The US has shifted, in the past six months, from looking like IFRS
adoption was imminent, to a case where no one seems able to hazard
a guess when, or if, the world’s largest economy will move to
international standards.
At the same time, the European Union, which began the rush to
global standards by making IFRS mandatory for listed companies in
2005, has been threatening further carve outs – a move commentators
say could spell the end to the idea of one set of global
standards.
BDO International chief executive Jeremy Newman told The
Accountant that discussions with member firms reveal this
divergence is causing concern in other countries.
“We had some very interesting discussions in South Africa about
IFRS, US GAAP and so forth,” he said.
‘What do we do?’
“It was interesting to discuss IFRS in a country that is an
observer and see the effect that it has on them. They see the US
potentially going in one direction and IFRS potentially going in
another. They look at the big capital markets they are involved in,
in both the US and the UK, and they think ‘what do we do?’
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By GlobalData“It’s okay for the US if they want to play around with US GAAP and
suspend aspects of mark-to-market; it’s okay for the UK to say ‘we
are going to adopt IFRS’; but for countries that are dependent on
capital flows from both Europe and the US, it is quite a difficult
position to be in at the moment.”
Newman said there are a number of countries that have committed to
adopting IFRS on the understanding that the US was likely to do so.
They had taken the proposed road map from US regulators as a
commitment to convergence.
“[These countries have] made certain commitments to IFRS and are
now getting concerned as to what direction of travel is happening
with regards to global accounting standards,” Newman
explained.
Newman says in South Africa there is a general concern that
politicians are interfering too much with accounting standards,
when they do not have the capacity or skill set to do so.
“Their job was to set up framework and legislation but not to draft
the detail,” Newman explained.
“I am very concerned about it. There is an element of irony that
the [International Accounting Standards Board – IASB] came under a
lot of criticism in the US in November last year when they rushed
through some changes on mark-to-market in the face of what appeared
to be some political pressure from the French and others. But the
IASB produced the changes themselves, all they did was have a much
shorter consultation period.
“The Americans were quite critical of it but yet the [US Financial
Accounting Standards Board] recently suspended aspects of
mark-to-market and appear to be under pressure to make further
changes entirely in response to political pressure.
“I think the changes that have been made will be
counter-productive. My assumption is that the easing of
mark-to-market and allowing companies to effectively mark-to-model
is intended to bolster bank balance sheets.
“No-one is going to mark-to-model to a lower value than they would
have got on mark-to-market. The intention is presumably to have
slightly higher values on the balance sheets and to therefore
bolster bank balance sheets.
“Presumably the assumption is that stronger bank balance sheets
will lead to improved lending, etcetera.
Undermine confidence
“My concern is that what it will do is actually undermine
confidence because while people might not like mark-to-market, at
least they know what it is. If they want to make an adjustment
themselves they can do so but at least they know the assets have
been written down to a level they could be realised for and
therefore the balance sheet is robust even it maybe it is a little
bit too prudent and cautious.
“If people start to use their own internal models to derive at
values, you won’t know how cautious or otherwise any balance sheet
is. I am afraid I think it may, rather than encourage people to
increase lending to and between banks, actually make them say ‘hang
on a moment, I do not know which balance sheets I can or can’t
trust’, and actually lead to a reduction in lending rather than an
increase in it.
“I am concerned it might be counter-productive.”
