Attestation Update – A&A for CPAs

IFRS hasn’t achieved consistency in financial reporting in countries where it has been implemented, even amongst firms in the same industry.

Consistency between countries is low because:

IFRS has been filled with carve-outs, special deals, exceptions, and time-freezes; in short, countries are adopting their own national brands of IFRS

In addition, principles-based accounting hasn’t cleared up the off-balance-sheet financing issue where IFRS has been adopted.

These are some of the secondary criticisms that Professors Anthony Catanach and Edward Ketz raise in their post, IFRS is for Criminals.

Their far bigger concern is that the lack of specific rules will open the door for unscrupulous preparers. Applying principles to financial transactions requires mature judgment and the desire to get to the best answer. The professors’ description of this concept, along with the fairly serious problem it creates is:

Principles-based accounting produces value only when managers and their advisers are principled men and women. Unfortunately, the past decade contradicts such a presumption. 

They point out that the goals of the Accounting Principles Board and major changes in reporting during the 1960s were to put some structure in place instead of allowing companies to report as they wished. 

My concern is that even with the extensive rule-based accounting we have in place today, we have seen extensive corporate fraud and wholesale financial restatements to correct accounting treatment.

My worry, which is explained much more eloquently by the professors, is we will be going backwards with IFRS.

Hat tip: Going Concern