A fellow AOL blogger, Victoria Erhart, wrote a fantastic piece on Bloggingstocks,
GAAP vs. IFRS: New accounting rules could mean trouble.She looks at the problems that will surely come up if the U.S. switches to International Financial Reporting Standards (IFRS).
Currently, U.S. accounting programs teach Generally Accepted Accounting Principles (GAAP) because that’s what’s used in the U.S. And the CPA exam tests accountants on GAAP, again because that’s what’s used.
But if American companies switch to IFRS, there’s going to be a problem. Who will teach IFRS? The move to IFRS makes sense simply because of the global nature of the modern business world. Victoria says:
Unless and until the SEC actually publicly states a date by which U.S. companies can or must shift to IFRS, nothing will move. Potential accountants will not be exposed to IFRS as part of the curriculum. The CPA exam will not require familiarity with IFRS. Present accounting faculty will not change their course syllabi or textbooks to include IFRS. Many may opt to retire rather than retrain and redesign their courses. Lead time for publishing a new textbook is at least two years, often longer. Who will write the new textbooks?
Conservatively, the SEC is looking at a five year lag once it finally establishes a date for the switch. At least we will all have plenty of time to get used to the idea.
And she’s right. Accounting professors with no working knowledge of IFRS aren’t going to be ready to teach it.
Cynthia Sneed (presumably professor at Jacksonville State University) got a bit hot under the collar about these comments. She says:
First of all-who are you calling “older?”
Accounting faculty are not any older than faculty in any other area. Second-are you suggesting that we not teach financial reporting using GAAP when that is what we use in this country?We are not so narrow minded or ignorant as to not be able to change when and if the change is required. The reason we use GAAP has nothing to do with accounting faculty-we use GAAP b.c that is what we use for financial reporting in these United States.
When the SEC, FASB and AICPA changes we will change as well. Even those of us “older” guys (what? 40?) will somehow manage!
And my opinion is that the teaching of IFRS at the college level will experience the same problem that forensic accounting has. College professors with no field experience in the topic will try to teach it. That’s doing a huge disservice to the students, but professors will no doubt fail to recognize or admit this.
There’s more to a topic than a textbook and a classroom, and many college professors trying to teach forensic accounting are falling short. The same will happen with IFRS.
I write a blog on the problems involved with IFRS conversion in Canada. There are several problems. I refer to the devils in the details and the exorcism of them.
At the recent FASB Forum on potential IFRS adoption in the USA there was a great deal of discussion on the problems of teaching IFRS in universities. This was reported in the CFO Magazine
http://www.cfo.com/article.cfm/11566491/c_2984368/?f=archives
The dwindling number of professors in US Universities was noted as well as their average age – 56.
This is my blog
http://ifrscanadadevilisinthedetails.blogspot.com/
It is too pessimistic to believe that professors will not be able to teach IFRS – are they so rule bound that they are totally unable to go back to first principles? If so there is a bigger problem. Incidentally we have the same problem in Cnada where the conversion date is 2011.
Will they be total disasters at teaching it? Probably not. But they will be missing real world experience with it, which I think is extremely important.
If a professor graduated over 15 years ago he/she would likely have had little or no life experience in the recent problem areas in US GAAP either. Perhaps it might explain the problems with Asset Backed Paper?
How does one inject real world into the academic community anyway? With tenure they just stay there? Should we require our accounting professors to take a sabbatical and work in the real world?
I am on the Board of the Research Foundation of the FEI in Canada. We are trying to build bridges to the academic community.
I do not think we should give up. Right now companies are converting to IFRS in Canada. Do we ask all to have been through a conversion already before doing a conversion here? In the EU they had to do it without the benefi of experienced people for the most part.
It’s difficult I think we are creative enogh to come up with solutions for IFRS implementation. It will not be easy though I agree.
I do think the lack of current experience with GAAP is a problem too!
I think that the lack of real world experience by accounting professors can be handled with two solutions:
1. Require professors to do “internships” in public accounting, either during summer breaks or on sabbatical.
2. Get working CPAs into more classrooms as adjunct faculty. (I know that the current model favors tenured, full-time professors. I say this does a disservice to students.)
When these rules-driven, black-and-white-but-no-gray compliance junkies are finally forced to overhaul the cruel hoax that passes for “accounting education” in the U.S., they will also have to deal with the likes of SFAS 141, 142, and 157. The broadening of the tunnel-vision bean-counters will have finally begun. Heck, new accounting graduates might even be able to DO ACCOUNTING. What a concept.
When these tenure addicts junked the old “practice set” because they had this pea-brained idea that students could inhale what used to be a two-semester course in one semester–so the tenured class wouldn’t have to dirty their hands teaching accounting mechanics and basic–the demolition of accountants began. My stepson graduated with a high GPA from the College of William and Mary, passed the CPA exam, and couldn’t make an accounting entry if his life depended on it. He told me that the W&M profs told him that, when it came to entries, “The computer would do it.” This is not a one-time phenomenon. One of our best clients called me five years ago and said, “How come CPAs can’t do accounting any more?” (This man, the CEO of a $100 million company got his undergraduate degree in accounting and was a financial professional for 35 years before moving into general management.)
In the revised accounting curriculum, students will actually have to learn finance, the CAPM, valuation, and strategic management because the CPA exam will TEST them on it. My, my. They might even pick up a little tolerance for ambiguity and uncertainty. Alleleuia.
That should be hilarious, if only because the spectacle will make the U.S. Postal (Dis)Service look like a well-oiled machine. I can’t wait. And before all of the debits-and-credits crazies reading this get their slingshots out, I should tell you that I’m a CPA, CMA, and former CFO who knows whereof he speaks. So chill out.
Warren – I can’t argue with you in the least. When I got in the real world, I found out how little accounting I really knew. We memorized journal entries, but had no clue why they were the way they were. Imagine the idea that they don’t even know how to do those anymore! What are they teaching in accounting school.
And then when I became a little adjunct professor, I realized even more how little I knew when I came out of college. Having to teach Accounting 101 brought it all home for me… I wanted my students to know the why behind it. That with some basic foundational knowledge, they could literally figure out the debits and credits for any problem that was thrown at them.
They didn’t buy it. It was easier to memorize certain journal entries they knew they’d be tested on. *sigh*
This is a good article about how the academic side of accounting is in dire need of professors:
http://www.sequence-inc.com/index.php?view=article&id=77%3Avanishing-profession&option=com_content&Itemid=22
I say they need to start looking at wholesale reform of accounting education in the U.S.
Hear! Hear! Warren and Tracy and ditto for Canada the whole accounting education thing needs an overhaul.
Let’s go back to learning from first principles and teach reasoning/judgement.. I taught at university several years ago. The students just wanted to know THE answer.
I had arguments with college students to whom I gave a “C” – they got “A”” in high school where it was “Monkey see, monkey do””! The students were also incapable of expressing themselves. I had the nerve to challenge their English skills!
It’s quite scary that accountants that cannot “do accounting anymore” are converting to IFRS in Canada. We have to get through it somehow.
Good debate here on this blog and interesting