RSS feedsIn February, the chairman of US regulator the Securities and Exchange Commission said it was time to devise a roadmap for the adoption of international financial reporting standards by American companies.
Any of you who have ever had to deal with US standard setter FASB’s outpourings will be delighted to hear that the days of US GAAP may be numbered. Those of you who haven’t, count yourself lucky. But you can be sure that the latest pronouncement from the SEC is utterly remarkable. For America to adopt international standards is like meeting someone in Kansas who has a passport. It’s like the Americans allowing Cuba and South Korea to play in the World Series baseball championship (I mean, they went on strike after Toronto won it two years in a row). It’s like the US going metric, entering the Eurovision song contest and paying their dues to the United Nations. They are admitting that there is a world beyond the shores of the 50 states – and as far as accounting standards are concerned, it’s better than the world they inhabit.
Many of you will have a copy of one of the major accountancy firms’ tomes on IFRS. It’s probably on the top shelf. Not because it’s racy, but because your more interesting books are the ones that are nearer to hand. Wherever it is, you can’t miss it. It’s about four inches thick. The standards themselves are about that sort of volume. Now imagine you have ten of those, side by side. That’s pretty much what your opposite number in the US is looking at.
It seems easy to imagine why the Americans would want to swap. But it’s not quite as easy as that. US standards are emphatically rules-based. If it’s not in the book, then you can do it. At least, you can do it until there’s a new book saying you can’t. Then you can think of something else that’s not in the new book and do that, until…
IFRS is principles-based – or at least, so the theory goes. It’s not, perhaps, an entirely true statement with regard to every standard within IFRS, but the thrust of the body of work is that way inclined. The real, fundamental difference between US rules and international principles comes down to what David Tweedie told us: “We’re not going to tell them the answer to everything.” Go back to your principles and prepare to be accountants again, not lawyers, is his message.
Are the Americans ready for that? According to transcripts we’ve seen on the SEC’s website, there is actually a greater thirst for IFRS than ever before. They have a long way to go, but they might get there sooner than you think.
