The accounting world has been all aflutter since last Friday, February 19th, when at what must have been the latest possible moment, the SEC announced that it will hold a meeting tomorrow, February 24th, to "…consider whether to publish a statement regarding its continued support for a single-set of high-quality globally accepted accounting standards and its ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers."
Why such short notice? I think it's because nobody will be happy, whatever the SEC does tomorrow: not the Big Four, U.S. investors, EU regulators or the IASB. My loyal source, Debit Throat, reports that the scuttlebutt is that the SEC will publish another "roadmap" without a final decision. That also seems to be the strong implication of the announcement; its wording provides for no possibility that the SEC has fully come to its senses and will finally admit that the IFRS adoption Roadmap would take investors where they really, really don't want to go.
Debit Throat also figures that since so few companies showed interest in the proposal to provide an early-adopt option, the Commission is going to throw that part out. Though that's an encouraging prospect, I see no indication that the SEC is ready to abandon the convergence charade. In a recent interview with WebCPA, chief accountant James Kroeker seems to see nothing wrong, or unrealistic, about the newly compressed IASB/FASB timetable on achieving far-less-than-full convergence; and he has set the bar pretty low for judging the final product. It appears that the only thing he wants to see is "demonstrably higher quality standards."
But, how much better do new rules have to be in order to be considered a protected "stable platform" for the next generation? Put even more starkly, how good do the rules have to be for the U.S. not to be concerned that, after IFRS is fully embedded in the U.S. financial reporting system, the Europeans will muscle in new rules to their liking the first chance they get? The EU is probably hopping mad already that, at least in their eyes, the SEC has been dragging its feet on IFRS adoption; or perhaps at how much pushback the SEC has been getting from everyone on this side of the pond, except the Big Four, on IFRS adoption.
Prognisticating Tomorrow's News and Beyond
So, just for jollies, I am going to take a stab at being prescient – and hope that I fail miserably.
Tomorrow, the SEC will announce:
'yes, convergence has been delayed because of other priorities, but a "single set of high quality accounting standards" that enhances "comparability" of financial statements remains an achievable and worthwhile goal (yuk). Therefore, the decision to adopt is being deferred until further progress is made on convergence.'
But, at least the SEC will not offer a new timetable for adoption tomorrow. Instead, it will state its general support for convergence, and that a timetable for adoption will be forthcoming, if and when satisfactory convergence has been achieved.
That's what I think will happen tomorrow. This is what I fervently hope will happen soon after: the Europeans will let the IASB know in no uncertain terms that convergence with U.S. GAAP has already taken far too long. Moreover, the IASB has already made compromises that the EU has only reluctantly accepted; and they are really scared of taking fair value too far.
If U.S. investors get really lucky, the EU will make the adoption decision for the dithering SEC. The EU will inform the IASB that it must choose between the EU and the US; because, and this is quite true, U.S.-style financial statements are fundamentally incompatible with EU-style financial regulations and corporate governance.
Our best hope in the U.S. is, it appears, not the SEC. We need the IASB to finally get the message from from someone that it is better off dancing with the one that brought it to the party—and putting that really sexy thing it has been ogling out of its mind.