Friday, October 30, 2009

Kroeker, Volcker on Convergence

Earlier today, SEC Chief Accountant Jim Kroeker told a conference in New York that regardless of the status of SEC's proposed IFRS Roadmap:

"If the boards [FASB, IASB] share the same objective to improve financial reporting, the boards have agreed that the projects that they’re working on are areas that need improvement, not just under U.S. GAAP but under IFRS, then I think convergence efforts should continue or would continue without an SEC finalization of the roadmap. That isn’t to say that it isn’t important for us then to also determine the role of international reporting standards in the U.S., and I understand how that can help convergence efforts, but I don’t think the absence of a decision should somehow impede efforts.”

Kroeker's remarks as cited above were reported by webcpa's Michael Cohn in, Kroeker: Keep Converging With or Without Roadmap. The remarks were made at day two of the AICPA-IASCF's conference on IFRS in North America: the U.S. Perspective.

Announcement re: IFRS Roadmap 'This Fall' Means By Dec. 21, Kroeker Says

Pressed to give a specific date by which the SEC plans to announce some formal followup action on its proposed IFRS Roadmap, here's how Kroeker responded, according to webcpa's Cohn:

Kroeker reiterated earlier statements that he and SEC Chair Mary Schapiro had made, indicating the SEC was turning its attention this fall to the proposed IFRS roadmap. When asked about the date, Kroeker said, “There will be follow-up on the roadmap this fall.” Asked to define the word “fall,” he noted that the season ends on Dec. 21.

But Kroeker emphasized that the accounting standard-setting boards should not wait for the SEC to make its decision on the final roadmap, and how the roadmap might change in light of the comments the SEC has received.

Both Fair Value and Historical Cost Can Be Important
On the contentious subject of fair value reporting, the webcpa report notes that Kroeker commented:

I think it’s time for the accounting debate to turn away from whether it’s fair value or whether it’s historical cost, but to acknowledge that in some cases both sets of information are important, and then to discuss how best to portray them.

FASB-IASB MOU To Be Updated, Reprioritized
Webcpa's Cohn added that the FASB and IASB plan to update their Memorandum of Understanding - last updated in 2008, and that Kroeker told attendees at the AICPA-IASCF conference he would prioritize resolution of the board's long-term convergence projects by putting the following projects at the top of the list, in this order:

  • financial instruments

  • revenue recognition, and

  • consolidation and derecognition
Read more in the webcpa article.

If Kroeker's speech is posted on the SEC website, we will update this post to add a link here.

Volcker on Convergence
The AICPA Journal of Accountancy has posted a 3 minute video which opens with a clip from Paul Volcker's remarks at the AICPA-IASCF conference yesterday, and includes additional material from an exclusive interview conducted by the JofA. Volcker currently chairs President Barack Obama's Economic Recovery Advisory Board, and formerly served as Chairman of the Federal Reserve Board, and Chairman of the International Accounting Standards Committee Foundation (IASCF) Board of Trustees.

In the JofA video, Volcker speaks of the 'hubris' in the U.S. 20-30 years ago, in which there was a presumption that U.S. accounting standards were the best, and that others should follow the U.S. However, he noted that after the scandals that hit Enron, Worldcom, Global Crossing, and the demise of Arthur Andersen, "there is no necessary perfection in 'Made in the USA' any more."

He also speaks of the benefits of convergence in having one set of accounting standards applied for all worldwide operations of an entity.

On the question of how to protect the independence of standard-setters, Volcker replies, "The real protection is, if the international standards are carefully thought through, they recognize reality, they are appropriate and efficient, and if they are resistant to pressures from particular countries, that reinforces the independence, and it will make it more and more difficult for the Europeans, for the Americans, or anybody else to deviate, so 'do a good job' is the best protection they can have."

Commenting on the G-20 recommendation that convergence to a single set of global standards be achieved by June, 2011, Volcker says he believes that is a practical recommendation, characterizing it as "a needle to the United States to get on with it."

"That doesn't mean the United States has to be supine and just adopt whatever the international people say," says Volcker, adding, "there has got to be a give and take and discussion between the two, to get the best result."

GT Survey, Pozen Weigh In
Volcker's remarks about the U.S. not simply adopting international standards carte blanche, but the need for a give and take, will probably be appreciated by those who are most concerned about giving up control of the determination of accounting standards to an international body.

Grant Thornton released results of a survey yesterday, with the headline: "71% of senior financial executives say that FASB should set U.S. accounting standards, not IASB or Congress."(See GT survey.)

GT's survey was referenced in the article by Tim Reason entitled, Pro-American Mood Clouds Convergence. Reason also included snippets from the upcoming book by Robert Pozen, chairman of MFS Investment Management's Reason reports that Pozen, chair of the SEC Advisory Committee on Improvements to Financial Reporting which issued its final report last year, believes that adoption of IFRS would only make sense for the largest companies in the U.S., which have international operations. Pozen's book, entitled Too Big To Save?, is due out in November.

Read more convergence news, see our post yesterday, FASB, IASB To 'Retriple' Efforts To Meet 2011 Convergence Deadline.

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