On the substance beneath the unending, noisy and fruitless wrangling over the relationship between generally accepted accounting principles in the United States and the International Financial Reporting Standards, there is no more trenchant observer than Tom Selling.
Tom’s recent three-piece series in The Accounting Onion – “Ten Claims in Support of IFRS Adoption by the SEC – and Why They are False” -- is required reading for all who are interested in why “debits equal credits.” But while Tom is among the advocates for the superiority of American standards, my own position – agreeing with his conclusion -- is agnostic on the relative quality of the two systems.
Here’s why: It just doesn’t matter.
Even if, by whatever name, “convergence” were desirable (and Tom is persuasive that the case is not made), it is not achievable. The entire effort is massively distracting and a colossal waste of time, energy and resources.
There are three reasons:
First, deferential as I am to others far more versed in the accounting literature, I rely on deep-background guidance from a friendly expert with world-class credentials. This impeccable source provides a crystal-clear message, that the manifold complexities and range of judgmental decision within either of these sets of standards are so extensive as to render illusory any sense of transparency or comparability.
We are past the point, in short, that anything in quality of standards can be gained through the wrenching process of forced amalgamation of the two.
Second, on the pure politics of convergence – whether by SEC adoption of IFRS or otherwise – the simple truth is that the American regulators lack the will, the skill and the patience to navigate the path.
Just as, ten years after the passage of Sarbanes/Oxley, the PCAOB is only now making faltering steps toward an international presence, and remains entirely shut out of China and a host of other markets, the SEC’s proposed “roadmap” to convergence is yellowed and brittle with age and disuse, while the speechmakers’ superficially supportive platitudes fail to offer any substantive indication of actual progress down the road.
Finally, it is time to acknowledge the application to the GAAP/IFRS dysfunction of a basic principle observed on large-scale projects of social and political importance.
Which is that once the timetable for a complex undertaking begins to slide, its ultimate and successful completion date only gets farther away, at ever-increasing cost and ever-higher risk of total failure.
Sketched out in Nassim Nicholas Taleb’s incisive but frustrating and much mis-understood book, “The Black Swan” (of which my May 2007 review in the International Herald Tribune is here), the proposition is readily illustrated by public works projects, diplomatic initiatives and military actions:
- The Sydney Opera House, scheduled for completion in 1963, was ten years late and fourteen times over its original $ 7 million budget.
- Peace in the Middle East, fraught enough as of the Balfour Declaration of 1917, drew further away with the creation of an independent Israel in 1948 and today is more distant than ever.
- President Bush’s 2003 announcement of the conclusion of primary hostilities in Iraq, standing on the aircraft carrier USS Abraham Lincoln under the banner “Mission Accomplished,” was cruelly premature to the extent of thousands of casualties, billions of dollars and the onward spread of violence and destruction.
To use “input measures” can be grievously misleading, in short, whether measured by budgets spent to date, diplomats’ lofty promises or the number of boots on the ground.
The same for agency posturing on the differences between IFRS and US GAAP – on which the agenda of unfinished business grows no shorter, even as the world of financial reporting continuously presents new and challenging reasons to grind the process onward forever.
There are more than enough divergent and antagonistic interests competing in the accounting standards “debate” to drive the conclusion that reconciliation will not ever occur, even if deemed desirable by many of good will and genuine bona fides.
So – let in the fresh air of reality. Let the global markets decide – US GAAP or IFRS, or other frameworks able to compete for attention and adoption. Let the energy and intelligence currently being wasted be deployed to goals worthy of the attention of the participants and realistically susceptible to beneficial solutions.
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