As I feared in earlier posts (here, here and here), but naively hoped against, the Republican-dominated SEC has carried the water for Big Business and anti-regulation ideology by eliminating the IFRS-to-U.S. GAAP reconciliation requirement. Investor advocates and other thoughtful people who are passionate about accounting are frustrated. I know this with near certainty, because I have taken a sample of two of these people: myself and Pat Hopkins, an accounting professor at Indiana University. Here is what Pat had to say in our private correspondence, which he has graciously allowed me to post:
"Notwithstanding the diligent, thoughtful effort of Teri [Yohn, whose congressional testimony yours truly wrote about here], Jack Ciesielski and others, the politicized and pandering SEC demonstrated that it is far cry from the investor-oriented organization run by Arthur Levitt a decade ago. All we have to do is refer to the gleeful statement reported at CFO.com and attributed to cheerleader-in-chief, Christopher Cox, “the SEC's decision could put a shine on the image of the United States in the global capital markets system, improve capital-raising opportunities for companies, and provide better comparability of financial statements for investors.” Of course, glossing up the capital markets and improving capital-raising for individual companies sounds more like something a promoter does; it certainly is not in the SEC’s mandate. And, of course, the last statement [about improving comparability] is logically false." [emphasis supplied]
The American Accounting Association (the national organization of academic accountants) has a committee that regularly comments on financial reporting policy. Here is an excerpt from their letter to the SEC, opposing the elimination of the IFRS-to-GAAP reconciliation requirement:
"If IFRS is so transparent for these foreign-private issuers, then we should be willing, today, to allow every company in the US to immediately adopt IFRS. We are not willing to do so for many very good reasons…"
Granted, the SEC has drawn a line — for now — at not accepting local versions of IFRS without reconciliation, but that's a red herring. When I was searching for the announcing press release on the SEC website, I thought for a moment that I might be looking at the wrong one when I first read the headline: "SEC Takes Action to Improve Consistency of Disclosure to U.S. Investors in Foreign Companies." Chutzpah. A more accurate headline would have been, "SEC Takes Action to Increase Opacity of Financial Statements Filed by Foreign Private Issuers."
Here's hoping that investors get another turn at bat during the next presidential administration.