Why IFRS will never work in the USPosted: March 9, 2015
I have always felt like the ideal of one set of global accounting standards made sense. If business is global and accounting is the language of business, we need one language, not several different ones. The ideal of a single set of global standards took on a hard reality with the creation of the IASB, the adoption by all of Europe as its single source of accounting standards and the famous or infamous Memorandum of Understanding between the FASB and IASB last decade. With country after country adopting IFRS as its accounting standards and the SEC allowing foreign companies to file financial statements under IFRS unreconciled to U.S. GAAP and poised to tell U.S. public companies they would have to file under IFRS as well, it seemed the path to a single set of international standards was set and inevitable.
Then something happened.
I don’t know if the SEC got cold feet, had legitimate concerns or simply got distracted by its many other duties, but for whatever reason, the SEC stopped the push toward requiring domestic U.S. companies to adopt IFRS. Then the camaraderie of the FASB and IASB working on standards together started to crumble; first with differences on financial instrument impairment, then deciding to go their own ways on insurance and finally taking completely different directions on the income statement presentation of leases. Even the crowning achievement of a single revenue standard is starting to show the cracks in the relationship with the Boards taking different positions on the need for additional guidance on revenue related to licenses and more guidance on how to determine performance obligations.
Through all of this, I still thought that global standards made sense, if only we could work together. Then an IASB Board member opened their mouth and changed my opinion, maybe forever. In discussing potential additional guidance on the revenue standard the IASB Board member said (I paraphrase) “I never thought you would actually have to do this revenue accounting on a contract by contract basis.” The worst part was no IASB Board member called him out for such a statement.
In the U.S. when a standard says “the objective of the guidance on this topic is to establish principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows from A CONTRACT WITH A CUSTOMER” as ASC 606-10-10-1 states, that means the standard is intended to be accounted for on a contract by contract basis. That fact is made even clearer by ASC 606-10-10-4 which states “this guidance specifies the accounting for an individual contract,” but says we can use a portfolio approach if the results “would not differ materially from applying this guidance to the individual contracts.” For those of you saying I am quoting the FASB codification and not IFRS 15 which the IASB member would be referencing, IFRS 15 says the exact same thing.
The rest of the world is clearly a very different place legally and regulatorily than the U.S. If members of the IASB can say the standard wasn’t meant to do what it says in plain English and not be called out, then my only conclusion is that the rest of the world views accounting standards very differently from the SEC and the U.S. Courts and we dare never subject ourselves to a standard setting body that doesn’t recognize and help preparers and auditors deal with such differences.