US lawmakers express worry over accounting consolidation

The threat of a foreign institution acquiring too much influence over US financial reporting standards and the possibility of US companies following two sets of accounting rules was raised in a letter to the US Securities and Exchange Commission (SEC) by a group of accounting-focused lawmakers in Congress, according to a Reuters report.

The Congressional Caucus on CPAs and Accountants, which includes 10 members in the House of Representatives and 2 members of the Senate, reacted to recent statements made by SEC chair Mary Jo White that incorporating International Reporting Financial Standards (IFRS) into the US financial reporting system was one of her top priorities.

For over a decade the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working on converging accounting standards.

The letter warned the convergence project could create a “two-GAAP environment, enabling accounting arbitrage” and that introducing IFRS in the US would place “standard setting with a foreign institution, beyond the purview of domestic regulators.”

A related concern raised in the letter relates to the US’ litigious culture, which may not sit well with the principle-based approach taken in international standards compared to the rules-based ethos embedded in US GAAP.

“We share the SEC’s belief that ‘a single set of high-quality globally accepted accounting standards’ is a goal worth striving for,” the letter said. “However, we are worried that adopting IFRS alongside GAAP will set back the interests of investors in the name of global harmonization.”

IASB and FASB recently finalized a converged standard on revenue recognition, but the two standard setters remain at odds on some key elements of their other main convergence projects such as leasing, financial instruments and insurance contracts.

In July 2012 the SEC released a working paper on whether, when, and how the current US financial reporting system could transition to international standards. The paper said there was still “substantial support” for exploring other methods of incorporating IFRS that demonstrate the US’ commitment to a single set of global accounting standards that would make reading financial reports across borders more simple.

However, having to convert US GAAP – which is embedded in laws and regulations and in a significant number of private contracts – was cited as one of the primary reasons why conversion was not fully embraced by the commission.