IFRS: Resistance Is Futile?
The markets have spoken.
And they have picked International Financial Reporting Standards (IFRS) over U.S. generally accepted accounting principles (GAAP), according Sir David Tweedie, chair of the International Accounting Standards Board (IASB).
During a conversation with Floyd Norris, New York Times chief financial correspondent, Tweedie expressed confidence that the U.S. will remain on track to adopting IFRS despite new leadership at the Securities and Exchange Commission. Why? Because the markets are driving its adoption, according to Tweedie. International investors may opt not to bother learning GAAP in addition to IFRS. The use of GAAP once IFRS is the norm could even seem suspect to investors who may think companies are trying to hide something by reporting in GAAP, Tweedie said.
Tweedie also addressed the dangers of political pressure from European leaders.
The IASB chief expressed other controversial opinions, such as his belief that rules-based GAAP versus principles-based IFRS is a false dichotomy. Both are based on principles, but the huge volume of U.S. guidance distinguishes the two standards, he said.
“What you have that the rest of the world frankly doesn’t want is a volume of guidance. U.S. GAAP is over 25,000 pages. We’re just over 2,500, yet the results are not far away from what you have,” Tweedie said. IFRS for small and medium-sized entities is even slimmer at about 250 pages, he said. Small firms make up the vast majority of companies, and for them, the standards are “overkill,” according to Tweedie.
Norris pointed out that a lack of clearly defined principles could leave auditing firms open to litigation.
“It’s a different paradigm,” Tweedie responded. “You’ve really got to use judgment. And when you come to us and say, ‘What do I do in this situation,’ we’re not going to issue a staff position paper, we’re not going to issue it to IFRIC (International Financial Reporting Interpretations Committee) or EITF (Emerging Issues Task Force) we’re just going to say to you, ‘You go and do your best. There’s the standard. There’s the thrust of it. Think.’”
“It’s only the U.S. that likes [a large volume of guidance],” Tweedie said. “The rest of the world hates it.
“Accounting is not rocket science,” he continued. “It really isn’t. And you read these things saying, ‘Holy hell. Where did this come from?’”
IASB and the Financial Accounting Standards Board would continue to converge standards until the two are much closer by 2011, he said. “In that situation, why would you want GAAP?”
New role for FASB?
After IFRS adoption, “FASB (Financial Accounting Standards Board) won’t go away,” Tweedie said. He envisions IASB in “constant contact” with FASB, relying on the latter to take the temperature on various issues, to challenge IASB and write white papers.
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IFRS 8 is a shame
Im preparing IFRS 8 disclosures and i am finding them to be making financial statements more complicated, meaningless and very subjective.
A line of rotten tomatoes
Sir David Tweedy is predictable in his comments. In fact, he has made this same speech on countless other occasions.
His role is to sell IFRS. What do you expect him to say, anything close to reality?
His comments do not in any way address the concerns that Charley Niemeier raised in his landmark speech at the NYSSCPA.
I've been looking through some fairly raw economic data, and it seems that since Europe adopted IFRS, tons and tons of Euros have flowed to the U.S. seeking investments informed by GAAP. Moreover, simultaneously, U.S. investors have been pulling money out of Europe and reinvesting it in the U.S.
I believe this is directly related to IFRS adoption in Europe and current GAAP usage in the U.S.
Moreover, the drop in U.S. equity values in recent months can be attributed, in part, to the SEC accouncement of an IFRS roadmap and the approaching switchover. Investors are not stupid. They know that IFRS is preferred by executives for earnings management (gross earnings management), and once IFRS becomes the accounting law of the land, financial information will be much less reliable, therefore, investments based on such fuzzy accounting information simply aren't worth as much.
I wish for once Tweedie would step up like an honest man and deal with the issues raised by Niemeier. He will never do this, his personal legacy is wrapped up in selling us a bunch of rotten tomatoes.
Tweedie's comments are a
Tweedie's comments are a little self serving don't you think?
Of course
...he is trying to close the deal here