Here is a summary of Chief Accountant James Schnurr’s recent remarks regarding IFRS:
- Despite having been a national office partner at Deloitte, and being closely involved with the firm’s promotion of IFRS, he still needed to spend a considerable amount of time since last October “researching and discussing IFRS.”
- He found that “constituents” still support the objective of a single set of high-quality, globally accepted accounting standards.
- A single set of high-quality, globally accepted accounting standards is not attainable.
- The FASB and IASB should continue to make efforts at convergence.
As ludicrous as that sounds already, two further observations are in order. First, we know that many of the comments on the record (written and oral) prior to Mr. Schnurr’s arrival began with some sort of hosanna in support of a single set of globally accepted accounting standards. Even the strongest critics of the SEC’s 2008 convergence Roadmap proposal did it to avoid being sorted into the “crank” comment letter pile. But, almost always, the hosanna had a dangling qualifier: something like the U.S. must not lose its sovereignty over financial reporting, or the U.S. must not compromise quality for the sake of convergence, or the costs of getting there are far greater than the benefits, yada yada.
My second observation is that Mr. Schnurr now resurrects a mere platitude as the basis for continuing convergence efforts without providing a single shred of supporting evidence. His immediate predecessors were in spin mode for years against the decisively negative feedback to the Roadmap proposal, but they didn’t have the luxury of opacity. The law required the SEC to solicit comments, which became part of the public record. Judgment day finally arrived when the SEC staff had to finally issue its report conceding that convergence was a practical impossibility. The Chief Accountant announced his resignation, effectively immediately, the day before the report was issued. About a year later he was appointed to the FASB.
Clearly, SEC Chairperson Mary Jo White has been stalling on the IFRS question for as long as she could get away with. She is not interested in any more public discourse. Mr. Schnurr is doing nothing more or less than carrying her water as best as he knows how — with emphasis on opacity.
But, although, it may not matter too much, I have been heartened by one voice of reason near the top of the SEC’s leadership.
What Can We Do That Could Actually Make a Difference?
SEC Commissioner Kara Stein provided her own assessment of the prospects for a single set of high quality accounting standards. Even though her remarks were delivered months earlier, they read like a direct rebuttal of Mr. Schnurr:
“… it is difficult to deny the appeal of a single set of globally-recognized, high-quality accounting standards. … But, beyond the simplistic allure of a universal set of comprehensive standards lies a myriad of shortcomings. The question is, what can we achieve and how would we get there? …
To be frank, this debate between dueling standards needs to move on. Neither regime worked ideally in the financial crisis, and neither may serve investors well in today’s post-financial crisis… In practice and in reality, accounting standards may vary between jurisdictions due to legal and cultural factors, as well as differences in perspective. Remember, IFRS is not consistently implemented around the world. …
Rather than debating the winner of the battle between U.S. GAAP versus IFRS, we should be thinking anew about what kind of accounting regime we want going forward. ….
Much work has already been done to converge U.S. GAAP and IFRS, and we should not recreate that wheel. Rather, I’m suggesting that, post-financial crisis, we think about the next step – where should accounting be in the 21st century, a century in which technology and globalization are transforming the way the entire world does business?” [emphasis supplied]
Two very different visions for the role of IFRS in U.S. capital markets have recently emerged from the SEC. One of them makes a clear-eyed assessment of the evidence, and it concludes that fundamental change is called for. This could be the seeds for a constructive dialogue.
The other is a sack of mush.
Note: An earlier version of this post stated that James Kroeker was appointed to the FASB a few months after leaving the SEC. Instead, he rejoined Deloitte and was appointed to the FASB about a year later.