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August 27, 2009

Increasing global awareness evident at US accounting event

The increasingly international nature of the American Accounting Association’s (AAA) annual meeting, held in New York this month, was one of the three most interesting points to arise from the event, according to one attendee.

The AAA is a national organisation that focuses on accounting education and research.

Institute of Chartered Accountants in England and Wales (ICAEW) executive director Robert Hodgkinson represented the institute at the event. He said the increasingly international focus of the US is good for everyone.

“Four years ago, when I first went [to an AAA annual meeting] we had a panel session organised, but it was quite difficult as a non-US body. It was on a topic that compared US and UK corporate governance and there was a little bit of puzzlement as to who would be particularly interested in things happening outside the US,” Hodgkinson said.

That attitude has transformed completely. AAA membership now includes many people from outside the US and attendance at the conference was quite international. The interest of US academics in international matter is also far greater, Hodgkinson said.

The second interesting change Hodgkinson witnessed was the “unsettling effects of IFRS on the US”.

“You need to bear in mind that in the US, the universities do substantially all the training for the accounting profession. So the big decisions about ‘when do we switch to teaching people IFRS’ and ‘are the better students going to want more internationally-orientated courses’ are big issues,” he said.

“For a generation of accounting professors this is quite unsettling.”

One of the speakers at the event was International Accounting Standards Board chairman David Tweedie, who said other countries are running out of patience waiting for the US Securities and Exchange Commission to decide on whether to approve a road map for transitioning to IFRS. He said the US needs to commit by 2011.

Hodgkinson said the academic community probably agrees with Tweedie’s sentiment that the US business community needs to decide what it was doing regarding IFRS because of the current uncertainty.

The third particularly interesting point was that there was a plenary session on sustainability issues, Hodgkinson said. He explained that it is new for the AAA to have an interest in environmental reporting and sustainability.

“That is quite encouraging for us as a body that not only has publications on sustainability issues but also a business for sustainability training programme,” he said.

“I think that’s interesting, encouraging and also perhaps a sign of the changing political environment. Although there is plenty of frustration as to whether the right sort of legislation will get through Congress on cap and trade schemes and so on, it does signal a bit of a change that you would have a plenary session with two people talking about sustainability issues.”

ICAEW role

The ICAEW organised several panel sessions at the AAA event. One featured US Financial Accounting Standards Board chairman Bob Herz and discussed how financial reporting may or may not contribute to financial stability.

The other three panel members were Sarah Smith of Goldman Sachs, Haresh Sapra of the University of Chicago Booth School of Business and Stephen Ryan of the New York University Stern School of Business.

Hodgkinson said that although the four speakers’ perspectives were quite different, they were quite cognisant in that nobody was saying there was an easy solution whereby financial reporting could be changed to make the markets safe from business cycles.

Another theme that Hodgkinson said arose from the event and from the financial crisis in general is that when new accounting regimes are introduced there needs to be a better understanding of how they will interact with business developments.

“We probably need to be a little bit smarter in anticipating the potential adverse consequences,” he explained.

One question that arose from the floor was whether there needs to be a rethink of the use of the incurred loss model of provisioning rather than a more economically based expected loss model.

Hodgkinson said the consensus from the panel was ‘absolutely, we do’. He added that although no one wants to revert to cookie jar accounting “maybe we did have a model that was just too late in recognising losses or anticipated losses”.

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