Lies, ____ Lies and StatisticsPosted: February 4, 2013
The on again off again battle on the potential U.S. adoption of IFRS took a couple of interesting turns last week. The first interesting turn was the nomination of a former prosecutor to head the SEC. All the stories talk about how the appointment of Mary Jo White is sending a clear signal about bolstering the SEC reputation for enforcement. I’m not here to dispute that, but if the focus is going to be on enforcement then I am guessing IFRS will continue to be down the list of SEC priorities for at least a while which means we will continue down the path of U.S. GAAP for U.S. public companies, IFRS for Foreign Issuers filing with the SEC and lots of continuing rhetoric about the U.S. not adopting IFRS from everybody.
The second interesting turn was a study released by the U.K. that showed how IFRS Impairment rules were being used inconsistently across Europe. This supported a similar SEC finding in its work plan report. The lack of consistency puts a major dent in the argument that the U.S. needs to adopt IFRS so that everyone will be reporting results the same way. If IFRS is not being used consistently then what difference does it make if there are also a few differences between U.S. GAAP and IFRS, or so the anti-IFRS argument goes.
But that wasn’t what really bugged me about the whole issue. The part that bugged me was what Hans Hoogervorst, Chairman of the IASB said in defense of IFRS. I agreed with his statement “that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards,” but I disagreed with his next statement strongly. He went on to say 735 restatements required by the SEC in 2010 show that even U.S. GAAP has issues with consistent application of standards. I say that statistic is at best totally irrelevant to the issue of comparability and at worst, might prove just the opposite of what Mr. Hoogervorst was trying to say. By requiring restatements the SEC was, in fact, forcing consistency in the application of the standards. What the U.K. and SEC studies found were inconsistent application of standards that were apparently perfectly acceptable to the various regulatory organizations responsible for enforcing consistency in IFRS.
So, a statistic is used to purported prove that application of U.S. GAAP is just as inconsistent as the application of IFRS, but it actually may prove just the opposite if you are really informed about the subject. It certainly brings to mind that old saying about statistics being the biggest lies of all.