With the news on July 10 that the SEC staff’s now-published report on International Financial Reporting Standards would not include a recommendation on whether, when or how the US should get on board, I observed that the whole benighted exercise of “convergence” between IFRS and US GAAP was now, finally and deservedly, dead and buried.
A knowledgeable reporter pushed back, writing that, “it ain’t over till it’s over.”
Let’s take a look, because it’s hard to be any more “over” than this.
My own view on the desirability of accounting standards convergence fits nowhere on the spectrum of advocacy, from David Albrecht’s “buy American” to Tom Selling’s pleas for intellectual integrity to Yale professor Shyam Sunder’s support for competing systems – much less the profession’s own hand-clapping for the endless process of inching IFRS and US GAAP together.
Rather, without a dog in the fight, I’ve long been convinced that the complexities and judgments within any of the competing sets of standards present ample opportunity for issuers’ self-service and manipulation, beyond the capability and competence of regulators and gate-keepers to achieve transparency or comparability, thus rendering the convergence debate mainly a serious distraction and waste of time and energy.
As I’ve been saying for years (e.g., May 2008), the politicized nature of the process -- including the endless maneuvering and circular finger-pointing among the Financial Accounting Standards Board, the International Accounting Standards Board, and regulators in Washington, London and Brussels -- far outstrips either the case for convergence or the vision and competence of the players to achieve it, even if they wanted to, which they don’t. There is simply neither leadership nor authority to overcome the mutually antagonistic forces – as summarized here in March 2010.
Which only becomes more pronounced with the departure of the SEC’s chief accountant, James Kroeker. As I wrote in May 2010, Chairman Mary Schapiro has shown little energy for the issue – whether from disinterest or under an agenda of more pressing concerns.
As I put it in April 2011:
“Why no-one has called the question on this endless charade reflects the two-level fantasy in the dialog: the IASB and the FASB both pretend to believe in the desirability of fully-converged accounting standards, and the community of financial statement issuers and users pretend to believe them.”
So why the persistence of this endless exercise – so stalemated that if Saul’s trip to Damascus had depended on an SEC-like “roadmap,” his conversion would never have happened and Christianity would have remained a minor Galilean sect?
It’s because at bottom, the situation is not so distressed as to call forth real change.
Across great arcs of history, systems degrade toward collapse – Ptolemaic astronomy, the Weimar Republic, American health care. But they only reach the point of fundamental change on two conditions:
- First, the case for change is not only recognized by its advocates, but endorsed by (or more likely, forced upon) the entrenched interests of the status quo.
- And second, that an alternative paradigm is available – as evolution does not occur in a vacuum.
No less than the examples cited, there is deep and wide dissatisfaction with the current state of financial accounting, reporting and assurance. But it is also true that broad sectors remain committed, like the ancient stargazers, to structures as creaky and obsolete as geocentric models for planetary motion. Namely:
- Financial statement issuers prefer accounting principles flexible enough to yield their preferred results.
- The first instinct of regulators is to protect and expand their limited turf.
- And the gate-keepers survive on a model unevolved since Victorian times.
Commentators may continue to assert that there are real mileposts down a possible road to GAAP/IFRS convergence.
But from here, there is no other end: the road for this dead horse is a short haul to the knacker’s yard.
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 See, e.g., Thomas Kuhn’s far-reaching 1962 essay, “The Structure of Scientific Revolutions”.