The Genuine Reason for Allowing U.S. Companies to Use IFRSs

My blog post of January 6, 2008 explored two phenomena that have led many people in the United States to mis-perceive rationales for why we should consider allowing U.S.-listed companies to use IFRSs. One of those phenomena was the widespread conversion to IFRSs by countries other than the U.S., and the other was the SEC's recent decision to accept IFRS-compliant financial statements as-is from foreign companies that are listed in the U.S. Those phenomena are distinct from each other and have different genuine rationales from each other. Those phenomena are also distinct from the SEC's expressed interest in allowing domestic public companies to use IFRSs, which has its own genuine rationale. In today's blog post, we finally get to the genuine reason for allowing U.S. companies to use IFRSs. And we'll see that once again, to the surprise of many, the genuine rationale for allowing U.S. companies to use IFRSs is not the patently-incorrect assertion that "IFRSs are superior to U.S. GAAP."

The genuine rationale for allowing U.S. companies to use IFRSs is that at least some U.S. companies will find themselves at a competitive disadvantage if they are not permitted to use the same financial reporting standards that their competitors use. Specifically, U.S. companies that are forced to use U.S. GAAP instead of IFRSs

• Might be precluded from competing effectively, on a global basis, for the lowest-cost capital (global capital market participants seek comparability in financial reporting among peers in an industry and non-U.S. markets are increasingly exhibiting a preference for IFRSs as the basis for financial reporting);
• Might experience higher operating costs for accounting, auditing, other compliance-related activities, especially for multi-national parent entities that must consolidate foreign subsidiaries' financial statements
• Might not be able to source accounting talent as flexibly as competitors who, as a result of using IFRSs, have the option to source accounting talent globally.

We still have many mis-perceptions to debunk regarding the role of IFRSs in the phenomenon of Convergence. Stay tuned.