Accounting Standards

Convergence of Accounting Standards, Ethics Take Center Stage at IMA Annual Conference

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Leslie Seidman of the FASB addresses the 89th Annual IMA Conference in Tampa. Conrad Hewitt, SEC Chief Accountant, is seated to the right.

Approximately 1,100 corporate accounting and finance professionals from around the country, and some from around the world, gathered in Tampa, Florida two weeks ago for the Institute of Management Accountants (IMA) 89th Annual Conference & Exhibition. 

The impending convergence of U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS), a process with enormous ramifications for businesses and investors worldwide that has received very little media attention, took center stage throughout the five-day event.  Professional ethics, internal controls, the balanced scorecard, revenue management and strategic cost management were notable among the many other sessions devoted to various aspects of management accounting and finance.    

Based in Montvale, New Jersey, IMA is one of the largest professional organizations in the world with some 60,000 members from 120 countries.  Although dedicated primarily to the professional development and continuing education of management accountants, IMA's members include corporate controllers, finance directors, and CFOs for both public and private companies.  Small businesses are a key membership block of the organization as well. 

One of the highlights of the conference took place on the final day as Conrad W. Hewitt, the Chief Accountant of the U.S. Securities and Exchange Commission (SEC) and Leslie F. Seidman, of the Financial Accounting Standards Board (FASB) gave a regulatory update on how their respective organizations are proceeding down the path of convergence.  Interestingly, both the SEC and FASB support the move toward a single global accounting standard that will eventually replace U.S. GAAP, although the FASB seems more deliberate in its approach based on Seidman's comments.   

Seidman discussed the FASB's constituent outreach, the organization's efforts to reduce complexity and its involvment in the move toward the convergence of international accounting standards.  Seidman stressed in the beginning of her speech that the FASB goes "to great lengths to try to engage all points of view in our deliberations." 

For its part, the SEC is moving full steam ahead.  "A single set of standards will reduce compliance and regulatory costs thereby facilitating a company's access to global capital markets," according to Hewitt.  He went on to say that "investors, in turn, would benefit from the increased investment opportunities in their home markets."

In November of last year, the SEC took a significant first step toward convergence by eliminating the requirement that foreign based companies listed on U.S. exchanges reconcile their financial reporting to U.S. GAAP.  In the past, foreign companies listed on the NYSE or Nasdaq were required to show how financial data generated under non-GAAP accounting differed in areas such as profitability and asset valuation from data generated under U.S. accounting standards.  In December 2007, according to Hewitt, the SEC held two round tables related to the use of IFRS by U.S. companies in the future.   

As if convergence were not enough, the move toward fair value away from historical cost, another seismic shift currently taking place in the accounting world, was addressed by Hewitt as well.  Hewitt, a former mutual funds auditor, said he believes in the use of fair value but admits that it has limitations, although he did not discuss those. 

Hewitt also weighed in on the current financial crisis by acknowledging the "very unusual times that we're in right now with sub-prime mortgages, structured investment vehicles (SIVs), financing conduits, and credit default swaps."  He went on to say, "it's not like 1985 to 1991 when we had our financial crisis in commercial real estate and savings and loan.  This is a different type of financial crisis involving financial instruments and fair value.  Back then it did not involve fair value." 

Perhaps no one at the conference put the issue of convergence, and its enormous ramifications for the future, in perspective more than Bruce Pounder, President of Leveraged Logic and author of The Convergence Guidebook.  In his session, Pounder virtually sounded the alarm on the changes that lie ahead as he told a packed room point blank, "if you're using U.S. GAAP now, buckle your seatbelts."  CreditPulse conducted an exclusive interview with Pounder at the conference that will be published in its entirety. 

Ethics was another major topic on the conferences agenda as no less than five sessions dealt with professional ethics in some form or another.  Jeffrey Thomson, Acting President and CEO of IMA, stated in an exclusive interview with CreditPulse that the IMA has a "long and sort of storied tradition of ethics being sort of at the foundation" of the organization.  Thomson acknowledged that the recent scandals involving Enron, Worldcom, etc. "raised the bar a little bit on formalized ethics training."

IMA's 90th Annual Conference & Exposition is slated to be held June 6-10 2009 in Denver, Colorado.