Dead Parrots and Accounting Convergence


It seemed like a good idea at the time. That’s the takeaway from a speech by former U.S. Securities and Exchange Commission Chairman Christopher Cox regarding the past hope and current lack of progress in the adoption of International Financial Accounting Standards (IFRS) by U.S. companies.

Cox went further is his speech arguing that both the private market and accounting standard setters should move on from the IFRS debate since it is — in fact and in theory — a dead issue.

“For those of you who remember Monty Python, I think Michael Palin, in speaking about John Cleese’s parrot, said it best: This parrot is no more,” Cox said in a speech at a conference sponsored University of Southern California’s Leventhal School of Accounting. “It’s not simply resting, or momentarily stunned. The prospect of full scale IFRS in our lifetimes has ceased to be. It is bereft of life. It rests in peace.”

IFRS defenders were quick to offer rebuttals, including International Accounting Standards Board (IASB) Chairman Hans Hoogervorst, arguing in a statement published by the Wall Street Journal that the IASB continues “to believe that investors are best served by high quality globally comparable information, and that includes U.S. investors.”

In fact, the former SEC chairman’s argument seems counter to the current chairman’s stance on IFRS. In a speech as late as last month, current SEC chairwoman Mary Jo White said IFRS adoption “has also been a priority for me. And, it continues to be.”

Cox listed five reasons that IFRS was never reconciled with U.S. GAAP during the past half-decade, laying most of the blame at the feet of the IASB:

"First, they want to know that the standards they’ll have to live by are being developed in their interests. Users of financial statements, investors, preparers and public companies all expect to be viewed as legitimate stakeholders.

Second, they want a standard-setting process that is transparent. Transparency is essential to maintain confidence that the standards really are being developed with stakeholder interests in mind. And it is necessary to ensure the integrity and quality of the standards.

Third, they want the standard-setter to be independent. That doesn’t mean aloof or non-responsive, but rather independent from national or regional biases – an area of particular difficulty for the IASB.

Fourth, the standard-setter has to be accountable. This is the flip side of independence. And it is the greatest challenge for a global standard-setter, because being accountable to everyone may ultimately mean being accountable to no one.

That leads to the fifth and final point: all of the stakeholders themselves have to be able to participate in the standard-setting process. Moreover, their participation can’t be just pro forma – it has to be meaningful and consequential."

The lack of progress on accounting convergence can be considered a natural reaction of markets as they moved away from the stress of the accounting scandals of the early 2000s and the financial crisis, says Martin Gelter, associate professor of Law at Fordham University.

“In the early 2000s – at the time of WorldCom and Enron – there was a big push for it because there was a lot of dissatisfaction with accounting standards in the U.S.,” Gelter says. “That sentiment has gone away and the SEC and not made it a priority. Now the debate is being defined by several different interest groups.”