NEW YORK, Sept 10 (Reuters) - The push to move U.S. companies to international accounting standards is a myth-laden, politically motivated process that could set U.S. markets back by “light years,” a top U.S. accounting regulator said on Wednesday.
Delivering a harsh critique of the U.S. Securities and Exchange Commission’s proposal to move to International Financial Reporting Standards (IFRS) by 2014, Public Company Accounting Oversight Board Member Charles Niemeier said the proposed switch could squander comparability among U.S. financial statements, and hurt the ability of regulators and auditors to do their jobs.
“IFRS has the potential to de-link us from our regulatory model,” Niemeier said at a New York State Society of CPAs conference in New York.
Niemeier, whose term on the U.S. auditor watchdog expires next month (though he may stay on until a replacement is named), noted that regulations from the Sarbanes-Oxley Act have gone a long way toward improving the quality of U.S. markets. Moving to IFRS would leave the country with accounting rules that are more difficult to enforce, he added.
At the root of the problem, Niemeier said, is a series of myths that U.S. Generally Accepted Accounting Principles (GAAP) are too broken to be fixed, and that IFRS, which is viewed as more principle-based and less rule-based would be better.
“IFRS is not more principles-based, it’s just younger,” Niemeier said, noting that GAAP also started as a set of principles.
“The biggest difference between GAAP and IFRS is that GAAP is older and has been tried,” he added.
The testing that comes with age, Niemeier said, has left the United States with accounting rules that are predictable and consistent -- something that should be prized due to the unique nature of U.S. markets.
“No one else has litigation like us,” Niemeier said. “What makes sense overseas may not make sense for us.”
But aside from the legal issues, Niemeier said the participation of so many retail investors in the U.S. stock market is a real reason that U.S. accounting rules need to be different from those in other countries.
“We’re the only country in the world that has more than 50 percent of our population invested in the stock market,” Niemeier said. “There’s no other country that gets close to that,” he added, saying that for example, Germany only has 10 percent of its population invested in the stock market.
He warned that the push to adopt IFRS was also politically motivated, citing a 2007 meeting between U.S. President George W. Bush, German Chancellor Angela Merkel and the European Council, where the need for harmonization of accounting rules, and capital markets integration was discussed.
For years, Niemeier has been a staunch critic of claims that over-regulation has hampered U.S. competitiveness and prevented foreign companies from listing on U.S. exchanges. Instead, he has often said that the U.S. brand of market enforcement is the “competitive advantage” that attracts companies to U.S. markets.
Instead of simply switching to IFRS, Niemeier said he believes the best course would be to continue work among the London-based International Accounting Standards Board and the U.S. Financial Accounting Standards Board to create a single set of high quality global accounting standards.
“Convergence is the right thing to be doing, but we have gotten off that path,” Niemeier said, adding that he believes it would be dangerous to convert to IFRS simply for the sake of conformity with the rest of the world. (Editing by Richard Chang)
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