Regulator Rips Into Global Accounting Plan

The rush to adopt international accounting standards is a politically motivated, myth-ridden effort that will weaken U.S. capital markets, says PCAOB member Charles Niemeier.

Recent efforts to move the United States toward adoption of international accounting standards is a politically motivated effort that will hurt the standing of the United States in the world’s capital markets, a prominent accounting regulator said today.

A precipitous move away from U.S. Generally Accepted Accounting Principles will undermine the U.S. regulatory system, and thereby “put in jeopardy the thing that gives the U.S. a competitive advantage,” said Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board. “All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?”

Niemeier, who has been a vocal critic of the accelerated movement toward adoption of IFRS, laid out a scathing critique on Wednesday at a conference in New York City sponsored by the New York State Society of CPAs. Niemeier also declined an audience request to define the PCAOB’s official view. “People speaking out individually is the closest you’re going to get,” he said.

Niemeier challenged the idea that stringent American regulations have hurt the country’s ability to compete in global capital markets — an argument made to Treasury Secretary Henry Paulson in 2006 by the Committee on Capital Markets Regulation and again in 2007 by a McKinsey Report commissioned by New York City mayor Michael Bloomberg and Senator Charles Schumer (D-N.Y.).

Niemeier argued the opposite, contending that U.S. regulation gives the country a competitive advantage because it boosts investor confidence and results in a lower cost of capital. Efforts to move to weaker international accounting standards, he said, would undermine those regulations.

There has long been a plan in place for U.S. accounting standard-setters and their international counterparts to gradually eliminate differences between the two different sets of standards through a process called convergence, which Niemeier said he supports. But under President Bush, he said, Washington placed a political focus on “what they called convergence.”

“There is no effort underway to converge standards” into a single set of high quality rules anymore, asserted Niemeier. Instead, he said, the Securities and Exchange Commission decision to allow foreign companies to file financial reports using International Financial Reporting Standards without reconciling them to U.S. GAAP had already introduced two sets of standards into the United States. “We’ve given up on GAAP,” said Niemeier. Recent efforts, including the SEC’s decision last month to create a roadmap for U.S. conversion to IFRS represented “a move away from convergence toward capitulation.”

Responding to Niemeier’s remarks, SEC spokesman John Nester said, “The Commission’s proposal comes directly in response to the fact that more U.S. investors are investing in more foreign companies in more international markets than ever before, which suggests the need for an international language of disclosure and transparency to protect investors and facilitate their comparisons of corporate financials.”

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