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Professor David Albrecht: IFRS Will Make Financial Statement Comparison an Impossibility

Ed. Note: This is the second installment of our dialogue with experts on International Financial Reporting Standards. See our first post with IFAC President Bob Bunting here and if you are an IFRS expert interested in joining the discussion, please contact us at [email protected]

It’s appropriate to disclaim that The Summa’s Professor David Albrecht is a friend of Going Concern and for the most part he and I share similar views on the US conversion to IFRS. If you have not read any of our previous rants on the subject, you’re too far behind to catch up but I might suggest this?

Knowing Caleb would be speaking to an accounting heavyweight on the subject, we thought it prudent to get some feedback from our favorite anti-IFRS accounting professor to balance things around this joint. His answers were not at all surprising but as always, incredibly well thought-out and actually quite reasonable. If you don’t have attention span to get through this, you can sum up Professor Albrecht’s thoughts thusly: IFRS isn’t the end of the world but it’s certainly the end of the world we know.

What’s the most common argument you hear against IFRS?

The most common argument against IFRS is that it will make comparability difficult to accomplish. Tied with this is the argument that IFRS adoption will usher in an era of financial statement manipulation that is historically unprecedented. Initially, the Big 4 and the AICPA were touting that IFRS would increase comparability. They seldom tout this today, as it has been convincingly shown that the flexibility and professional judgment embedded in IFRS will make fuzzy numbers a certainty and comparability an impossibility.

Does it make a difference if the United States follows one set of rules and the rest of the world follows another set of rules?

Accounting theory reveals that accounting standards should be responsive to the market and the legal/social environment within each country. There actually shouldn’t be one global set of accounting standards if the goal is to have the world be better off. Having 200 sets is a bit much as some countries don’t want to go to the expense of creating their own standards but 5 would be a good compromise; one for each geographically similar set of countries with similar needs.

Most schools aren’t teaching IFRS and don’t plan to until they absolutely have to. How will higher ed catch up?

Only a small number of colleges and universities now are implementing international rules and standards in their curriculum. IFRS will not be added to college curriculums until new textbooks are written and GAAP is no longer in them. This will happen after the final cut-over date to IFRS. [In other words, at the very last minute]

How would you respond to the argument that the only people that will benefit from the conversion to IFRS are the partners in large public accounting firms?

This is mostly true. It’s possible that some politicians will also benefit. There will be some expansion of the Big 4 workforce, likely in the form of lower paid entry people. I suspect there will be an influx of lower-paid foreign professionals coming in on temporary assignment.

The SEC remains cautious with regard to IFRS. What is your reaction to their recent announcement?

In my view, the SEC is only cautious publicly as window-dressing. Moving toward IFRS (or its equivalent) has been a fixture of behind-the-scenes federal group-think since 1989 and the term of SEC chair David Ruder. Switching over to IFRS will present the Obama administration with some difficulties so it is being handled very subtly. Most of the switchover will take place via conversion, and the final announcement will be only a formality. Obama’s chief economic adviser, Paul Volcker, has been working with Obama on this even before the 2008 election and has been married to IFRS for years.