BY PAUL B. W. MILLER AND PAUL R. BAHNSON
Be careful when
you wish for uniform
in the same
Paul B. W. Miller is a professor at the
University of Colorado at Colorado Springs
and Paul R. Bahnson is a professor at Boise
State University. The authors’ views are
not necessarily those of their institutions.
Reach them at firstname.lastname@example.org.
We begin by repeating this Feb. 24, 2010, quote from the American In- stitute of CPAs’ Barry Melancon:
“Our increasingly global economy makes it
clear that the U.S. should move toward a sin-
gle set of high-quality, globally accepted ac-
counting standards for public companies.”
After quoting it in our most recent column
(“Be careful when you wish for high-quality
global standards,” May 10-23, page 16), we
challenged the assumption that convergence
is the path to high quality. We described 20
critically needed GAAP reforms that would
make financial statements more useful to
users for making rational decisions. Unfor-
tunately, switching to International Financial
Reporting Standards won’t eliminate inferior
practices and could even make them more
difficult to correct.
This column describes how Melancon’s
claim that international uniformity would
help the global economy is superficially attractive but unattainable.
IS UNIFORMITY A WORTHY GOAL?
The flawed assumptions underlying this argument for adopting IFRS hold that “a single
set” of standards will produce uniformity and
that uniformity is a good thing because it always creates comparability. Ah, if only life,
and accounting, were that simple. Below, we
discredit the false premises behind that proposition and explain the negatives of seeking
uniformity without usefulness. Throughout,
we challenge conventional wisdom and those
who call for international standards without
UNIFORMITY ISN’T COMPARABILITY
The pivotal assumption that uniformity leads
to comparability springs from information
suppliers’ self-serving rationalization for the
easy way out, usually expressed by saying,
“At least everyone is doing the same thing.”
That idea is totally simplistic because it ig-
nores output content and quality. Uniformity
produces comparability only when similar
events and conditions are similarly and use-
fully described in statements. It isn’t created
merely by recording those similar events or
conditions the same way. Here are two ex-
amples out of many:
IS IFRS UNIFORM?
Melancon’s comment reflects the invalid
assumption that IFRS is already uniformly
applied throughout the world. That is just
not true because most who are said to have
adopted IFRS haven’t really done so.
Here’s a quote from the Feb. 19, 2009, let-
ter sent by the National Association of State
Boards of Accountancy to the Securities and
Exchange Commission on the roadmap pro-
posal: “Many of the more than 100 countries
[that] have endorsed IFRS use only that por-
tion of IFRS that is useful for their purposes.
Some countries have adopted only a limited
number of the standards. Countries that have
adopted IFRS have made changes to the ac-
counting standards promulgated by the [In-
ternational Accounting Standards Board] in
order to satisfy their local reporting needs.
Such needs are influenced by substantial le-
gal, cultural and environmental influences.
As a result of such needs, jurisdictional vari-
ants of IFRS have become the norm and are
likely to continue into the future. There is sim-
ply no assurance that all countries embracing
IFRS will apply the standards in the same way
to achieve comparability — the chief benefit
argued for a single set of standards.”
An e-mail from David Costello, NASBA’s
president and chief executive, added this
point: “By our calculations, the countries
which have accepted totally IFRS comprise
about 4. 5 percent of the world’s GDP, roughly
equivalent to that of our states of California
Bottom line, the world is not anywhere
close to having “a single set of high-quality,
globally accepted accounting standards.” To
imply that one will instantly spring into ex-
istence when the U.S. gives up on GAAP is
either naive or manipulative.
Psychologists use the term “projection” to describe the tendency of people to believe that
all others think and act the same way they do.
(Consider how Marie Antoinette missed the
point by suggesting that, like her, the peasants
should just eat cake if they didn’t have any
bread.) However, education and thoughtful
reflection on first-hand experience can allow
people to comprehend that everyone’s situation is not the same.
We make this point because vocal American advocates for IFRS seem to assume the
rest of the world has regulatory and enforcement systems on the same order as the U.S.
SEC. To the contrary, the SEC is the product of
75 years of hard work and millions upon millions of dollars. There are no other market regulators with its human, financial and political
resources. Yet even it struggles to stay ahead
of auditors and managers who deceive and
defraud by bending and breaking GAAP.
See SPIRIT on 15