Last Friday, the SEC signed protocols with the securities regulators of four other countries - Belgium, Bulgaria, Norway and Portugal - to share information on the application of International Financial Reporting Standards in each others' countries.

The protocols are more or less the opening up of formal channels of communication - they're not a commitment, they don't create new rights or supersede old agreements. They mostly establish an intention to cooperate between the US and the other countries. They follow a similar protocol signed about a year ago with the United Kingdom's Financial Services Authority .

It's a good thing that the SEC has decided not to travel alone on its journey to international accounting standards. These countries have had more experience in the application - or misapplication - of International Financial Reporting Standards, and there could be valuable lessons for the SEC to apply.

Speaking of IFRS...

Next week, on June 5, I'll be a member of a panel on IFRS at a conference in New York City. It's sponsored by Financial Executives International and it's entitled "The World Is Moving To IFRS: Are You?"

Well, it's not like you have much of a choice any more. It also doesn't look like there's much choice if you want to attend the conference: it's sold out, but wait-listed, from what the website says. With guests like FASB's Suzanne Bielstein, the IASB's Wayne Upton and John White of the SEC, it's sold out with good reason.

Also next week: on Monday, June 2 I'll be a guest panelist on a FASB webcast on the credit crunch and fair value reporting entitled "The Crisis in the Credit Markets: Causes, Reporting Issues, and Responses." The price is right on this one: free. And you don't have to get out of your chair. I hope you'll tune in Bob Herz, Matt Schroeder (of Goldman Sachs), Ray Beier (of PricewaterhouseCoopers) and me at 2 pm next Monday.

By the end of the month, to be exact. This article from Dow Jones Newswires might mean that some SEC staffers are going to have a busy Memorial Day weekend.

In a May 9 memo to agency heads, White House Chief of Staff Josh Bolten wrote that "all rules to be finalized before the administration leaves office should be proposed by June 1, and final rules should be issued by November 1."

That means the SEC's IFRS roadmap should be published by the end of the month and completely ready to roll by November 1. The memo mentioned that "extraordinary circumstances" might make for allowances; but the June 1 deadline seems consistent with the SEC's timing all along. The White House edict might just seal it.

Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles," was issued last Thursday. It's not a standard that will drive investment decisions - but if you're an investor who's in a conversation with a CFO and the subject comes up, it might help to understand what the of "GAAP hierarchy" comes up, it might help to know a little bit about it.

Here's the background. The American Institute of CPAs had long decided what constituted the strength in various "levels" of generally accepted accounting principles because their constituents - auditors - needed a consistent policy on how to handle conflicts in accounting literature when more than one standard might be found on a single topic. Hence, there were "levels" with in the "house of GAAP," as it's frequently called. When the AICPA dictated auditing standards, it mattered that they be the ones to establish the hierarchy - but that right was removed with the establishment of the Public Company Accounting Oversight Board in 2003. The right to set accounting principles was also removed from the AICPA by the Sarbanes-Oxley Act: it required the SEC to appoint a single accounting standard setter for the establishment of accounting standards. And it picked the FASB, not the AICPA.

The FASB has now revised the standards hierarchy; it's absorbed many AICPA standards into its own domain. They didn't simply vanish along with the AICPA's authority. Here's how the new hierarchy of generally accepted accounting principles shapes up, in descending order of authority:

♦ FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB

♦ FASB Technical Bulletins and, if cleared2 by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position

♦ AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB Emerging Issues Task Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
(EITF D-Topics)

♦ Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Position not cleared by the FASB, and practices that are widely recognized and
prevalent either generally or in the industry.

The hierarchy still needs to be approved by the PCAOB to be completely effective on the auditing community. When you look at how many sources of accounting principles still exist after the clean-up, you can appreciate the calls for simplicity and the arguments made in favor of International Financial Reporting Standards. Make no mistake however: the more popular they become, the more interpretation and guidance they'll require. It wouldn't be surprising to IFRS principles grow at a rapid clip over the next few years.

Last month, subscribers to The Analyst's Accounting Observer received our report on the state of benefit plans in the S&P 500 Short version: they're in pretty good shape, but far from riskless. And we'll be monitoring them throughout the remainder of the year to assess the risks.

If you're an institutional investor and would like to take a free trial offer of the Accounting Observer, you're welcome to this report. Click here to register for the trial, and you can also register seven of your research comrades. Institutional investors only, please: if we can't find you in one of the major directories of investment research (StreetSight, BigDough), we won't honor your request.

The timing of that report was pretty fortunate: in March, the FASB proposed amping the disclosures about benefit plan assets. While we were working on the report, we got a first-hand look at the existing disclosures and their shortcomings in light of the market events of the past year. It gave us good feel for how the FASB's disclosures could benefit investors. The deadline for comments on the proposed FASB Staff Position was shortly after we completed the report, so I put together a comment letter of my own just in time for the deadline. It's available here for your reading.

The disclosures should be effective for the years ending after 12/15/08. I have no doubt that companies will vigorously oppose the proposal and at least try to stall for another year of grace. It's an iron rule of accounting standard-setting: the amount of corporate resistance is directly proportional to the amount of informational benefit a proposal will provide to investors. We'll see if it happens here.  

Further evidence that the world is getting to be a smaller place every day. And that the SEC's blueprint for moving the US to international financial reporting standards is just around the corner...

On June 16, the FASB will hold a forum at Baruch College, entitled "High-Quality Global Accounting Standards: Issues and Implications for U.S. Financial Reporting." Panelists will be "users of financial statements, representatives of small and large companies both public and private, auditors, regulators, educators, and others representing facets of the U.S. economy that would be affected if there were a move from U.S. Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS)."

If there were a move? Maybe we'll understand the "if" a little more after the SEC blueprint hits the 'net. I suspect that it will be out before this forum; it would make sense for the FASB to schedule such a production for a time frame after the SEC's plan becomes public.

Other international news: the FASB has signed a "Memorandum of Understanding" with their Chinese counterpart, the China Accounting Standards Committee, committing "to strengthen cooperation and communication between the two standards-setting organizations." More specifically:

• The two bodies will work to improve understanding technical issues "to facilitate economic interaction between the two countries";
• They'll exchange experience of accounting standard setting, implementation, and international convergence; and

   

• They intend to "exchange opinions regularly and build the technical foundation for sharing views on convergence of accounting standards."

This internationalization of accounting standards is happening faster than investors realize, because it hasn't resulted in changes to standards or financial statements - yet. That's typically how investors find out about what's going on in the accounting world - when it's after the fact and it's baked into the financials. When internationalization is in full swing, I suspect there will be a lot of head-scratching by investors.

A reminder, though I'm sure you know: it's Berkshire Hathaway's shareholder meeting weekend. The carnival of capitalism is a spring ritual for the true believers, and every year it becomes a bigger and bigger event. All the disciples of Buffett, who attend perhaps in hopes of channeling their inner billionaire, hang on every word looking for the version of investing truth they want, somewhere in his comments.

This year, it promises to be even more exciting: the search for hidden messages will be even more intense because of last week's announcement of the purchase of Wrigley by Mars and Berkshire.

(Author's note: I, and accounts I manage, own both Berkshire and Wrigley.)

I won't be attending the meeting. I used to go to it, back when it was small - oh, say only about 3,000 attendees. Intimate, by comparison to today's mob. The coverage of it has been terrific over the years: I can't say it's as good as being there, but being there isn't quite as good as being there, either. There's only one Buffett (and one Munger); their results speak for themselves, and they say a lot. I'll content myself with the media coverage, I guess. I understand that Fox Business channel will be covering it all weekend long, and capping it off with an hour-long interview with Buffett on Monday morning. (In case you're interested.)

You might reflexively think about a possible combination of US accounting standards and international accounting standards, but no - the urge to merge internationally is what's going on at Ernst & Young .

The firm announced the merging of "87 country practices in Western and Eastern Europe, the Middle East, India and Africa into a new EMEIA Area." That's not all: the 700 partners in the Far East practices supported a similar move across 15 countries and territories.

" The EMEIA Area will operate as a single unit, led by a single executive team and, where allowed by laws and regulations, be underscored by formal combinations of practices. The new Area will be a US$11.2 billion organization with more than 60,000 people. The 3,300 partners of EMEIA will vote on the integration by the end of May. The new EMEIA Area will be effective from 1 July 2008.

The integration of the Far East Area creates a US$1.2 billion organization, with more than 20,000 people. The new structure will also be effective from 1 July 2008.

That doesn't make the firm suddenly bigger or grow more quickly. And it doesn't really change too much for the investor. What's interesting though, is that it gives a couple glimpses inside the auditing world that investors rarely get. First, the sheer size of a Big Four organization is something investors rarely contemplate. The EMEIA area alone will be an $11.2 billion organization, meaning it's hugely important to the firm as a whole: last year, E&Y's global revenues were $21.1 billion. That puts them in the same league as Electronic Data Systems or Constellation Energy Group; ahead of JC Penney or Tyco. Yet investors rarely consider the size and reach of these firms that are acting as their agents in the auditing of financial statements.

The other glimpse: note that