Will Americans Foul Up Global Standards?

Many outside the U.S. would rather American companies and auditors stick to their own accounting standards, says a panel of experts.

The idea of forcing American companies to file results using international financial reporting standards makes preparers and auditors in other countries edgy. “The world is very nervous about a U.S. move to IFRS because they are afraid [the standards] will turn into 25,000 pages of rules,” asserted Richard Fuchs, a partner with PricewaterhouseCoopers, during a panel discussion Tuesday. Today, U.S. generally accepted accounting standards runs about 25,000 pages, while IFRS comprises about 2,000.

“They think the U.S. response [to accounting problems] will be more guidance and more specificity. They fear the future because of what happened to U.S. GAAP … there will be tremendous resistance to the U.S. coming in and screwing up [existing standards],” continued Fuchs, who was a panelist at a conference sponsored by Pace University’s Lubin School of Business.

The six panelists were charged with discussing the status of global integration of accounting standards, and commenting on the impending mandate to force U.S. companies to use IFRS. In February, Securities and Exchange Commission chairman Christopher Cox said that his staff was working on a plan and schedule to move U.S. companies to the international standards.

But the panelists, all of whom boasted international accounting expertise, said the rest of the world viewed the more rules-based U.S. GAAP — as opposed to the more principles-based IFRS — with suspicion. Outside the U.S., “the expectation is that [American] standard setters will just plug loopholes” if there is an accounting problem, remarked Robert Colson, a partner with Grant Thornton. “It will take great discipline on the part of standard setters to fight the urge to get specific, but it will also take an arrangement with [U.S.] regulators” to defer to principles rather than rules.

“Regulators need to show restraint, and not make accounting interpretations on their own,” insisted Ernst & Young partner Danita Ostling. She said that as part of a global standard-setting and regulatory regime, the SEC would have to reach consensus with other oversight and enforcement bodies. In the U.S., the commission only answers to the president and Congress, with the Public Company Accounting Oversight Board and the Financial Accounting Standards Board operating under its watchful eye.

D.J. Gannon, a partner with Deloitte & Touche, says he sees “the beginning of a mindset change” at the SEC regarding cross-border consensus building. He cited a recommendation put forth by the SEC’s Advisory Committee on Improvements to Financial Reporting (CIFR), led by Robert Pozen, which introduced the notion of a judgment-based framework for accounting standards. What’s more, in a lunch time keynote address, the SEC’s deputy chief accountant Julie Erhardt noted that although it might not be obvious to the general public, she spends half of her time in London working with the International Accounting Standards Board and the International Organization of Securities Commissions.

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