Since taking over management of the Institute of Management Accountants in January 2004, Paul A. Sharman has established an entirely new direction for the association.
His mission is to advance the management accounting and finance profession through certification, superior professional ethical standards and competence-based continuing education. The goal is to reposition management accountants at the forefront of the accountancy profession.
Sharman is an Associate Chartered Management Accountant and has held controllership positions for Northern Telecom Canada Ltd. He is also the founder and president of Focused Management Inc. As a leading independent cost and performance management consultant, Sharman has worked with Kellogg, L.A. Gear, AT&T, the U.S. Army, the Canadian Navy, and many other organizations. He has trained thousands of people around the world through seminars in association with the Institute for International Research, York University and the IMA.
Sharman is a trained process reengineering facilitator with the Rummler Brache Group and has been involved with benchmarked performance measurement with the American Productivity and Quality Center. During the past few years, he has worked with the CAM-I, CMS project and Robin Cooper of Harvard University and most recently on the RCA interest group. Past consulting engagements involved him with Peter Turney of Portland State University on several projects, KPMG Peat Marwick in the U.S. and Canada, as well as Ernst &Young. Sharman was recognized as one of the 100 Most Influential People in 2006 and 2007 by Accounting Today.
Q: What do you think of the SEC removing the reconcilation requirement for non-U.S. companies filing in accordance with IFRS?
A: We're delighted that they removed the reconciliation requirement. It levels the playing field with respect to what's been going on in Europe and reduces the costs for filers within the United States. Nobody was really paying attention to the reconciliation anyway. It wasn't understood by users. Since the numbers were filed with respect to a robust, well-accepted set of financial standards, the reconciliation was irrelevant. Will it accelerate convergence? It raises some very interesting political and power questions with respect to competition. The experience in the telecom industry is that when you introduce competition into an industry, the industry becomes more efficient and more cost effective. With the removal of the reconciliation requirement, there's an opportunity to remove some competition between the two standards. I hope we don't even worry about merging IFRS. Just drop U.S. GAAP and adopt IFRS. We can forget all about convergence.
Q: What impact do you see on the accounting profession from the SEC's proposed rule that would allow U.S. companies to file using IFRS?
A: It depends on what you mean by the accounting profession. In terms of IFRS being simpler, we think that the impact on the audit community would be relatively minor. They mostly aren't worrying about the application of financial regulations. We think the impact will not hit the major part of their business. The technical people will have to be aware of where the differences are between IFRS and GAAP and to be aware of the implications of that for their clients. But it's client specific. The more important issue is the impact on corporations. The word "accountant" in the United States has become so narrow that people seem to interpret it to mean auditor. Really most accountants work for corporations. They don't have an audit certification. They may have different types of certifications like our own CMA. When you look at the number of finance and accounting professionals in the United States, there are about 5 million. Of those 5 million, we know that probably 4.6 million work inside corporations where they're doing accounting, setting up internal controls for SOX, doing budgeting and planning and those sorts of things. There's a much larger community of people who will be affected by the adoption of IFRS. Presumably, the SEC will make the decision to adopt IFRS vs. GAAP voluntary. It will be a choice initially. That will give preparers, the 4.6 million people who are doing accounting and finance work, the opportunity to make the transition in an orderly manner, to a point at which the U.S. market adopts IFRS in totality and thereby abandons U.S. GAAP. There is substantial training associated with that, but only because of the sheer volume, not because it's a particularly onerous task.
Q: What about the impact of the EU's decision that U.S. companies not be forced to conform to IFRS?
A: I think that was the quid pro quo of the SEC adopting the no-reconciliation [rule]. It was fairly clear to us six months ago, and the European Union was saying, in the event that you demand non-U.S. corporations to file in the U.S. and maintain the reconciliation, then we're going to demand that U.S. corporations in the EU file in IFRS. So there was clearly pressure. There were clearly negotiations influencing that decision. The notion of politics and perhaps the sheer domination in the past globally of the U.S. capital markets, U.S. corporations and U.S. audit firms having massive influence over other markets, that was true. I think we're starting to see pushback as the EU, China, India and other markets begin to gain economic power. It's rational to me. When you look at the sheer number of countries that have adopted IFRS around the world, the impact on the influence of the U.S. is going to be substantial, and I think that's one example of that.
Q: How would IFRS adoption affect the U.S. capital markets?
A: I generally believe it will be positive. At the moment U.S. GAAP has a little bit of a "gotcha" in it. It has a sort of monopoly on the U.S. capital markets. The folks who up to now have been filing in IFRS elsewhere would not want to refile in the United States in order to raise capital. Once we adopt IFRS in the United States, the U.S. capital markets will become more attractive to foreign filers. Having said that, there are other issues, such as the inefficient and costly 404 requirements of Sarbanes-Oxley, which continue to be an impediment.
Q: What steps still need to be taken for IFRS convergence to be successful?
A: It has taken a long time up to now. They don't have clarity on priorities or agreement on differences. There clearly is a view that this may speed up convergence. There is really less interest in convergence when non-U.S. filers can file in IFRS without reconciliation. The SEC will presumably allow non-U.S. companies to file in IFRS, at which point the whole discussion of convergence becomes moot. I don't know why we would need convergence going forward. You just adopt IFRS. I think there is a few-years' process to go through. I don't think we should do it next year. I think that we should allow U.S. filers to file in IFRS if that's the most efficient [way] for their subsidiaries around the world. If there's an opportunity to reduce costs, they should be allowed. There should be a voluntary opportunity for corporations to file in IFRS if it suits them for a number of years, maybe five years out, and then we should just adopt IFRS and that will be the end of GAAP. That will allow corporations that have issues with the accounting treatment of, for example, LIFO and FIFO and its impact on their balance sheets, to make the necessary adjustments. Who knows? Maybe IFRS will just change their requirements.
Q: What about carveouts for the European Union? Should those be allowed?
A: I guess the sheer simple logic would only allow IFRS as published by the International Accounting Standards Board. In the event we have 15 varieties of IFRS, we have done nothing to promote global standards. One of the concerns I would have, for example, is the notion of court rulings. What, for example, would you say if a court in Europe addresses an accounting problem and makes a ruling and precedent that refines the IFRS rule and begins to establish some sort of legalistic rules like we've got in the United States that influence our environment such that that precedent would only apply in certain jurisdictions? What we would have is an inconsistency with other jurisdictions that use IFRS, and that's not helpful. What we actually need is not lawyer involvement. What we actually need is more professional judgment and flexibility amongst the security commissions around the world.
Q: How do you think the accounting standards and standards-setting processes should be improved to reduce unnecessary complexity for U.S. companies?
A: Well, how do you unmake a stew? I think that's a challenge. Let's face it. GAAP went from 2,000 pages to 12,000 pages in 20 years, and millions of pages in interpretation. How do you undo all that? You've got official interpretations and unofficial interpretations, and then the SEC has its rules, layers upon layers. It just seems challenging. I really believe that IFRS is the answer. We need a set of principles. And then we're back to educating the folks inside corporations. We need to get on with it. The SEC needs to at least give us the signal and we need to get on with training people.
