IFRS adoption: Yet another fatal flaw and a heaping dose of ridicule

Apparently it is not yet universally believed that adopting IFRS for the U.S. is a horrible, fatally flawed concept that would harm the U.S. capital markets. I’ll mention yet another catastrophic flaw in the concept after a few jokes at the expense of IFRS.

First, some indication there is still a heartbeat in the otherwise decaying corpse.

I hope there’s still not hope for convergadoption ™

Mentioned before that the New SEC Chief Accountant {is} Weighing Switch to Global Accounting Rules – The new chief accountant is reviewing past work at the SEC on IFRS.

On November 6, the Wall Street Journal reported he hopes in a few months to have “movement” on the issue. Didn’t give a hint what direction he thinks the agency should go.

Professors Paul Miller and Paul Bahnson discuss IFRS at length in their article, IFRS in the U.S.: The opera star has already sung (free registration required).

In the article, they explain that SEC chair Mary Jo White said she thought IFRS adoption might be a good idea in a meeting with the FAF.

A heaping helping of ridicule

In observing our culture and human nature, I’m slowly catching on that a dose of ridicule can point out the silliness and foolishness of an idea when logic and rational thought doesn’t seem to be sufficient to carry the argument (yeah, yeah, catching on slowly is the story of my life). I’m clumsy at joke-making, so I’ll borrow from others.

Here is the anonymous comment posted by “Guest” at the Going Concern article on IFRS making another appearance in the headlines: IFRS Fanboy to World: Global Adoption of IFRS Is Inevitable

There are two types of countries in the world. Those who use IFRS, and those that have put a man on the moon.

I could provide multiple paragraphs explaining the ideas embedded in that joke, but those two sentences are much more powerful.

The convergadoption ™ word used earlier is from Adrienne Gonzales, star journalist at Going Concern. First saw her phrase here. Before following that link, be forewarned she tends to use a few naughty words. Actually, she uses a lot of naughty words. Don’t say you weren’t warned.

The value of her term is that in one made up phrase we see a summary of the haphazard blend of approaches over the last decade: first full IFRS adoption, then working towards a merged accounting framework (which I think is 1 for 4 so far), then co-adopting some major rules, and then some muddled something and something.

Her five-syllable word is far better than my incoherent description. I can also work one clever word into every discussion of IFRS convergadoption with more efficiency than a long paragraph.

The opera’s leading lady has not only finished singing, she’s gone home

After giving a long explanation to both the SEC chair and IFRS leadership on why they need to give up on this failed experiment, the professors’ article above gives a joking illustration on the status of IFRS adoption in the U.S., which I’ll modify a bit.

There’s an old saying – “The opera isn’t over until the leading lady sings” (modified slightly by the professors).

They point out that the leading lady has not only sung, she has gone to her dressing room, changed out of her performance costume, and left the building.

She not only has sung the final song in the final performance at the end of the season, but she took a cab to her favorite restaurant and while waiting for her desert texted her agent asking about negotiations for her schedule next fall and mentioning she would like to visit some different cities in England the year following.

It’s over.

Yet another flaw, fatal by itself

As if we needed to add to the volumes of reasons IFRS convergadoption would be a horrible thing for the U.S. capital markets, the professors provide yet one more. As a standalone idea, this should be sufficient to kill the concept.

Full adoption would put the SEC in the position of just one of hundreds of constituents the IASB would try to keep happy, meaning the SEC would not be able to

…fulfill its statutory responsibility for protecting and strengthening U.S. capital markets.

In one long sentence:

We just cannot comprehend how you would think a multinational board with multiple constituents, competing political interests, and diverse kinds of cultures, economies, and capital markets would be even the least bit interested in or capable of addressing the SEC’s urgent needs, much less act as promptly and effectively as FASB does.

My description: IASB would address the urgent issues in the U.S. when the IASB felt like getting around to it. Seems to me that would be a catastrophic fail for the SEC. The Congress might concur.

The professors also mention again the most severe flaw in IFRS:

If you have adopted this premise {that uniform accounting standards will produce comparable financial statements} on your own, you need to understand that uniform but incomplete and faulty standards will always produce uninformative and otherwise non-comparable statements. On the other hand, if your advisors still cling to that erroneous idea, we think you should listen to someone else.

I suggest this flaw meets the definition of false advertising,  The IFRS model is not capable of delivering on its promised goal, that of uniform accounting across the vast expanse of all political, economic, legal, and cultural systems.

The professors point out that if IASB were to replace FASB, then IASB would take on responsibility for setting GAAP for non-public companies and the nonprofit sector.

Finally, their advice to the IASB, which perhaps belongs in the ridicule section above:

Your designation as the U.S. standard-setter should not and will not happen soon, not in your lifetime, not in this century, and perhaps never.

It’s over.