SEC Proposal: Abandon US Accounting Rules
What this country really needs is less tranparency in earnings reports, and more wiggle room for corporate reporting:
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We are governed by utter idiots . . .
Similarities and Differences: A comparison of IFRS and US GAAP
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WSJ:
"The Securities and Exchange Commission signaled the demise of U.S. accounting standards, kicking off a process Wednesday that could ultimately require all publicly listed American companies to follow an international model instead.
Introduced in two steps, the shift could eventually cut costs for companies and smooth cross-border investing. At the same time, investors worry it will create confusion, especially during the transition. Other critics worry that the international system offers too much wiggle room for companies, compared with the more precise rules enshrined in U.S. standards.
The SEC's proposal would allow some large multinational companies to report earnings according to international accounting beginning in 2010. The SEC estimates at least 110 U.S. companies would qualify based on their market capitalization, among other factors. The agency also laid out a road map by which all U.S. companies would switch to International Financial Reporting Standards, or IFRS, beginning in 2014, at the expense of U.S. Generally Accepted Accounting Principles, the guiding light of accountants for decades.
The proposals will be open for public comment for 60 days and could be finalized later this year."
Anything that artificially boosts earnings is great for America . . .
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Sources:
SEC Moves to Pull Plug On U.S. Accounting Standards
KARA SCANNELL and JOANNA SLATER
WSJ, August 28, 2008; Page A1
http://online.wsj.com/article/SB121985665095476825.html
SEC May Let Companies Abandon U.S. Accounting Rules
Jesse Westbrook
Bloomberg, Aug. 27 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azXvW6B6aINg
Thursday, August 28, 2008 | 07:00 PM | Permalink
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Comments
I'd hate to be the one to break it to you, Barry, but there has been a convergence effort vis-a-vis IFRS and U.S. GAAP for years and this is the ultimate destination.
Generally, I find the IFRS to be more strict than U.S. GAAP. You should talk to one of those dreaded CFAs and get briefing on IFRS.
Posted by: matt | Aug 28, 2008 7:10:41 PM
Matt, you have it backwards.
IFRS is MUCH less strict than the GAAP measures.
Posted by: Scott | Aug 28, 2008 7:18:52 PM
Barry,
When bad things are done by people it is either stupidity or malice. A wise person once counseled me to never attribute malice where stupidity is a perfectly good explanation. You have adhered to this philosophy nicely by commenting 'we are governed by utter idiots'.
I think unfortunately that malice is the better explanation. I think we are governed by utterly evil people, and I'm talking about both sides of the political aisle.
What this jackass is saying is, "bad stuff happens when people can see the true numbers so lets allow everybody to lie and use the power of government to hide it for them."
If that isn't pure evil at work, then what is?
There's a special hell for these people.
Posted by: ssm | Aug 28, 2008 7:19:04 PM
Matt, you have it backwards.
IFRS is MUCH less strict than the GAAP measures.
Posted by: Scott | Aug 28, 2008 7:18:52 PM
Oh yeah, to this day US GAAP still allows this concept called QSPEs... which IFRS got rid of years ago.
And yes, I know that FASB has recently (finally) plucked up the courage to ditch this nonsense. Took their time about it.
Posted by: Carlomagno | Aug 28, 2008 7:25:10 PM
http://www.iasb.org/NR/rdonlyres/0A5A767C-E7DE-49E5-8B12-499F62F8870C/0/WhoWeAre_Final12508.pdf
these cats, the IASB, went, officially, live in 2001.
IASB y FASB publicly announced 'initiative to achieve compatibility' in 2002.
Posted by: Mark E Hoffer | Aug 28, 2008 7:30:20 PM
i co-sign ssm all the way.
Posted by: m3 | Aug 28, 2008 7:52:23 PM
yes, of course make everything even-steven across the board.
Oh! so much I don't know but why don't we (the people of the would) sit down at the "round-table" and talk about truth...rub the wheels of truth! Ah, what is truth.
BR, you need a "cancel" button...to lazy to go back...lol
Posted by: JustinTheSkeptic | Aug 28, 2008 7:58:50 PM
It`s a fine line between caution and paranoia. Most countries in have been moving away from U.S. GAAP for quite some time. While you`re at it, you might as well rail against the rest of the world adopting the metric system.
Posted by: Doug | Aug 28, 2008 8:07:21 PM
Don:
If I remember correctly, LIFO is prohibited in the IFRS and FIFO is preferred. This would tend to cause inventories to be higher (in an inflationary environment) and COGS to be lower (again, inflationary environment).
This would tend to cause earnings to be overstated compared to LIFO. An adjustment to P/E would have to be made to compensate, I think.
But you were talking about a discount due to confusion/uncertainty. I think we are overstating the impact of a switch.
I am not an accountant, so I can't say how IFRS would affect financial companies, given their dramatically different business structure from a typical goods producer/retailer.
Posted by: matt | Aug 28, 2008 8:09:44 PM
I saw this first thing today and the sad thing is I wasn't even surprised. These jackals have hijacked capitalism and our country.
Can we all just finally admit at this poitn that the entire game is rigged?
Posted by: Jeff M. | Aug 28, 2008 8:24:00 PM
If Bush wins in '04 the WSJ Opinion page headline reads:
"White House Leads Effort on Globalization of Business Rules"
If Kerry wins in '04 the WSJ Opinion page headline reads:
"Kerry Rams French Accounting Rules Down Throats of Over-Burdened US Entrepreneurs"
Anyway, it would be cool if the BLS adopted international inflation rules.
Posted by: VennData | Aug 28, 2008 8:26:37 PM
So instead of actually fixing the problems that ail our corporations, markets and economy, the powers-that-be just decide that a little cosmetic window-dressing will do just fine. If we're all this stupid to fall for it, then we deserve everything we get as a nation.
Posted by: Jeff M. | Aug 28, 2008 8:38:44 PM
would that we adopt the low corporate tax policies of Ireland, Poland and others.
Posted by: Thomas Shawn | Aug 28, 2008 8:51:27 PM
So as the economic superpower of the world which has gotten that way through the methods we use, we are to bow down to the way the rest of the world does it? Guess it is time to start brushing up on my Mandarin!
Posted by: Rob P | Aug 28, 2008 9:20:44 PM
I've come to the conclusion that everything is bull-shit and I am its anchor.
Posted by: JustinTheSkeptic | Aug 28, 2008 9:33:15 PM
I don't think you're giving this a fair shake, Barry. This isn't some new crazy Cox plan. The SEC's Office of International Corporate Finance has been working to make something like this happen since at least several years ago. (I summered there as a 2L; biggest professional mistake of my life.) It makes a lot of sense for an investor to pick up an annual report from a company in Germany and a company in the United States and be able to compare results without trying to reconcile the different accounting systems. This is a Good Thing.
Believe me, there's a whole hell of a lot you can (and should) beat the SEC up on, but this isn't it.
Posted by: Agronox | Aug 28, 2008 9:47:47 PM
I was wondering what bone the government was going to throw the money center banks for shorting the hell out of commodities. I guess PPT really stands for Politicians & Principals of Trade.
Posted by: Pat G. | Aug 28, 2008 10:45:03 PM
Just changing an accounting rule, all else being equal, is simply moving a number from one column on a piece of paper to another. Anyone thinking that such an action can change the long term value of a company is simply clueless about equity valuation. Yeah, some suckers could buy due to more lipstick on the pig...but it would be short-lived. What accounting rules should aim to do is incent corporations to invest capital wisely. Unfortunately, very few regulators would have a clue on how to do that.
Posted by: Steve Barry | Aug 28, 2008 11:40:25 PM
just proves the Republicans will trash everything in the system on the way out the door come January. The GDP report revision today proves that. ~ What recession?
Naked Capitalism has the scoop on that ...
http://www.nakedcapitalism.com/2008/08/gdp-release-signals-further-decline.html
Posted by: Michael McKinlay | Aug 28, 2008 11:56:14 PM
Bingo, you hit the motive on the head. More flexibility to maximize reported earnings.
Posted by: Stuart | Aug 29, 2008 12:17:32 AM
Recall the world according to Gilliam--he was a mighty accurate in how virtual our markets, and our reality, TPB would like this game to get:
http://www.youtube.com/watch?v=291QciJA2Wo
Posted by: Rainbolt | Aug 29, 2008 12:33:48 AM
I feel compelled to follow ssm's lead on this one. I used to think that people in positions of power were generally kind of stupid (with very few exceptions), or at least unwilling to commit to any appreciable change. Now, alas, I think that the powers-that-be are more evil than stupid (again, with rare exceptions), and that they simply are unwilling to offer people any insurance of reliable numbers and accounting. It's pretty disgusting.
Jerry
Posted by: Jerry | Aug 29, 2008 12:45:14 AM
It's 100% pure unadulterated greed pushing this with no braking. Wall Street is to legitimate commerce what Al Qaeda is to Islam.
Posted by: Stuart | Aug 29, 2008 1:31:34 AM
It is all pertaining to definitions, save the fact that actual cash, cash flows, real capital, will establish the real difference.
What is about FASB? What’s about the prices models versus the market prices? What is about inflation as being the real rate of change of money supply as opposed to real change of prices, what is about a bond market not paying to attention to an average real change of money supply hovering around 12 % during the last five years and saying that now the inflation is neutral since the money supply delta is shrinking?
Those are the definition of today’s financial disasters and the definition of today’s financial cure.
Posted by: Philippe | Aug 29, 2008 1:32:34 AM
As a UK banker, I am quite surprised at what a controversial issue this is for you guys. The rest of the world has been happily converging on IFRS for many years...
Matt and Scott are both right in different ways - IFRS is more principles-based rather than relying on a huge list of rules for every eventuality, but also leans more towards fair value accounting. This actually provides much more transparency for big liabilities (e.g. pension deficits) than US rules.
It's a little naive to imagine that principles-based accounting implies greater "wiggle room", it simply relies more on good old fashioned common sense.
Posted by: Michael | Aug 29, 2008 5:23:07 AM
