US dawdles over adoption of international standards

SEC chairmman  Mary Schapiro

Last Wednesday a softly spoken Mary Schapiro gave the first concrete
indication of whether the US would adopt international accounting standards
under her chairmanship.

Depending on who you believe, Schapiro’s speech was a landmark moment in US
financial history or a wasted opportunity.

“Today’s commission statement reaffirms our support for a single
globally-accepted standard… We must carefully consider and deliberate whether
such a change is in the best interest of US investors and markets,” she said.

The Securities and Exchanges Commission (SEC) chairman said while she
supported US adoption of international rules, she would delay making a final
decision until 2011, following further investigations of the effects on US

Supporters of US adoption of international standards welcomed her renewed
support of international accounting rules, but were disappointed when she failed
to name a firm switch date. But they shouldn’t have been surprised. US companies
have been voicing caution for years.

“We strongly believe the commission should first conclude whether IFRS is the
best set of accounting standards for US registrants,” Mark Humphrey, vice
president of all-American car maker Chevron told the SEC in April 2009.

Echoing the sentiments of many he added: “While we concur with the concept of
a single set of global accounting standards… we respectfully suggest that any
ultimate decision for conversion and any timetable for conversion acutely and
accurately assess the cost-benefit of conversion.”

Among the other concerned business executives was Steve Whaley, senior
vice-president of retailer Walmart – with 7,873 stores in 16 countries and
annual revenues of more than $400bn – who underlined the mammoth undertaking
ahead if the US chooses to mandate use of international standards.

“Conversion to a new set of accounting standards in the US would be a very
difficult and complex undertaking,” he said in a letter to the SEC last year.

Pepsico estimated the switch would cost $50m (£33.3m). Intel estimated a
similar conversion cost.

“We therefore recommend that a detailed study be conducted to fully consider
the different paths and options possible to meet the stated objective, one of
these approaches being continued convergence,” Peter Bridgman, senior
vice-president at Pepsico, said in a submission to the SEC.

The need for more information runs like a thread through the submissions of
US companies. Marriot, the international hotel brand, adopted the tone of a
convergence sceptic. “In our opinion, converting to IFRS is a solution without
an underlying problem,” said Carl Berquist, Marriott’s vice president and
principal accounting officer.

“In fact, we have never heard an investor in our company, any stock analyst
covering Marriott or any lender with which we do business in the US or abroad
suggest to us that they would prefer we report our results in IFRS.”

Those pushing to widen the timetable seem to have got their wish. It may now
be as long as 15 months until the SEC makes a final decision.

This week’s speech shows Schapiro will listen to US constituents first, and
the international community second.

Seven IFRS sins

US concerns about international accounting standards:

1 Education. Not enough US accountants are trained in their use.

2 Ambivalence. US investors, shareholders, creditors, analysts have not asked
for new accounting standards.

3 Relevance. Is it a “solution without an underlying problem”.

4 Pride. US standards are robust. Why replace them?

5 Interference. The international standard setter is a European puppet.

6 Oversight. The US will lose its ability to create, amend and maintain
accounting rules.

7 Cost. Conversion costs will be high and benefits negligible.

Further reading:

Related reading

Fiona Westwood of Smith and Williamson.