Little Interest in Global Accounting (IFRS)

globe.jpgThe Securities and Exchange Commission under prevoius Chair, Chris Cox, spent considerable resources in a quixotic plan to switch the US from its own accounting standards to international ones. Right before he left office last month, in mid-November, Cox had the SEC issue a release for public comment concerning a proposal to compel the switch by 2014 (calling the proposal a “Roadmap”).

Not surprisingly, few constituents consider this a good time to make any such switch or even a good time to comment on the proposal. Companies and investors have far more important matters to attend to than this bit of folly on which the previous SEC Chair spent so much time the past two years. Many comment letters on the proposal forthrightly declare that companies find it terribly inconvenient to comment now and that they need more time to consider such a fantastic proposal.

A few companies somehow have found the time to explain numerous concerns and problems, many of which I address in my newly-published article in North Carolina Law Review, which the SEC, under Chair Cox, simply overlooked or discounted.

Illustrative are the following excerpts from the comment letter contributed by Marriott, dated Monday. (References to IFRS are to International Financial Reporting Standards and to IASB are to the International Accounting Standards Board, the self-appointed private organization that put itself in charge ot setting global accounting standards.)

We understand that if the milestones noted in the Roadmap were to be achieved, then US. issuers would be required to use IFRS beginning in 2014. As outlined in this letter, we believe such mandatory requirement will result in a high risk that users of financial information will be confused and thus lack confidence in the information; companies will not have the expertise to implement an entirely new set of rules; auditors will struggle to accept conflicting policies that companies within the same industry may adopt; and finally, and most importantly, companies will incur significant costs in implementing the rules with little or no tangible benefit at a time when the economy is very weak.

Marriott also indicates concern about “college curriculums and other training issues” that would arise from Mr. Coxs’s hasty program. It also indicates, in a view that I share, that investors and other stakeholders do not support Mr. Cox’s campaign. The letter says:

The primary users of financial statements are investors, shareholders, creditors, analysts and other effected entities. Through informal discussions with these constituents, including creditors and investors from outside the U.S., they all seem very comfortable with the current basis of accounting and could not identify any major benefit from the change. In our opinion, converting to IFRS is a solution without an underlying problem. In fact, we have never heard an investor in our company, any stock analyst covering Marriott, or any lender with which we do business in the United States or abroad suggest to us that they would prefer we report our results in IFRS.

Marriott also notes problems with conflicting interpretations by auditors and costs, at a time when Marriott must focus on its business. The company also expresses concern about the IASB’s governance, and the insidious political role of the EU in its standard setting. On these points, the letter says:

Finally, we are concerned that the Roadmap does not sufficiently address the ability of governmental agencies such as the European Union (“EU”) to endorse standards issued by the IASB. We believe that the EU’s carve-out of lASB 39 (and the threat of future EU or other carve-outs) has hindered the efforts of the IASB and FASB to converge the accounting for financial instruments, if not the overall convergence effort. We do not believe that the Roadmap sufficiently addresses how the SEC plans to work with its counterparts in the International Organization of Securities Commissions (“IOSCO”) in eliminating differences among the securities laws in various jurisdictions around the world. For example, the Roadmap does not describe how the SEC plans to address the applicability of SABs and regulations such as S-X and S-K, etc. for registrants that file financial statements prepared in accordance with IFRS.

It appears that Mr. Cox’s quixotic ambition to push IFRS is meeting reality.

Hat Tip: Sam Ross

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