So just how stalemated is that again? – more fallout from the IFRS work plan

by John Hughes

The landscape continues to define itself in the wake of the SEC’s Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers – Final Staff Report, which as I wrote last time, seems to contain enough caveats and cautions to justify pushing off an adoption decision forever. The IFRS Foundation issued a news release a couple of days later, quoting Chairman of the Trustees Michael Prada as follows: “The report reiterates the many challenges that a large economy such as the United States faces when transitioning to IFRSs – challenges that other jurisdictions have successfully overcome when completing their own transition to IFRSs.” The implication, it seems, is that the SEC should quit its whining and just suck it up as others have before. An obvious retort (if it was your job to come up with a retort) would be that maybe these other jurisdictions haven’t actually, in the long run, “successfully overcome”  these challenges – maybe that’s the whole point of the SEC’s concerns about lack of consistency in application and enforcement. And not to stretch a point, but the recent track record of other grand unifying European visions isn’t so hot – why should one believe their leap to IFRS, again, in the long run, was inherently any better considered? Anyway, beyond that, Prada can’t do much more than forlornly  “look forward” to whenever the SEC resolves the uncertainty about all this.

The release goes on to quote IASB Chairman Hans Hoogervorst: “IFRSs have already achieved critical mass as international standards and with more than two thirds of the G20 now on board, the momentum behind them becoming global accounting standards is irreversible…We are at a pivotal moment for our organization. The IASB has started working on a new agenda. The era of convergence is coming to an end…This is the right timing to come on board and participate in shaping the future of global accounting.” All of which reminds me of the ravings of HAL the super-computer at the end of 2001: A Space Odyssey as its brain slowly shut down. It’s possible to name any number of things in life that reached two-thirds penetration without thus inevitably conquering  the remaining third (for instance, using an example I used last time, that’s just about where the number of countries that drive on the right currently tops out), and your retort (if it was your job to come up with a retort) to the stuff about the pivotal moment and the new agenda need only be, well Hans, that’s your problem. Banal metaphors about “coming on board’ don’t sit very well in the official discussion, when we’re talking about billions of dollars of cost and an enormous diversion of energy and resources.

So all the IFRS team accomplished there is to make the SEC look good. Elsewhere, Nigel Sleigh-Johnson, head of the reporting faculty at the Institute of Chartered Accountants in England and Wales, already seemed to be preparing to move on: “The fact that the U.S. is still hesitant about a radical shift away from its own high-quality standards should not be taken as any reflection on the suitability of IFRS reporting for other markets. Regardless of developments in the U.S., the IFRS Foundation now needs to adapt to a dramatically changed financial reporting landscape, with jurisdictions with diverse needs and traditions now members of the IFRS club.” Sleigh-Johnson has the level-headedness to realize this would indeed be a “radical shift,” and implicitly contradicts Prada by acknowledging that a particular jurisdiction’s calculation isn’t inherently relevant to another’s. His reference to the IFRS club may however, from the SEC’s perspective, bring to mind the old Groucho Marx line about not wanting to belong to any club that would take him as a member.

In an entertaining Accounting Today column, Daniel Hood notes that someone seeking to understand the current workings of the SEC needs the skill of a Cold War-era Kremlinologist, and notes: “Regardless of whether you think IFRS is Holy Writ or the Devil’s accounting standards, the simple fact is that this has dragged on far too long, and it’s hardly right that we should be unable to get a decision—or at least a serious timetable to a decision—from an arm of the U.S. government. The SEC frequently reminds us that this is an important issue and need serious consideration, and that’s true. But the constitutionality of the biggest change to the American health care system ever was also a pretty important issue, and the Supreme Court managed to wrap that up in a couple of months.” A fair point indeed, chiming with what I said myself last time.

But what’s that you say – the Supreme Court reference is too big a reach? On his Re: Balance site, Jim Peterson calls the process “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.” Now that’s your comparison– branding the failings of Mary Schapiro and James Kroeker and the rest with an almost Biblical resonance. No wonder Kroeker felt it was time to get out!

The opinions expressed are solely those of the author