Could the Crisis Crimp Convergence?

The SEC has been tardy with its accounting roadmap for international standards, leaving some to wonder if the project has gone off course.
Alan RappeportOctober 31, 2008

The road to creating a single set of global accounting standards could be about to hit a detour.

An educational conference on international financial reporting standards, held in New York City last week, was so jammed with attendees that its organizer, the Foundation for Accounting Education, had to bring in extra rows of tables to accommodate the standing-room-only set. Despite intense interest in the details of IFRS, though, a central concern was whether the financial crisis may be stalling the Securities and Exchange Commission’s much-touted convergence plans.

“It’s a fair question,” Tom Omberg, a partner at Deloitte & Touche, told an IFRS skeptic in the audience who was concerned about the costs of switching to a new accounting standard. “I would surmise to say that they will not push anybody. It has the potential to be a very expensive exercise.”

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In August the SEC approved its roadmap for public comment, suggesting that mandatory reporting in IFRS begin in 2014, 2015, or 2016, depending on the size of the company. The commission said it would decide in 2011 whether IFRS would become mandatory for American firms, a move that would scrap the existing generally accepted accounting principles, or GAAP. But the SEC is more than a month behind in producing a more-specific timetable to be published in the federal register, leaving some to wonder if the financial crisis had preoccupied the regulator or given it second thoughts.

“If the credit crisis and recessions start spreading and are longer than people are expecting, the SEC will be reluctant to do a major financial reporting change,” says Edward Riedle, a professor in the accounting and management unit at Harvard Business School.

The roadmap has shown other signs it might stall. Earlier in the week, Jack Ciesielski, author of the closely watched Analyst’s Accounting Observer newsletter, wrote in The Financial Times that U.S. investors should be wary of any roadmap produced by the SEC, and he scolded the International Accounting Standards Board for amending its fair-value rules to please U.S. regulators without due process. “Instead of a rush-job convergence during the worst financial crisis since the Depression, maybe what is needed is a few more years of friendly competition between standard-setters,” he wrote.

For its part, the SEC says it is planning to move forward with its plans. John Nester, an SEC spokesman, told that the timetable should be published next week and will be ready for public comment. The IASB also remains supportive of the convergence plan moving ahead. “The current crisis has highlighted the need to avoid any accounting arbitrage and have a level playing field,” says Mark Biatt, an IASB spokesman.

So accountants, auditors, and academics are getting ready. Mike Hall, a partner in transaction services at KPMG, said at the conference that he suspects the credit crisis will lead to faster convergence now that the Financial Accounting Standards Board and the IASB are working more closely together and have agreed to consolidate many of their projects. Meanwhile, Alan Jagolinzer, an accounting professor at Stanford’s Graduate School of Business, is organizing an academic conference with the SEC so scholars can give input into the changes ahead.

“I suspect that there’s a lot of momentum toward convergence, and I don’t know why that would necessarily shift,” says Jagolinzer.