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IASB Not Ready To Lead By Jeffrey Taylor October 31, 2008 It has taken many years for the U.S. to even consider abandoning FASB and U.S. Accounting Standards for International Standards. So far, everyone has bet on the International Financial Reporting Standards (IFRS) to get all global reporting entities under control. Well, as if today, all bets are off. The U.S. is heading into a recession, possible depression, and everyone is screaming at the accounting profession for their unrealistic accounting standards. In particular, CFOs are accusing FASB that FASB 157 which requires mark-to-market has caused all of our problems. The accounting profession has got caught up in the crisis as a result of fair value rules. Banks around the world have been loath to take responsibility for their own abdication of reasonable lending standards. Instead, they found the perfect villain in fair value reporting – something upon which they could blame the credit crisis. The U.S. government listened to their votes and decided to go against accountants by requiring an in-depth look at FASB 157 and FASB. Now the SEC is holding two roundtables to debate the effects and usefulness of fair value accounting. But the International Accounting Standards Board (IASB) has gone one better and hastily changed its fair value rules, and this is where the push to converge accounting rules falls down. Uniting all countries under a single set of global accounting rules has long been the goal of the IASB, which sets the rules for 100-plus countries. US GAAP is now the only other significant set of rules. But the IASB has now shown it is not ready to be the premier accounting standard setter in the world. The IASB amended its rules slightly to align them with US practice by allowing an exception to fair value reporting. It did so because of political pressure. The threat it faced was that if it had not, the European Union, which follows the IASB’s rules, would have acted itself. This would have likely resulted in worse accounting rules and would almost certainly have finished the IASB’s dream of the US switching to IFRS. As a result, IASB has ended the dream of US convergence itself by bowing to political pressure. The amendment was done without due process: no comments or discussion were sought from investors. Incredibly, that suspension of due process bore the blessing of the trustees who oversee the IASB. Note from Jeffrey : When there is enough to go around, no one seems to care. When the pie gets smaller, everyone fights for their own piece. It is human nature. |
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