both boards have already adopted.
The end must be more efficient
capital markets through more useful and more complete information,
and the means is convergence of all
standards on new practices that will
produce that information.
It will do absolutely no good to
converge on today’s compromised
and otherwise mediocre accounting standards. Indeed, we’re convinced that the current brand of
convergence will not just fail to
produce better accounting, but
will inhibit the development of
truly high-quality new standards.
Once labor and political capital are
sunk into getting convergence (as
Tweedie described it), no one will
want to rock the boat by daring to
bring entirely new solutions to bear
on the problems. Yet it is entirely
new solutions that are needed.
Spirit
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methods, neither will be interested
in revisiting the issues to find better
solutions to replace these inferior
compromises.
MINIMUM OR
MAXIMUM QUALITY?
Lest anyone misunderstand, we’re
all in favor of international harm-
standard-setters, auditors, manag-
ers and regulators is that standards
instead define the maximum that
anyone must do, and that no one
can be faulted for failing to go above
and beyond the politically compro-
mised rules to actually tell the truth,
the whole truth, and nothing but
the truth.
ing additional useful information
that reduces uncertainty and risk
for investors. We’re willing to let the
capital markets provide their own
rewards to managers who publish
superior supplemental informa-
tion while imposing their own
penalties for those who don’t. All
this discipline would be above and
demand reports, instead of those
who supply them. Until standard-
setters choose to serve only users’
needs, convergence will be nothing
but an empty exercise that wastes
the irreplaceable time and efforts of
a great many highly talented indi-
viduals around the world, and what
a shame that is.
STATUS QUO
CONVERGENCE?
For example, Tweedie cites his
board’s moves to emulate FASB
by eliminating poolings of interest
and the amortization of goodwill.
He also mentions FASB’s move to
require expensing stock options
and achieve congruence with the
IASB’s standard. These examples
exemplify what we fear. In the eyes
of the standard-setters and others,
these issues are now resolved and it
will be years, even decades, before
they’re ever reconsidered.
How much better would it have
been if both boards had worked together to question any financial reporting for combinations that fails
to provide complete market-based
information about the assets and liabilities of both the acquirer and the
acquired? How much better would
it have been for both boards to require an accounting for goodwill
that reports all changes in its value,
instead of only impairment losses?
And how much better would it have
been if they had both converged on
an accounting method that treats
options as highly volatile derivative
liabilities that virtually always produce costs greatly different from the
grant-date value?
Alas, now that FASB and the IASB
have moved to common mediocre
In the six years since we wrote
these words, the U.S. and the world
have suffered, and are still struggling with, another business crisis that was precipitated, at least
in part, by a lack of transparent
financial reporting. For all the time
and effort (and public relations announcements) that have been directed toward convergence, we’re
seeing this project as nothing but an
incredibly protracted but obviously
deliberate effort to align FASB and
IASB standards without making
real progress at improving financial reporting.
And, like we said back then, it is
a real shame that today’s leaders
still have no clue that this massive
effort will accomplish next to nothing. AT
We’re seeing convergence as
nothing but an incredibly
protracted but obviously
deliberate effort to align standards
without making real progress.
ony in accounting standards, and
we think convergence is a good
idea. However, where our thinking
differs is that we see standards as
minimums that define the absolute
least that managers must do.
Unfortunately, the attitude of
DIVERGENCE IS GOOD!
As a matter of fact, once there is
convergence on the minimum
standards, we wholeheartedly en-
dorse complete divergence among
managers who are seeking lower
capital costs by voluntarily provid-
beyond that meted out by regula-
tors for failing to meet minimum
standards.
