As I noted in my last post, it's difficult to argue that there should be any material differences in the portrayal of the same economic situation among reporting entities in different countries. Consequently, for general-purpose financial reporting, it makes sense for similar reporting entities throughout the world to use the same set of high-quality standards. But having researched this situation for years, one thing is clear to me: neither U.S. GAAP nor International Financial Reporting Standards (IFRS) are feasible candidates for the single, global set of standards that would most benefit individuals, companies, and countries.
In particular, it’s very clear that U.S. standard-setters, regulators, and other participants in the financial reporting supply chain don’t consider the specific standards that comprise IFRS to be superior to the standards that comprise U.S. GAAP. If we thought the standards in IFRS were better, we’d have incorporated them into U.S. GAAP by now, because there’s been nothing to stop us from doing so and we’ve had decades to make it happen. The overt lack of support of the world’s largest national economy for the specific standards that comprise IFRS means those standards have no realistic chance of being globally accepted.
It’s equally clear that the rest of the world doesn’t want to use the standards that comprise U.S. GAAP. If other countries thought the standards in U.S. GAAP were better than those in IFRS, they’d have adopted U.S. GAAP instead of IFRS or at least would have seen that IFRS incorporated individual standards from U.S. GAAP by now. The fact that countries whose economies collectively dwarf the U.S. economy have rejected U.S. standards with near unanimity means U.S. GAAP has no realistic chance of global acceptance.
Given this situation, it is inconceivable to me that users of either U.S. GAAP or IFRS will somehow become convinced that they should adopt the other set of standards. Consequently, I see our only hope for the global acceptance of one set of standards to lie in standards that are better than both current U.S. GAAP and current IFRS—that is, standards that do not exist today.
Tying back to my previous blog posts, this indicates that neither a conversion to current IFRS nor the continued use of current U.S. GAAP is an appropriate public-policy goal for the United States. Instead, we should be aiming to develop a set of standards that’s better than either. And whether you think that’s what we should be doing or not, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have in fact been doing it and continue to do it.
Please don’t presume that the resulting set of standards will be called IFRS, otherwise, you’ll continue to propagate confusion that is already plentiful. I always discourage folks from referring to any future converged set of standards as IFRS because that confuses it with today’s IFRS, which isn’t the same thing at all. It’s like using the name “apple” to refer to both apples and oranges. (see Rick Telberg’s YouTube video of me talking about this at the 2009 NASBA National CPE Expo).
Realistically, though, if the countries of the world haven’t agreed on what’s “good enough” by now, what are the chances that we’ll soon agree on what’s “better”? Especially when “better” is in the eye of the beholder? In my opinion, the likelihood of future agreement on “better” standards is high, but not certain. At best it will take many years—I think 10 years is much more realistic than, say, 3 years. And I acknowledge the possibility that complete convergence on a single set of standards might never happen (or might not persist once attained).
The biggest problem with the current approach to standard-level convergence is that it will deliver few benefits before it’s complete (or nearly complete), which is likely to be a long time coming and might never actually happen. So what we need is an approach that enables us to capture more benefits sooner and without being predicated on the eventual attainment of total convergence. Ideally, such an accelerated approach would also respect the sovereignty of individual countries and jurisdictions so that we don’t get hung up in the “who” issue of standard-setting (see my previous post).
Fortunately, there is such an accelerated approach, and I’ll share it with you in my next post.
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You misunderstood me because you did not follow the one link I supplied.
Mr Pounder,
Thank you for your response: Unfortunately you misunderstood me because you did not follow the ONE link I supplied in my comment on your first post. I am NOT promoting Constant Purchasing Power Accounting which is an inflation-accounting model ONLY required during hyperinflation to be implemented during low inflation. If you had followed the link you would have understood that.
I am promoting Constant ITEM Purchasing Power Accounting as authorized in IFRS in 1989 the Framework, Par 104 (a) which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power." IFRS do not state that is only applicable during hyperinflation (That is stated about CPPA in IAS 29): it states nothing about when it is applicable: it is thus applicable under all economic models and under all levels of inflation and deflation.
I understand that you do not concur with CPPA during low inflation. I also do not concur with CPPA during low inflation. I am 100% sure that you would concur with CIPPA (Constant ITEM Purchase Power Accounting) whereunder ONLY constant real value non-monetary items are inflation-adjusted during low inflation and deflation.
Mr Pounder, I would appreciate it very much if you could be so kind as to answer one question:
Do you agree that inflation causes the erosion of business profits and invested capital as stated by your Mr Mosso, past Member of the FASB?
“In Mr. Mosso's view, conventional accounting measurements fail to capture the erosion of business profits and invested capital caused by inflation.”
Statement of Financial Accounting Standard No. 33, P. 24
Kindest regards
Nicolaas Smith
http://blogs.fin24.com/realvalueaccounting
Thank You
Mr. Smith,
Thank you for commenting on my blog post. I understand that you believe IFRS to be wholly superior to U.S. GAAP and I understand why you believe so. However, I do not concur with your belief or the reasoning behind it. Regardless of whether either of us is right or wrong, we both have to live with the consequences of the fact that "U.S. standard-setters, regulators, and other participants in the financial reporting supply chain don’t consider the specific standards that comprise IFRS to be superior to the standards that comprise U.S. GAAP," as I stated in my post.
Best regards,
Bruce Pounder
US GAAP are fundamentally flawed.
Mr Pounder,
You state:
"In particular, it’s very clear that U.S. standard-setters, regulators, and other participants in the financial reporting supply chain don’t consider the specific standards that comprise IFRS to be superior to the standards that comprise U.S. GAAP."
It is undeniably clear that IFRS are better than US GAAP for one single reason: US GAAP do not allow for finanicial capital maintenance in units of constant purchasing power while it was authorized in IFRS in the Framework, Par 104 (a) in 1989 which states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power." US GAAP only recognize two concepts of capital and capital maintenance: (1) Physical capital maintenance and (2) Financial capital maintenance in nominal monetary units (traditional Historical Cost Accounting). Only IFRS authorize financial capital maintenance in units of constant purchasing power during low inflation and deflation.
This results in US GAAP being fundamentally flawed when we take into account the fact that accountants unknowingly destroy hundreds of billions of Dollars PER ANNUM in the real value of constant real value non-monetary items (e.g. shareholders´ equity) never maintained constant with sufficient revaluable fixed assets (revalued or not) during low inflation under financial capital maintenance in nominal monetary units (traditional HCA) which is a fallacy under inflation and deflation: it is impossible to keep the real value of shareholders´ equity constant during inflation and deflation with financial capital maintenance in nominal monetary units per se.
Financial capital maintenance in units of constant purchasing power as authorized in IFRS in the Framework, Par 104 (a) in 1989 (which is not allowed for under US GAAP) would automatically stop accountants destroying hunderds of billions of Dollars (they would instead maintain hunderds of billions of Dollars PER ANNUM in real value) in the real value of constant items never maintained as described above - in all entities that at least break even for an unlimited period of time whether these entities own any fixed assets or not and without the requirement of additional financial resources in the form of additional capital contributions or additional retained profits simply to keep the existing constant real value of existing constant items constant.
US GAAP are fundamentally flawed by not allowing for financial capital maintenance in units of constant purchasing power during low inflation and deflation which is the only correct accounting model for economic stability during inflation and deflation. IFRS are better standards than US GAAP for this reason.
Nicolaas Smith
http://blogs.fin24.com/realvalueaccounting