Canada, IFRS, U.S. GAAP
Here’s a Gretchen Morgenson column — “Warren Buffett Invests in Canada, but Should You?” — that isn’t so much about Canada as it is about International Financial Reporting Standards. Listed Canadian companies do report in IFRS, but, a forensic accountant, Al Rosen, who Morgenson interviewed for the column says there’s some confusion about that:
American investors […] assume Canadian companies are abiding by American accounting standards. “I’ve been trying to alert investors in the U.S. to this,” Mr. Rosen said in an interview. “But there’s just that belief that Canada is following U.S. standards when it’s not.”
Maybe it’s just me, but it’s a little surprising that American investors would assume that Canadian companies are following U.S. accounting rules. Then I think, “Well, that would mean they know that international companies listed in the U.S. can report in IFRS,” and I realize how silly it is for me to assume that. Presumably, Rosen’s referring to retail investors, and sure, fine, it’s safe to say those people aren’t too preoccupied with the nuances in financial reporting requirements.
In any case, the Morgenson column is a pretty swift takedown of IFRS even if it’s not wholly convincing:
The rules are designed to “bring transparency, accountability and efficiency to financial markets,” the I.F.R.S. Foundation says in a mission statement on its website.
But that’s not the outcome, Mr. Rosen said. In practice, the rules allow company executives to inflate their revenues and hide excessive acquisition costs. They also let managers overstate assets and understate liabilities, he said.
Yeah, okay, but U.S. GAAP “allow[s] company executives to inflate their revenues and hide excessive acquisition costs” and “[to] overstate assets and understate liabilities” too!
“Both U.S. G.A.A.P. and I.F.R.S. are high-quality standards, and one is not more prone to abuse than the other,” an IFRS spokeswoman said, and while I kinda shrug at the “high-quality standards” claim, I tend to agree with “one is not more prone to abuse than the other.”
The only universal thing about accounting standards is that if you require them, some companies will creatively or aggressively interpret them. And sometimes those companies are Canadian! But plenty of them are American, too.
Shady clients
On Friday we discussed how the South African affiliate of KPMG had found itself in the middle of a major scandal there involving the wealthy Gupta family, possibly money laundering, and an email from KPMG S.A.’s then-CEO describing a wedding as “an event of the millennium.” It’s quite the spectacle.
A reader wrote in, pointing us to this BBC article that adds further background, including an “unofficial, and illegal” plane landing at an air force base with guests for the wedding that set off the whole situation. The reader added, “I find it kind of funny and perhaps a little ridiculous that KPMG managed to get themselves tangled up in this.”
Yes, this is professional services buffoonery of the highest order. Lord knows we all enjoy it. But it’s not all that surprising. This was a business relationship for KPMG with a wealthy client that had significant influence over the South African government. And I suppose that’s what it takes for a Big 4 firm to get any traction in a country with an emerging economy like South Africa’s. The firms want to make money there, so they have to work with the conditions on the ground, so the proximity to graft is not inconceivable. They just have to cross their fingers and hope they can survive until the corruption becomes more palatable.
Previously, on Going Concern…
Someone’s who’s “legally blind and cannot drive” is asking about travel expectations in audit vs. tax.
In other news:
- Dodd-Frank Claims Tossed In Suit Against Grant Thornton (sub. required)
- “Most people are bad at personal finance.”
- Criminals Too Stupid To Use Bitcoin And Ethereum, EU Report Says
- How to Exit an Airplane Like You’re Not an Idiot
- Colorado Teen Hears ‘Crunching Sound’ as He Awakes to Bear Biting His Head
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