Here’s a very good article from the Economist. Good stuff to talk about in any upcoming interviews. SCORE a point for globalisation. In a landmark vote on Wednesday August 27th America’s financial-markets watchdog, the Securities and Exchange Commission (SEC), paved the way for its companies to switch from America’s Generally Accepted Accounting Principles (GAAP) to international accounting standards. In a field that is, by reputation, notoriously dull, this looks like something to get genuinely excited about. GAAP was the beancounter’s gold standard for decades, but it is now widely seen as cumbersome. Most other countries have embraced the international rules, known as International Financial Reporting Standards (IFRS). The regulators’ plan envisages American-based multinationals switching to the standards voluntarily in 2010. The SEC would then vote on whether to require all other companies to do the same, starting in 2014. The commission has already cleared the way for overseas firms to use IFRS when doing business or listing securities in America. Click here to find out more! Christopher Cox, the SEC’s chairman, hailed the move to an “international language of disclosure, transparency and comparability.” Big companies have long been preparing for it with enthusiasm. It will bring each of them one-off costs in the tens of millions, but the savings over time will dwarf the initial outlay. It could also mean greater profits: one study found that the majority of American firms made more under the foreign rules. Investors, too, have reason to rejoice. It will make it easier to compare, say, a French drug company with an American rival. And the compliance costs of duplicate accounting, the bulk of which investors ultimately bear, will disappear. Accountants point to other benefits. IFRS is less complex than GAAP, with fewer exceptions; America’s accounting rules, like its tax code, are creaking under bolted-on guidance. It is also more principles-based, granting auditors greater room to use judgment. This can be good or bad, of course, but most experts say more leeway is needed. For several years, the SEC and the London-based International Accounting Standards Board (IASB), which oversees the international rules, focused on steadily bringing the two sets of standards together. But it has been a struggle, largely thanks to the Byzantine nature of the American system. Mr Cox embraced the more radical approach approved this week in the belief that it would boost the competitiveness of American firms by removing barriers to investment. The “roadmap” is the latest in a string of proposals under his leadership designed to bring American and foreign markets closer together. Not everyone is happy. Some politicians, including the head of the congressional committee that oversees the SEC, worry about ceding standard-setting power to the IASB. Even though America has seats on its board, there is concern that it will be under-represented. Some want it to have influence commensurate with the size of America’s equity markets, which account for almost half of global market capitalisation. Others worry about the IASB’s finances and its susceptibility to outside influence. One of the SEC’s commissioners said the plan should only be waved through once it is clear that secure, independent funding is in place. There are worries overseas too, for instance that the SEC will try to interfere with IFRS and interpret it in a narrow, prescriptive way. Standards issued by the IASB are supposed to be endorsed without modification. It remains to be seen whether America will be able to accept this. Its relations with international rulemakers can be thorny: think of the World Trade Organisation. Plenty of other issues still have to be resolved. Some are technical: IFRS allows fewer securitised assets to be kept off the books than GAAP does, for instance—a matter of import for banks. Others are broader and altogether more difficult. For an accounting framework that rests largely on judgment to flourish in rules-based America, the legal and regulatory environment there will need to “evolve”, says PricewaterhouseCoopers, a big accounting firm. That is putting it gently. Still, this week’s vote was a momentous step—and in the right direction.
Gotta love the Economist. Speaking of SEC - what’s your outlook for first team to stomp the B-dawgs this year? Auburn’s got my vote.
You forgot Florida is playing them two weeks before Auburn. We’re out for revenge after last year… those poor little puppies don’t stand a chance. In any event, SEC > Any other conference, hands down. I see Ohio State is ranked high up there again… wonder which SEC team is going to eat their lunch for them this year?? ahh man, you shouldn’t have got me started on football
Your gators have a mission to shake up Knowshawn Morono so much that by the time they head to Auburn, a .58 season looks like a slice of heaven. Hopefully the bayou bengals will rattle them some the week before y’all take it to Jacksonville. Either way. B-dawgs are going down hard this year.
personally, i prefer US GAAP to IFRS. There are better cash flow and income statement disclosures in US GAAP.
does this mean theres more discretion for managers to manipulate earnings? the R&D can be capitalized or expensed…
What I don’t understand is how a framework based on tons of interpretation is simpler than a rule based system like GAAP.
Isura Wrote: ------------------------------------------------------- > What I don’t understand is how a framework based > on tons of interpretation is simpler than a rule > based system like GAAP. I dunno alot of countries have principles based accounting regs but haven’t had major frauds like enron, tyco, sunbeam, etc etc etc.
SeanC Wrote: ------------------------------------------------------- > Isura Wrote: > -------------------------------------------------- > ----- > > What I don’t understand is how a framework > based > > on tons of interpretation is simpler than a > rule > > based system like GAAP. > > > I dunno alot of countries have principles based > accounting regs but haven’t had major frauds like > enron, tyco, sunbeam, etc etc etc. also codified systems lack flexibility compared to principles based systems, especially when their are emerging accounting issues, ie how to account for mortgage back securities. A princple’s based system can address emerging issues without having to be rewritten.