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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis.

Dec 3

Written by: Jack Ciesielski
12/3/2009 8:23 AM 

Of course it's not worthy of mainstream media - Tiger Woods' travails rule - but there is weird stuff going on in the world of accounting standard setting, too.

Next week will be the AICPA's SEC/PCAOB Current Developments Conference in Washington DC, where swarms of accountants and auditors go every year to load up on continuing education credits - and to hang on every word of SEC officials speaking there, in case some "knowledge nugget" they glean will pay them a hassle-aversion dividend in the looming reporting season. (I'll be part of the throng as well.)

One thing sure to be on attendee's minds: what is the SEC planning for IFRS usage in the United States? Their question is likely to go unanswered, however. The SEC's chief accountant, has publicly commented that the Commission's "Road Map II" won't be ready until late fall - which he noted could mean as late as December 21, the last day of the season. And weeks away from the last day of the conference, so no real news about Road Map II should be forthcoming in DC next week.

Yet one can't help but wonder what this document is going to look like, especially with all the turmoil going on in IFRS-land. Outside of the big auditing firms that would benefit from the consulting largesse they'd be sure to garner in the event of a rapid move in the US to IFRS, there seems to be little support for such a movement. There's certainly no big outcry among investors for the United States for this to happen.

When you consider what's going on with the IASB, you would hope that the SEC leaves plenty of maneuvering room for U-turns on Road Map II. Consider that about a year ago, the IASB disgraced itself when it knuckled under to political pressure by amending IAS 39 with no due process. That move allowed banks to reclassify marketable securities in such a way that their fair value was obscured, artificially increasing their capital.

That was the beginning of the end of the IASB's credibility as an independent standard-setter, in my view. Its political plight has only gotten worse since then.In the wake of the credit crisis, the IASB has rushed to amend its fair value accounting rules , and done so in a fashion that only decreases the level of resulting fair value reporting - and diverges from the FASB's path of increasing fair value reporting. After going speedily down the pathof appeasement, the IASB went unrewarded: the EU said it was delaying the implementation of those rules.

The Financial Times reports that:

"Speaking to a parliamentary committee for the first time on the delay, Eddy Wymeersch, chairman of the committee of European securities regulators, told lawmakers on Tuesday that the new rules for accounting “are not doing very well” and he called on the IASB to “come forward with a solution everyone can accept”.

Mr. Wymeersch said he was concerned that the new rules were “increasingly” at odds with the US standard-setter even though officials from the two regimes have said they are aiming for a timetable for convergence by June 2011."

Mr. Wymeersch would probably be less concerned if the FASB were going down a path similar to the IASB's - which investors should hope doesn't happen, for many reasons. One stands out, however, and it's also in the FT's story:

"Mr. Wymeersch said there was “a need for IASB governance to be reviewed” amid concerns of some EU lawmakers that the standard-setter is too theoretical."

I have this sinking feeling that Mr. Wymeersch didn't believe that "IASB governance needs to be reviewed" because it's been too pro-investor and too independent. He is probably more concerned about too much slack in the strings jerking around the IASB.

None of this stuff is happening behind closed doors; it's out there for everyone to observe. You have to wonder exactly what good the SEC sees in hitching up American reporting to a standard-setter that is so seriously compromised and doesn't have any near-term prospects of getting uncompromised - while the Commission intends to come up with Road Map II in a matter of weeks. If the SEC intends to serve investors, let's hope it builds plenty of exits - or at the very least, some major rest stops - into that road map.