US election special: a mandate to reform and regulate

Two weeks ago, democratic pundit James Carville delivered a verdict on the 2008 presidential election.

The man who is nowadays known as much for his partisan rhetoric and Cajun accent as for running Bill Clinton’s successful 1992 campaign, said that, barring some unforeseen circumstance, Senator McCain could ‘…call the dogs in, wet the fire and leave the house. The hunt’s over’.

If Carville’s prediction comes true, then it is certain the New Year will see the accounting profession facing a US regime with a clear mandate to reform and regulate. Predicting accurately the form this will take is more difficult.

This is partly due to senator Obama’s meagre voting record – of his three years in the Senate, more than one has been spent campaigning for president. His platform too, gives little indication of his attitudes to accounting issues, or indeed to wider corporate governance, less some populist efforts to curb CEO pay.

The difficulty inherent in predicting an Obama administration’s behaviour can be illustrated by taking the example of US GAAP convergence with International Financial Reporting Standards (IFRS). Senator Obama has appointed Paul Volcker, former Federal Reserve chairman as one of his top economic advisers, and it is expected that he will play a role in any administration.

Volcker is a man who has unequivocally expressed an ‘interest in encouraging international convergence to a single set of global accounting standards’. One would imagine that this would be a clear indication that convergence, or outright adoption of IFRS, would continue unimpeded under president Obama.

Other indicators, however, point elsewhere. Most expect Obama to make good on promises to move toward a more protectionist position, rejecting what could be seen as international interference. This, allied to the dangers of IFRS being seen as de-regulatory, could slow the process.

Some dismiss charges of a protectionist mindset in the Obama camp, and it is true that some of the more strident ‘USA first’ language has been toned down since the need to appeal to the democratic base in the primaries ended. The broader point remains, however. The potential for a democratic controlled congress pressuring a democratic president to dispense with free-trade orthodoxy has implications for the profession that go further than IFRS, extending to the US-UK tax treaty, the debate surrounding auditor consolidation, and, indeed, on efforts to manage the extra-territoriality ramifications of Sarbanes Oxley.

For accountants seeking a ray of sunshine in all this, it is possible that a democratic administration may shy away from the prevailing republican notion that the Wall Street meltdown would not have been nearly so bad were it not for the influence of mark-to-market accounting.

Unfortunately, even that possibility is likely to fall foul of the likelihood that president Obama and his top-dollar advisers will find their room to manoeuvre significantly limited by the reality of economic circumstance.

Simon Keymer is the lead consultant and CEO of the Keymer Group, an issues management consulting firm specialising in financial services, based in Washington DC