Wednesday, November 5, 2008

Of Landslides And Watersheds

The results of yesterday’s presidential election, in which Barack Obama was reported by the Associated Press to have experienced a 'resounding' win if not a 'landslide,' is a watershed moment in our history, a history in which the right of people to vote without regard to race or skin color came a century after our nation was founded, with yesterday’s election of Obama as the first African-American to be elected President coming a little over a century later.

The election illustrated, as noted in Obama’s acceptance speech, “In this country, we rise or fall as one nation, as one people.” He thanked his opponent, Senator John McCain for the ‘extraordinarily gracious’ call he received from McCain last night, noting in turn that McCain “has endured sacrifices for America that most of us cannot begin to imagine,” and that “we are better off for the service rendered by this brave and selfless leader.” See McCain’s concession speech.

Here is how I see Obama’s future legacy, as pictured in the words of his acceptance speech, potentially impacting the issues normally covered in this blog: accounting, auditing, and financial reporting. I believe that the polarization that is typical during pre-election campaigns is sometimes also typified in arguments about accounting, e.g. whether to suspend fair value accounting or maintain it as is, as discussed at last week’s SEC roundtable on mark-to-market accounting. Some panelists suggested a middle ground, others maintained strong views at either end of the spectrum.

I think the world of accounting and auditing standard-setting, just like the world of broader public policy making could benefit from, as described by Obama, “resist[ing] the temptation to fall back on …partisanship and pettiness,” and working together to make improvements. The regulators and standard—setters in the accounting arena are actively reaching out for input of constituents; in the example above of fair value accounting, the SEC is currently conducting a study of the impact of mark-to-market accounting, a study mandated by Congress in the recent Emergency Economic Stabilization Act of 2008, and the SEC also published two Requests for Comment (here and here) on this matter (comment deadline Nov. 13). The second of two SEC roundtables on this subject is coming later this month. The PCAOB announced at its recent SAG meeting it will be coming out with fair value guidance this quarter. FASB and the IASB recently announced that together, they will convene a global advisory group on accounting matters in the current financial crisis, and announced earlier this week the first of three roundtables on this topic will be held Nov. 14 in London, with additional roundtables to be held in Norwalk, CT and in Tokyo.

To me, one of the most important points in Obama’s speech last night, was when he said: “I will always be honest with you about the challenges we face. I will listen to you, especially when we disagree.” If standard-setters in all areas of policy can adopt this message, including having the courage to speak honestly about their views (see Robert J. Shiller’s column in Sunday’s (Nov. 2) New York Times, “Challenging the Crowd in Whispers, Not Shouts), and having the willingness to listen carefully to opposing views and potentially find a middle ground, I think that can encourage constructive results.

In the coming weeks as the current administration comes to a close and Obama’s transition team moves in, we will continue to provide you with updates on news relating to accounting and regulatory reporting. If you are new to our blog you can sign up here for email updates.

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