State Board Report

October 2009

After listening to several speakers urge the adoption of international “high quality financial standards,” Noel Allen, NASBA legal counsel, took the FIAR podium and stated,” I believe you are on a proper course, but let’s make sure how we get there. …When states adopt standards by reference, each has different ways of doing it. If standards are changed, some states may have to go back and adopt those changes. A majority of states require adoption by reference. Will we have to tinker with many rules in states to implement IFRS? We are potentially messing around with the definition of the ‘practice of accountancy.’ Standards set the basis for discipline.”

Currently there is no mention of IFRS in the Uniform Accountancy Act, only in Model Rule 10‐3, which includes a reference to international standards. According to Mr. Allen, only one state has adopted that rule so far. However, states are picking up references to IFRS on their own: Connecticut is giving credit for license experience when using IFRS; Colorado refers to IFRS in its accounting principles section; New York is referring to international standards if you are doing that type of work; and Delaware and Pennsylvania are also bringing in references. In South Carolina licensing for general contractors added mention of international standards, so the South Carolina Board adopted a rule patterned on UAA Model Rule 10‐3. States are nervous about how the international standards are vetted and regulators need to have a substantive voice in the vetting process, Mr. Allen stated.

Although it is claimed 100 countries have adopted IFRS, only 47 have adopted them with no carve‐outs and that is for listed companies. Mr. Allen observed, taken together, those 47 countries represent about 4 percent of the world’s GDP. The largest of those countries would rank 15th among the states in the US, having a GDP right behind the state of Washington’s.

Cases based on international standards have doubled in the last years, Mr. Allen stated. With principles‐based standards there is more room for interpretation. He said he is not just worried about standards being set by politicians, but of accounting standards being set by judges. “Judges make law routinely,” he noted.

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