Category Archives: Financial Markets

Topics related to financial markets (regulation, supervision etc)

Limited effect from IFRS adoption in the US

A new academic study shows that there will be very limited if any effect from the adoption of IFRS in the US.  The study mainly focuses on effects in the capital markets i.e stock liquidity, cost of capital and stock valuations (the complete study can be found here).  It seems that companies that benefit from that are those early adopters in countries with relaxed regulatory or supervision frameworks.  That means that investors appreciate increased quality in reporting and disclosures from IFRS adoption as well as easier comparability.  However what it indicates is that the IFRS will not really affect the markets.  Professional experience have also showed that it will not significantly affect as well the overall compliance system as US GAAP are already a high quality reporting system and supervision in US is strict compared to other countries.  IFRS and US GAAP are also converting on various issues like in M&A accounting.  So this reduces the amount additional work that accounting professionals will have to perform.  The only issue is probably related to the cost of first time implementation as well as educating the professionals to the new standards and most importantly according me to a new approach on auditing which under IFRS emphasizes “substance over form”.  The SEC under its previous administration has manifested its commitment to a rather quick IFRS adoption which is yet to be confirmed by new management.  The Obama administration is also committed to the harmonization something that is within the topics of the Transatlantic Agenda as well. 

On a related issue PCAOB has put on hold for up to three years its plans to inspect any non-U.S.-based registered audit firm acknowledging problems with getting international inspections done.  Again this probably comes down to differences in regulatory frameworks.

You may contact me if you need information regarding differences between IFRS and US GAAP.

Related Articles: SEC: Early IFRS Adoption Will Cost Firms $32M, CFO.com November 17, 2008, Study Predicts Little Benefit to Adopting IFRS in U.S, IFAC Applauds US Administration’s Support for Global Accounting Standards in US Financial Reform Proposal, IFAC June 18, 2009, PCAOB Votes to Delay Some International Inspections, ComplianceWeek June 26, 2009

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Regulation for global fianancial markets

The G20 has decided to strengthen regulation globally with the introduction of the Financial Stability Board (FSB) that has been proposed to take this role at the G20.  Europe is very interested in that although there are such voices in the US as well.  Jean-Claude Juncker (Eurogroup’s head) statement that the Anglo-Saxon financial model is dead, regulation is needed.  It will be interesting to see developments in this area.  

 

There are various interesting question to be answered regarding global regulator; for example how possible that is considering differences in legal systems?  From another view in the past there were many concerns over too much regulation in the US (for example from Sarbanes-Oxley).  It was suggested that because of that NYSE was losing market share over the LSE.  Is this paradox? Will global adoption of IFRS help in this way?  I won’t argue the technical robustness of IFRS but what I find fascinating is the notion of “substance over form” which may make “window dressing” more difficult to defend in retrospect.