The Silent Treatment

Regulators think that companies are too shy when it comes to airing their views on fundamental accounting issues.

Is there anybody out there? Financial regulators and accounting standard–setters sometimes wonder.

At a panel discussion in July, Wayne Carnall of the Securities and Exchange Commission’s Division of Corporation Finance chided companies for their tepid response to the SEC’s call for comments on the proposed adoption of international financial reporting standards (IFRS) in the United States — even after the regulator gave interested parties two extra months to express their views. Half of the 240-odd comment letters the SEC subsequently received were from registrants, meaning that “only about 1% of the companies in the United States that would be impacted by this change” have spoken up, Carnall said. Only a third of the letters the SEC received came from nonfinancial companies.

Across the Atlantic, the silence of nonfinancial companies on issues of major significance is also a worry. “There is some reluctance by nonfinancial companies to comment on issues that are not perceived as being of immediate concern to them,” says Philippe Danjou, a board member at the London-based International Accounting Standards Board (IASB). After an April request for views by the IASB regarding proposals by the Financial Accounting Standards Board to alter fair-value measurement and impairment practices, the IASB collected 74 letters, none of which came from nonfinancial companies.

Of course, accounting for financial instruments — the crux of the fair-value and impairment controversy — may not interest industrial companies, because it does not have a material impact on their balance sheets. Nonfinancial companies do tend to speak up in larger numbers on proposed changes to the rules on revenue recognition, leasing, pensions, and the like, Danjou says. But Carnall of the SEC notes that the response from companies on “relatively small, narrow” accounting issues has dwarfed that related to the international convergence project, which is no less than “a proposal to change the reporting framework in the United States.”

Missed Opportunities?

By largely limiting their comments to official bodies to narrow, technical matters, are corporations missing an opportunity to participate more broadly in the future course of accounting? “If they have something to say, they should speak up,” urges Danjou. Politicians, banks, and assorted lobbying groups have certainly not been shy when making their opinions known about the future of fair value, the convergence of international standards, and much else besides. Should such fundamental issues be left for them to discuss among themselves?

Finance executives in France think not. Two of the country’s main associations for finance and accounting executives, the APDC and the DFCG, issued a joint communiqué in April encouraging members to participate more actively in the debate, lest financial-services firms shape standards to suit themselves. “Accounting standards are for all companies, the majority of which are nonfinancial,” the statement read. “It would not be appropriate to entrust them to vested interests that are mostly financial.”

Holler Back

As for the letters that have been sent in response to the SEC’s appeal for views on IFRS in the United States, what are the corporate authors after? Do they think that speaking up will make a difference?

Discuss

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