008122601715_pf.html

The problem here is that the SEC caved in to the idea of having our companies switch to IFRS in the so-called "road map." This is a failure of leadership by the SEC. We would do better to simply pay the extra expense of having two sets of financial statements for our multinationals AND demanding that non-US companies (that want to do business or be listed on US stock exchanges) also have two sets, so that we can attempt to get comparability through GAAP. We need to quit complaining about the cost. We must maintain a regulatory and standard setting process that is partnered with the SEC and PCAOB - precisely to avoid being bludgeoned by politicians. This is the only reason that the mark-to-market rules haven't been similarly repealed overnight. Say what you want about those rules, but changing them should not be the decision of a member of congress (or the European Commission) whose district has constituents who are hurting economically.

[George Russell, CPA]

Convergence over time is the cost effective road to success for U.S. companies. At least as it relates to those accounting principles where such convergence makes enough sense that the FASB, SEC and the IASB can all agree on what is best for most international investors and analysts. For those principles where such convergence cannot be agreed upon, U.S. companies should continue to maintain U.S. GAAP.

As a fellow investor in many U.S. and international companies, both public and private, my preference is that no voluntary adoptions of IFRS be allowed for any U.S. firms and that all U.S. firms which are capitalized by any means with U.S. funds, whether public or private, maintain a U.S. GAAP which is consistent with each other, given certain industry specific differences as always.

[Joe Jefferis]

Independence= politically self governing. Sovereign=Possessing supreme jurisdiction and authority.

Acceptance of IFRS is a direct attack on the sovereignty of the Unites States' independence and sovereignty.

The instability of the world warrants diversity.

The IFRS sovereign rules board as proposed is assured to diminish wealth in the United States. It is clear that US shareholders will bear the expense to comply with this international bodies whims.

The benefits of conversion are not measuable in dollars in cents, but on capitulation of an attack on the American financial system.

Foreign investors have the option in invest in other parts of the world. Let them go ahead.

Multi-national companies are never held accountable under the existing Sarbanes-Oxley laws. Why should we change the rules to give them even more power?

Moving to IFRS will bring about a massive import of foreign IFRS experts. Every public company's books will be open to their scrutiny and interpretation. The prospect of the devastation these corporate spies could reap is unimaginable.

Our current SEC enforcement mechanisms are terrible. Do we really believe that allowing foreign accountants access to our reporting processes will impove SEC enforcement or is this just a way for the SEC to delegate its responsibility to another entity who is accountable to current political environments.

The public relations ploy that IFRS is invitable is very much like last year's presidential primary where Hillary Clinton was the presumed nominee. The people of the United States can and will stop this trainwreck.

I favor voluntary adoption of IFRS. Until the rules governing independence and sovereignty are resolved the IFRS structure should follow the United Nations model. The United States should retain complete veto power.

I recommend we begin exercising this existing veto power today. As a shareholder in many US companies, I do not want them to spend a dime on converting to IFRS with no discernable benefit foreseen.