State Board Report
In the September 2004 volume of the Journal of Environment and Development, an article by Thomas Hale and Denise Mauzerall entitled “Thinking Globally and Acting Locally” discussed the issues associated with trying to address international sustainability problems through global actions. While environmentalists, in theory, champion the concept of thinking globally and acting locally, in reality international bodies continually revert to trying to use global strategies to attack local challenges.
One could argue that those dealing with global challenges (and opportunities) associated with the accounting profession have taken a similar path, and have achieved limited success. As with the sustainability discussion, accounting regulation, standards and models of public protection are really “local.” In the United States, “local” can be defined as the State Boards of Accountancy regulatory system and federal regulatory systems such as the Securities and Exchange Commission (SEC) or the Internal Revenue Service (IRS), and authoritative standard setters such as the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), both under the Financial Accounting Foundation (FAF). The attempt to fold or transition the United States (U.S.) accounting standards into a global model or scheme is fundamentally challenging (and possibly flawed), but in theory and practice, it is important that we continue to think globally.
On January 28, 2014, FAF issued a press release announcing the contribution of up to $3 million dollars to the International Financial Reporting Standards Foundation (IFRSF) “to support the completion of international convergence programs.” I have, and continue to be, supportive of the efforts of FAF and FASB to utilize a disciplined and measured approach towards alignment of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) when it is practically possible. However, the contribution of $3 million dollars to IFRSF, and the IFRS convergence effort, concerns me. The FAF press release indicates that the contribution decision was made “in consultation with” the SEC. Does this mean that the SEC is moving toward full convergence? Have the FAF and FASB moved away from their support for maintaining U.S. GAAP? Is there consideration of some shortcut step such as optional use of IFRS in the U.S? I hope not!
As the FASB gets its authority for standard setting through the SEC, did the SEC push FAF to make this contribution? Was this an indirect way for the SEC to give support to the IASB because of political pressure from the G-20? When the IFRSF responded to the SEC’s 2012 staff report on the IFRS work plan, the IFRSF pointed out the U.S. was not contributing what they expected. Based on GDP, the IFRSF had hoped to collect £4 million ($5.46 million) from U.S. sources in 2012, but had only received £1.3 million ($1.77 million). Maybe this is just a way for the SEC to buy some time as it stands behind the FASB as the ultimate standard setter for the U.S. One can only speculate.
Recently, I was in a discussion with some thought leaders on the topic of rules related to mandated reporting or whistleblowing. The consistent theme of that discussion was that, because of the very disparate laws, regulatory systems and even cultures in other countries, a uniform global remedy may not be practical. A similar argument can be made regarding the alignments or convergence between GAAP and IFRS. In my opinion, U.S. GAAP is the world’s gold standard in accounting standards. The level of integrity and independence of FASB and their methodology using cautious diligence and transparency in standard setting is unparalleled in the world.
I am somewhat reluctant to question or criticize our friends at FAF. However, I was surprised that a decision to contribute a material portion of their funding to IFRSF was made without at least some level of advance public transparency and disclosure. It would seem that the FAF trustees would have anticipated the questions, concerns and challenges of the decision by many stakeholders. Of course they also may have anticipated the positive responses from those who swallowed IFRS “hook line and sinker” from the very beginning. I am hopeful that FAF will more clearly articulate what their $3 million contribution signifies and, as importantly, what it does not signify.
As Hale and Mauzerall implied in their article, it is important that we “think globally.” I have written and spoken about my belief that, ultimately, significant convergence of U.S. and global standards will occur. It is my hope that when (and if ) it occurs, the converged standards will be issued by an independent body that recognizes the significant relevance and importance of the U.S. markets and economy. Until that occurs, we should be: “Thinking globally and acting locally!”
Semper ad meliora. (Always toward better things.)
— Ken L. Bishop
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