Editor's letter: Single version of the truth

In February, the chairman of US regulator the Securities and Exchange
Commission said it was time to devise a roadmap for the adoption of
international financial reporting standards by American companies.

Any of you who have ever had to deal with US standard setter FASB’s
outpourings will be delighted to hear that the days of US GAAP may be numbered.
Those of you who haven’t, count yourself lucky. But you can be sure that the
latest pronouncement from the SEC is utterly remarkable. For America to adopt
international standards is like meeting someone in Kansas who has a passport.
It’s like the Americans allowing Cuba and South Korea to play in the World
Series baseball championship (I mean, they went on strike after Toronto won it
two years in a row). It’s like the US going metric, entering the Eurovision song
contest and paying their dues to the United Nations. They are admitting that
there is a world beyond the shores of the 50 states – and as far as accounting
standards are concerned, it’s better than the world they inhabit.

Many of you will have a copy of one of the major accountancy firms’ tomes on
IFRS. It’s probably on the top shelf. Not because it’s racy, but because your
more interesting books are the ones that are nearer to hand. Wherever it is, you
can’t miss it. It’s about four inches thick. The standards themselves are about
that sort of volume. Now imagine you have ten of those, side by side. That’s
pretty much what your opposite number in the US is looking at.

It seems easy to imagine why the Americans would want to swap. But it’s not
quite as easy as that. US standards are emphatically rules-based. If it’s not in
the book, then you can do it. At least, you can do it until there’s a new book
saying you can’t. Then you can think of something else that’s not in the new
book and do that, until…

IFRS is principles-based – or at least, so the theory goes. It’s not,
perhaps, an entirely true statement with regard to every standard within IFRS,
but the thrust of the body of work is that way inclined. The real, fundamental
difference between US rules and international principles comes down to what
David Tweedie told us: “We’re not going to tell them the answer to everything.”
Go back to your principles and prepare to be accountants again, not lawyers, is
his message.

Are the Americans ready for that? According to transcripts we’ve seen on the
SEC’s website, there is actually a greater thirst for IFRS than ever before.
They have a long way to go, but they might get there sooner than you think.