No Double Standards Please, We're Global
Sourav Mitra -
Saturday, December 29, 2007 12:03 PM
You might begin to die of exasperation when you look at Financial Statements of businesses which feature the accounts according to more than one GAAP (i.e. Generally Accepted Accounting Principles which are usually laid down in tomes called The Accounting Standards). These are not just great drains of resources but also seeds of doubt.
These are drains of resources because they require additional infrastructure and / or man-hours to draw out.
They are seeds of doubt because comparing the different sets of accounts of the same company for the same period created according different GAAPs and noting the differences would give the disparate stakeholders different notions about their stakes, raising some obvious what-if questions.
This is in addition to the fact that the word "General" in 'Generally Accepted Accounting Principles' creates scope for the toleration of variations in the methods of accounting. There have, of course, been instances when concerned stakeholders have forced the restatements of the accounts which over-leaped their toleration levels.
And as the top-cherry, we have nationalism clamouring for its own pound of variety - most countries have their own indigenous GAAPs which are uniquely and often minimally dissimilar. (Even the Sarbanes-Oxley norms which seek to tighten corporate governance in the US have alter egos in various countries).
So what we have are not simply double standards but multiple standards from all the Accounting Standards around the globe which define GAAP and which are sometimes required to be simultaneously followed - without of course counting the accounting principles that must be followed for tax purposes requiring another restatment of the accounts.
So if we take the accounts of two companies it is not easy for the common man to make absolute comparisons even after factoring in everything in the often convoluting fine-print (i.e. the notes to the accounts).
What is the point of such disparate and resource draining requirements? To keep accountants and analysts employed?
The world is becoming increasingly globalized. Why can we not have a single set of mandatory Accounting Standards to apply to every business in the world?
I will go one word further.
Why can we not have a single set of option-less mandatory Accounting Standards to apply to every business in the world?
The word option-less is significant in the last question. If we could have option-less Accounting Standards accountants would not have any options to choose or shift between in the methods of accounting. If options are a pratical necessity for industry / segment differences these should be mandatory and specified in the standard, for example, say, high-tech IT equipment to be depreciated by Straight Line Method in three years whereas mechanical petroleum industry assets to be depreciated by Written Down Value method over the estimated working life of the asset (say fifteen years or whatever is rationally appropriate).
Is this feasible?
We would have to overcome mountains of inertia and oceans nationalistic defences. For example:
a) Ours is the most developed economy in the world so our requirements are different.
b) Ours is the oldest civilization in the world so our requirements are different.
c) Ours is the smallest island in the world so our requirements are different.
d) Ours is the most isolated country in the world so our requirements are different.
Amazing pap but they pander to the imagination.
Why aren't the priciples of accounting made as rigourous as the theories of the sciences. Can you imagine scientists of all nationalities rising up and claiming "We reject the theory of the expanding universe because our culture is ancient", or "Our religious texts have no references about quarks so we cannot accept that", or "We are landlocked so the laws of flotation do not apply" or whatever?
And w
e cannot even begin with the International Accounting Standards because of those who obsessively desist.
Perhaps we can start with something new - say The Global Accounting Standards (GAS! but no pun intended). And then in respect of each accounting principle we can request for submissions of the most conservative and transparency-boosting provisions from among all the Accounting Standards of the world. Ultimately only the most conservative and transparency-boosting provisions get featured. Why the most conservative? Only because that would render our businesses and therefore our economies much stronger financially. Why the most transparency-boosting provisions? Only because of our right to know. And we won't need justifications like this suits the largest economy or the oldest civilization or the smallest island or the remotest country.
As our disparate GAAPs converge and morph into a single CAP (Conservative Accounting Principles) the divisive element of "Generality" will disappear from the face of these principles.
How do we start?
Ideally all the accounting bodies of the world should unite to change the world for stronger if not better businesses (the loss of inter-GAAP "transliteration" work would be more than made good by all their additional new transparency boosting responsibilities). Or all the Securities Exchange and the relevant legal authorities of the world could take a firm concerted stand to stop the rot. If large corporations began to clamour for these changes the accounting community would be compelled to sit up and listen.
When and where do we start?
Think. Do. Your time starts now.