Staffers from President Obama’s transition team called the Financial Accounting Standards Board before the new president took office to ask for updates on current projects. That’s standard operating procedure for an incoming administration, but it is nice to know that accounting issues were on some White House agenda before the new president took office. It also probably means that the administration, via the Securities and Exchange Commission, will be announcing its new list of priorities sooner than later.
For now, however, the future of accounting rulemaking is a bit uncertain. “The change in administration may mean we are taking a different route [to international financial reporting standards],” noted Allison Patti, an official from the SEC’s Office of the Chief Accountant, at an industry meeting.
She said that the SEC has no official position on the matter, but based on the congressional testimony of Mary Schapiro, the president’s pick to head the SEC, it makes sense to slow down the SEC timetable of moving American companies off of U.S. generally accepted accounting principles and onto IFRS. In that way, the SEC can make sure all the implications are studied and the opinions of stakeholders are considered.
The SEC expects to make a decision by 2010 regarding whether it will force American companies to file financial results using IFRS. The regulator has set 2014 as the year companies must make the transition to IFRS if the SEC gives them the green light. Patti also told the crowd at the 2009 SEC/FASB Conference — a confab sponsored by the New York State Society of Certified Public Accountants — that they had a chance to help craft IFRS rulemaking going forward.
“Future rulemaking will be shaped by [public] comments to determine what is the next best step,” she asserted, nudging audience members to file opinions with the SEC regarding its proposed IFRS rule and timetable. The deadline for public comment is February 19. She reckoned that the Obama administration would not abandon IFRS, but just “take a different path.”
Meanwhile, Public Company Accounting Oversight Board staffers are brushing up on international standards, supplementing their knowledge of U.S. GAAP with IFRS training, according to Mary Sjoquist, special counsel to the PCAOB member Bill Gradison. In addition to inspecting the work of auditors that verify the books of U.S. public companies, the PCAOB also inspects the work of foreign auditors that have clients listed on the American stock exchanges. So knowing IFRS helps them audit the foreign auditors.
However, “Globalization is becoming one of the biggest challenges to the PCAOB,” Sjoquist told the audience. Indeed, the globalization of accounting rules came to a head earlier this month, when the work of Price Waterhouse India, the auditor for Satyam Computer Services, was called into question after the CEO of the Bangalore-based outsourcer confessed to orchestrating a $1 billion accounting scam. As a result, some observers also questioned whether PCAOB was doing a good job of spotting deficiencies in the audit procedures of foreign firms. Satyam is listed on stock exchanges in Mumbai and New York.
While the SEC awaits a new chairman and a new agenda, the Financial Accounting Standards Board and its overseas counterpart, the International Accounting Standards Board, are moving forward with their top priority of converging U.S. GAAP and IFRS into one set of global standards, noted FASB member Thomas Linsmeier. Since 2002, the boards have been meshing the two sets of standards to cut complexity out of the system, while improving the rules along the way.
By 2011, Canada, Japan, China, and South Korea will join the European Union in requiring companies to file financial results using IFRS, added Linsmeier. But it is still unclear whether the new administration will lean on the SEC to speed up the transition to IFRS. While Schapiro appears to favor slowing the process down, Obama economic advisor Paul Volcker, a former chairman of the Federal Reserve board, delivered a ringing endorsement of IFRS this week, as part of a reworked regulatory system.
Despite a push from Volcker however, the tortoise approach may win out over a hare approach in the race to international standards. Indeed, no matter what the SEC decides, universities and colleges are ill-prepared to teach IFRS to burgeoning accountants, and veteran accounting practitioners have little knowledge of the rules, and not many places to retrain.