Continuing with my theme of the U.S. GAAP/IFRS convergence misinformation campaign being waged by the Journal of Accountancy, the latest and greatest example is an article from the February edition, “What have IASB and FASB Convergence Efforts Achieved?” that appeared in the February issue.
That’s a big question to get one’s arms around in a slim magazine that can devote at most six or seven pages to one article. So, it’s informative to see how author Paul Pacter handled this weighty question.
The centerpiece of the article, and to my way of thinking its most useful part, is a four-column table listing all 37 convergence project. The other three columns describe the actions taken, the convergence outcome— and whether, in Mr. Pacter’s (a recently-retired IASB member) opinion, the project resulted in an improvement to IFRS.
After the table, there’s not much to the article. JofA is formatted like a conventional magazine with 3 columns per page. Within the non-table pages, the text adds up to about four columns—and, I’m not exaggerating, only three paragraphs directly address the topic promised by the article’s title. Honestly, I don’t know if I have ever seen an article posted any journal with a table longer than the text. There are lots of rhetorical techniques for avoiding a direct answer to a straightforward question, but this deserves some sort of prize for its evasiveness.
The layout is also somewhat insulting to an open and inquiring mind. The first two pages are dominated by a silly picture of train tracks at some switching station, and the third page has an executive summary, even though the kindest view of the article itself would be as an executive summary. And, don’t forget the giant sidebar devoted to promoting all those fee-based IFRS resources available from the AICPA!
The gist of the article is pretty simple: the results of convergence have been “mixed,” but that’s not as important as not forgetting the ultimate goal: “Adoption is the only way to achieve a single set of global financial reporting standards — an objective that both the IASB and FASB have publicly endorsed on many occasions.”
Thanks for that reminder.
Decoding the Table
Making sense out of a table with 38 rows, lots of words and no numbers can be quite a challenge. Especially when there is no rhyme or reason to the table’s structure. To be sure, all of the convergence topics, consequential and otherwise, seem to be included, but they’re listed in alphabetical order. And the table columns seem to be unnecessarily constraining. The payoff column at the far right is labeled, “Was IFRS Improved?”. But, given the title of the article and its exhortation to go ahead and adopt IFRS, a far, far better question to ask would have been, “Is IFRS adoptable?”.
So, that’s the question I’ll attempt to answer from the data Mr. Pacter has conveniently compiled. In doing so, however, I’ll need to ignore his own judgments regarding whether IFRS has itself been improved during the convergence decade; because they are so skewed they are not even worth ranting about. Mr. Pacter has had a distinguished career as, among other things, an FASB staffer, Deloitte director and IASB member, but if this article demonstrates one thing, it is that his views on IFRS only have value as propaganda. (The point of the article, no?)
In order to asses the question of whether IFRS is adoptable, I used my own judgment* to sort each of the 37 projects into one of four buckets:
Adoptables—Only 7 of the projects fit this criteria. Two are because they are copies of U.S. GAAP (segment reporting and fair value measurements), but there are five projects that resulted in IFRS being equal or superior to GAAP.
Flops—These are projects where I feel that for one reason or another the results of the project is a much worse standard than I thought could be achievable. High on that list are projects that are still in process, but look terrible: revenue recognition, loan impairment, leases. Without convergence: the FASB surely would have left some of these issues alone and simple sought incremental improvements in one way or another; and some of these projects surely would have resulted in higher quality standards if the IFRS didn’t have its finger in the pie.
Somewhere from harmful to horrendous if adopted in the U.S.—Some of these are projects that have been completed, but significant differences remain: e.g., business combinations, income taxes and share-based payment. Others are completed projects where the IFRS result is quite horrendous: post-retirement benefits and consolidation are in the category.
Fizzles—This is the pathetic category. Some of these projects, like R&D are really important, but the IASB’s responses have been ludicrous. but, some of the projects, like financial statement presentation have been ludicrous themselves.
With that background, here’s my transformation of Mr. Pacter’s table:
Someone could reasonably disagree with some of my classifications, but really — how do you get from this to the conclusion that convergence results have been “mixed”; or that adoption is the best path forward for improving U.S. GAAP?
There is only one answer to that question: bias.
*I suppose you can call me biased, just like Mr. Pacter, but you won’t find any pecuniary incentive behind it. As I have written on at least one other occasion, IFRS adoption would benefit my work as a consultant and lecturer.)