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Letters Ready or Not, Here Comes IFRS: Not So Fast! You discussed the dismantling of the Finan- cial Accounting Standards Board in "Ready Or Not, Here Comes IFRS" in the July/August 2009 issue of BizEd. The article contained this con- ditional premise: "If, as expected, the Securities and Exchange Commission decides U.S. companies should switch from generally accepted account- ing principles (GAAP) to Interna- tional Financial Accounting Standards (IFRS)..." Indeed, realistic expecta- tions are just the opposite. One key overlooked point is the simple fact that the roadmap to IFRS was generated in the final months of the Bush Administration when Chris Cox was chair of the SEC. The Democratic Obama Administration appointed Mary Schapiro as the SEC chair. Based on her public comments, it's clear this commission is not about to implement a proposal put forth by the Republican Party. Thus, it's not reasonable to expect the SEC to pro- mote the switch. Furthermore, I believe we should all question the soundness of aban- doning GAAP and the Financial Accounting Standards Board, which is the most independent and capable standard-setting body in the world. FASB enjoys unprecedented indepen- dence because the Sarbanes-Oxley Act ensured that its operating budget no longer relies on voluntary contribu- tions from corporate managers. FASB now is funded by the Public Com- pany Accounting Oversight Board (PCAOB), which collects mandatory fees from public companies. Sarbanes requires PCAOB to fully finance the budget of the authorized standard-setting body. Thus, a switch to the International Accounting Standards Board (IASB) would either 8 BizEd NOVEMBER/DECEMBER 2009 44 IFRS B by Sharon Shinn usiness professors always want to prepare students to work in the corporation of the future, but rarely have they been so focused on a particular date. In this case, the date is 2014, and it's accounting professors specifi - cally who have circled that year in red. If, as expected, the Securi- ties and Exchange Commission decides U.S. companies should switch from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS), 2014 is the year when compa- nies would be required to fol- low the new standards. At that time, business school gradu- ates and professionals in the workplace would need to understand the differences between the two systems—and how those international standards work. While U.S. business schools are already considering how to incorporate IFRS into the curriculum, most of them aren't yet ready to teach the new standards. According to more than 500 professors surveyed last fall by the American Accounting Association and KPMG LLP, 62 percent have not taken any signifi cant actions to incorporate IFRS into their programs. Thirty percent of survey respondents expect the class of 2011 to be the fi rst one to have a substantial grounding in IFRS education. That means there's a lot of ground still to cover in the next fi ve years. Fortunately, a great deal of help is available. BizEd JULY/AUGUST 2009 photography by Michael Cogliantry/Getty Images BizEd JULY/AUGUST 2009 45 IFRS As U.S. businesses prepare to adopt international fi nancial reporting standards, American business schools consider how to incorporate the new requirements into the curriculum. tremendous pressure to compromise. The BizEd article also repeated force the IASB foundation to accept its entire budget from the PCAOB or compel Congress to make standard setters once again dependent on gifts from the regulated parties. Both sce- narios seem unlikely. Since 1973, FASB has served as the U.S. standard-setting body for public reporting, although the SEC retains full oversight over its activi- ties. By contrast, IASB is not subject to any one country's sovereignty, and it certainly would not be willing to operate under the SEC's exclusive oversight. Thus, implementing the Cox plan would cause the SEC to sacrifice this power over account- ing standards applied in the U.S. It's obvious Congress will not surrender control over accounting standards to an international body beyond the reach of U.S. regulators. Less obviously, close observers know IASB is not up to creating standards for U.S capital markets. The BizEd article rightly observed GAAP and IFRS are similar, but didn't explain why. One reason is that GAAP served as the prototype for IFRS. Another is that FASB and IASB routinely issue joint standards. Bottom line: IASB is not yet capable of creating its own new standards without FASB's participation. Inci- dentally, that view was expressed in a July 28 report by the International Accounting Standards Foundation. Another obstacle to IASB's ability to produce quality standards is that IFRS won't become effective in the Common Market unless the Euro- pean Union legislature specifically votes its approval. Thus, IASB faces the old chestnut about IFRS being "principles-based" and GAAP being "rules-based." Even if this were true, I doubt that it would lead to superior financial statements. GAAP are rules- based because the management corps and the auditing profession have repeatedly demonstrated willingness to bend principles to produce desired but false financial images. There's no evidence that such a proclivity would disappear under IFRS. Finally, many of my colleagues believe that the four large accounting firms are pouring so much money into abandoning GAAP because those firms would gain the most if it happened. In late July, for example, PwC announced by an email to all accounting faculty that it will hire only graduates who meet the firm's specified levels of IFRS knowledge. Because this effort meddles with faculty's near-sacred control over cur- riculum, it is likely to backfire. But AACSB members should be alarmed by the pressure being applied to accounting professors. In conclusion, it strikes me as bra- vado for any of your sources to claim it's only a matter of time until IFRS replace GAAP. That statement is sim- ply not supported by the facts. It would be far better to main- tain a healthy working relationship between FASB and IASB so accoun- tants can produce truly high-quality financial statements by following standards that go above and beyond today's politically compromised rules, whether GAAP or IFRS. Paul B. W. Miller Professor of Accounting University of Colorado at Colorado Springs ■ z IFRS IFRS