What do you think of the recent controversy around convergence in the US?

Many thanks to Greg Millman for posing this marvellous question.

I am looking forward to hearing your views on this.

I understand there is some controversy over the adoption of IFRS in the US. This is nothing new… the IFRS resistance has been pretty strong in the US for a number of years. I understand the reluctance of professionals who, having had to study one thick book on USGAAP, are dreading the thought of studying another thick book on IFRS.

Most International Finance Professionals in Europe had to do exactly that. First study local GAAP, which varies from country to country, and then figure out how it all related to USGAAP… Only a determined few still had the energy to go on to study IFRS.

The best argument against the adoption of IFRS, comes from the extra financial burden that this will place on US companies. The timing is not great either. However, future savings will be made by reporting in just one format, and not having to perform reconciliations between different reporting methods. As to the timing, maybe that isn’t so bad either, IFRS implementation will certainly generate a lot of work for finance professionals!

The best way out of a recession in my opinion is to work your way out of it. Wealth creation must come before wealth distribution. We have years of catching up to do.

IFRS has the huge advantage of being a tried and tested platform for the unification of accounting practices across the globe. For stakeholders too, one common reporting language will simplify decision making and make financial statements more transparent.

The other glaring advantage is that it works. USGAAP is rules orientated whilst IFRS is based on a conceptual framework. The “IFRS resistance” often seizes on this phrase as a major downside. I would simply point out that UKGAAP has been based on the same conceptual framework for a very long time. The UK has suffered some embarrassing corporate failures, but there has never been anything on the scale of Enron, Worldcom or Global Crossing - all these occurred on USGAAP’s rules based watch. I believe that USGAAP with its prescriptive approach to accounting issues has become too cumbersome to be truly effective.

Sarbanes Oxley was designed to save USGAAP from a re-run of these high profile corporate failures; however the heavyweight tag team, Sox and USGAAP, could not stop the current financial crisis. Most commentators agree that this crisis emanated from the United States. Many other countries played their own part in making things worse, but it was the American subprime mortgage issue that brought down the whole house of cards.

Over the last twenty years the US has been resisting IFRS, yet these International Standards have been slowly and persistently adopted by many countries around the world. With Canada Brazil, Mexico and India now poised to adopt IFRS, the US is looking more and more isolated in its stance, and so I believe that USGAAP’s days are numbered.

It really is a matter of when, and not if IFRS is adopted in the US.