US on board the IFRS train…almost

I love the drivel that comes from some people when arguing about regulation. Take the introduction of international accounting standards to the US.

The US regulator has set a roadmap for introducing voluntary use of the standards which have been in force in Europe since 2005 and are being adopted by many other countries at quite an exceptional pace.

The US has been among the most the reluctant to get on board until the current SEC chief Christopher Cox came along and gave them his backing.

Cox believes enormous benefits will accrue to US business if they use the standards, not least that they compete much better for capital.

However, not everyone over there sees it the same way. Senator Jack Reed argued that investors could be put at risk by allowing standards to be regulated by a less aggressive regulator.

Let’s unravel this. First, the IASB does not enforce IFRS. It writes the standards, but national regulators and legislators must adopt them and then enforce them. If the US decides to use them, the US will have to enforce them. Simple as that. The IASB is merely there to determine the best rules.

Secondly, this smacks of quite a persistent train of thought that somehow people outside the US cannot set decent rules and that somehow control must be handed over.

A little mistaken of course because Enron and WorldCom did not happen over here.

The introduction of IFRS is now open for consultation over the next 60 days. All manner of objections and views will be submitted. But expect this undercurrent: ‘We can accept the logic of IFRS, but we must control the standard setter.’

Given its current independent status, and the very fact that independence is partly responsible for its success so far, that would be a pretty far reaching demand and one we should be rightly nervous about, especially if it gains any traction among US politicians and regulators. Yet another bit of pressure coming to bear on the IASB? We’ll see.

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