Last week, PCAOB member Charles Niemeier addressed a New York State Society of CPAs conference. He spoke his mind about the one-sidedness of the movement towards IFRS adoption in these United States. As reported by CFO.com, Charles raised the valid point: moving to IFRS can "put in jeopardy the thing that gives the U.S. a competitive advantage ... All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?"

Apparently, the SEC doesn't buy into the research conclusions showing that the United States has the lowest capital cost on the globe. Although at the moment, with two major financial institutions going into either outright liquidation (Lehman) or de facto liquidation (Bear), and a government takeover of Fannie Mae and Freddie Mac, you'd have to wonder if our cost of capital is still the lowest in the world. If it isn't, it would be a mighty stretch to say our cost of capital rose because we're not on the IFRS train yet. Let's just say there are a few other possible reasons why our capital cost might be strained.

Niemeier goes on to explore myths about IFRS convergence, such as the fact that it's "principles-based," not rules-based.
"IFRS is not more principles-based, it's just younger," said Niemeier. He pointed out that the US once followed a more "principles-based" system - but a 1969 court decision, U.S. v. Simon, spurred the development of many rules because it found that simply sticking to generally accepted accounting principles is not a foolproof defense when charged violating antifraud securities laws. Auditors sought guidance from standard setters, and the house of GAAP grew into a skyscraper.

Another myth Niemeier took on: the use of IFRS will enhance comparability. While it may be that US financial statements might be more similar to those in other countries, there's an inherent contradiction in the "principles-based" dream. If "principles-based" standards allow companies and auditors to exercise more judgment, how can company-to-company financials ever be more consistent? Worse yet: if companies start to exercise "nostalgic accounting" by employing judgment in the application of IFRS that makes their results resemble their prior national accounting system results - and this may be happening already - how can expansion of IFRS make things more comparable?

His speech hasn't been posted on the PCAOB website yet, but when it is, I'll be sure to provide a link. I think he's on to a lot of the concerns that need to be addressed in accounting standards convergence. Investors are not served well if convergence is merely "convergence by decree" - something that happened when the SEC removed the reconciliation of IFRS to GAAP earlier this year. As Charles puts it, we need to "return to a policy of convergence to achieve something noble, not convergence for uniformity's sake. We should strive for comparability, not just say it."