by John Hughes
It’s instructive (and fun) to return occasionally in this space to the ravings of the “no-IFRS-for-the-US” crowd. As I’ve said before, I don’t have an opinion on what the US should do regarding IFRS adoption, and I certainly wouldn’t venture a guess on when it might happen (the most I’ll say is that I continue to view it as a matter of “if” it happens, at least for the next decade). But you at least hope for a collective conversation reflecting the complexity and sophistication of the issues involved. Unfortunately, just as it’s increasingly hard (in the mainstream of things at least) to find political debate that isn’t conducted in wild distortions, simplifications and misdirections, an awful lot of the commentary on IFRS is staggeringly superficial, lacking in any kind of diligence.
For example, take this commentary from Jr Deputy Accountant, titled “The More I Learn IFRS The More Afraid I Become Of Its Implementation In The U.S.” (warning – the article contains salty language!). The engine of such rants is always pretty much the same – a wild overstatement of the “principles-based” nature of IFRS, to the extent that the unknowledgeable reader would reasonably assume it’s an unstructured free for all. This particular case is a bit more ideologically interesting than the norm though.
The writer says this: “What frightens me is not the globalization aspect itself (scary all on its own of course) but the principles idea that is IFRS. Whereas GAAP comes with encyclopedia-sized rules for just about every transaction you can dream up, IFRS leaves the interpretation open to the accountants…The statement of financial position is interesting to me because unlike our current balance sheet, it can pretty much contain whatever the hell its authors want.”
Without any apparent sense of irony, she then goes on to list the eighteen headings listed by IAS 1 as minimum line items, as if this didn’t already significantly constrain doing whatever the hell one wants. Sure, the list may be somewhat less than what’s set out in the US securities regulations as minimum balance sheet inclusions. But focusing on this – not even a recognition or measurement issue, or a measure of what’s disclosed overall – as a major exhibit in the supposed laxity of IFRS is like claiming home-building standards are grievously unsafe for failing to prescribe the exact appearance of your front door.
Let’s also not overlook the approving reference to “encyclopedia-sized rules for just about every transaction you can dream up,” as if this were a badge of triumph. Actually, the boast immediately undermines itself – if having encyclopedic rules for every transaction is a virtue, then it’s self-evidently a weakness if you’ve only managed to identify “just about” all of them. But it’s an odd mindset that gauges the virtue of something by its volume rather than its effectiveness. The fiendish complexity of US GAAP certainly works well at creating an expensive closed system within which practitioners, regulators and others can spend their days. But as we survey things now, are US markets and investing prospects clearly superior to those of other jurisdictions, in a way that you can even tangentially attribute to the superiority of US GAAP over IFRS? Even allowing the difficulty of ever empirically demonstrating the greater external effectiveness of one accounting standard compared to another, it’s impossible to see on what basis you’d claim that they are.
Really, the argument’s just an accounting version of waving a gun and yelling ”Stay the hell away from my land,” without even pausing to wonder whether the approaching stranger might actually have a constructive reason for being there. Take this less-than-visionary passage: “If we won’t adopt international accounting standards outright, we’ll modify our own to the point where your average accountant won’t be able to tell the difference. Why else would we eliminate the operating lease? Sure it’s a reasonable change but what’s the motivation behind it? Why tinker with leases now?” Obviously no identification here with Obama’s concept of “the fierce urgency of now”. If accounting is any kind of progressive profession, in tune with the changing world and the evolving needs of its users, then why is acting on “reasonable change” inherently suspicious? (Hasn’t US GAAP always tinkered with things, in the course of building up that beloved encyclopedia of rules?)
The author sums up her dismal worldview as follows: “Our accountants are – mostly – not prepared for this kind of financial reporting free-for-all. We like the idea of being told how to do what and my concern here is that we are wholly unequipped at this point to handle a system of accounting standards that allows for so much interpretation. How do you teach judgment?!” I find this distinctly analogous to someone who laments the demise of the factory assembly line, seeing only evil behind those new-fangled creative technology jobs. When did “judgment” (surely a core human quality) become a dirty word? And anyway, is the claim meant to be that judgment is irrelevant to US GAAP as it currently stands? Again, I think it’s completely plausible someone might make a case against adopting IFRS in the US. But this sure isn’t it. The article ends with the two words: “We’re doomed.” Well Jr Deputy, I don’t know about we, but you actually might be.
The opinions expressed are solely those of the author.