The Big 4 Pro-IFRS Campaign Has Flaws

This article was originally published on Going Concern.com February 10, 2010. On February 24, 2010, the SEC announced plans to delay implementaitn of IFRS in the US.

Reuters: Securities regulators on Wednesday delayed plans to allow domestic companies to use international accounting standards because it will take businesses at least four years to switch to new rules.

The soonest companies could start using the International Financial Reporting Standards, or IFRS, would be in 2015 instead of 2014, but even that date is not certain.

The Securities and Exchange Commission is grappling with how to move to one set of high-quality, globally accepted accounting standards.

Under the previous plan, the SEC would have allowed U.S. companies to use the international rules as early as 2014. But industry and investors told the SEC that U.S. companies would need about four to five years to implement the changes successfully, thus pushing the date out to 2015.

Some of the best minds in my business – writing and talking about accounting and the accounting/audit industry – are not in favor of the US converting to International Financial Reporting Standards (IFRS).

One of the arguments they try to use against me, “Hey Francine, aren’t you anti Big 4?  Why are you handing them more government-mandated windfall profit?” is the Sarbanes-Oxley argument.  Since the audit firms – especially the Four Horsemen of the “too much regulation” apocalypse, Deloitte, PwC, EY, and KPMG – made so much money on Sarbanes-Oxley, it must be wrong.

If there were an anti-intellectual reason to be against IFRS –  that is, one that can be readily appreciated by someone who is not super-technical GAAPy –  it would be the, “if it’s good for the Big 4 it must be bad” argument. The other anti-intellectual argument against IFRS is the xenophobic one.  There I go using a big word to describe an anti-intellectual argument… The “No-IFRS” camp loves to say convergence gives the keys to capitalism to the “socialist Europeans.” The US is the best country in the world and we’re not going to let some stinkin’ foreigners tell us how to count our profits.

So far I am resisting the lure of anti-intellectual arguments against IFRS and waiting for the wonder of GAAP to win me over to the “side of right.”  After all, GAAP has worked so well lately for transparency, accountability, and comparability of financial reporting on a global basis. There’s no way the audit firms are in it for the money rather than the theoretically pure beauty of global standards.

“IFRS For Everyone” is not just another well-crafted campaign for a government-sanctioned “next big thing” to sustain the Big 4’s untenable, unsustainable, obsolete business model that produces a, purported by some, worthless product. The Big 4 are bringing their best and brightest minds, from all over the world, to the US to evangelize their colleagues and transform their clients.

IFRS is good. It’s better than GAAP. It’s the right thing for global investors.

Deloitte has partner Nick Difazio on the job.

Nick has, “substantial experience with due diligence activities for acquisitions, dispositions, and Securities and Exchange Commission (SEC) filings. He has worked extensively with clients in the automotive, manufacturing and high-tech industries. Previously, he served as deputy managing partner for Regulatory and Public Policy matters and was the chief of staff to Deloitte’s chief executive officer.”

Mr. Difazio has automotive experience – at Delphi.  He also has substantial experience with SEC filings.  He was the subject of one recently.

On February 26, the Commission instituted two settled administrative proceedings finding that Nicholas Difazio and Duane Higgins, Deloitte & Touche LLP (D&T) engagement partners on the 2000 and 2001 audits of the financial statements of Delphi Corporation, engaged in improper professional conduct on those audits…The Commission’s Orders denied Difazio the privilege of appearing or practicing before the Commission…

That’s probably how Difazio got to be Chief of Staff to Deloitte’s CEO, a cushy non-client-service-track administrative job.  That’s what Deloitte does for you when you can’t be a CPA for a while. In Nick’s case, he’s banned until at least 2011.

It’s getting really tough to keep track of all the partners under SEC sanctions. Hell, even famous Floyd Norris and his undercover buddy at the SEC couldn’t do it.  It’s easier if you keep the guys in “time-out” on the payroll like Deloitte and EY do, rather than kicking them to the curb like KPMG did.  One KPMG ingrate turned around and sued the firm! Worst case is when the firm has to sue their own.

So messy.  No one wants that when you’re running an “IFRS For Everyone” campaign.