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High & Low Finance

Chris Cox, who as chairman of the Securities and Exchange Commission tried to
bring international accounting rules to the United States, has now done an
about-face.
The first thing we should give up is the counterproductive fiction that the
United States is going to replace Generally Accepted Accounting Principles with
International Financial Reporting Standards, he said in a speech at a conference in
Pasadena, Calif., last week.
The prospect of full-scale I.F.R.S. in our lifetimes has ceased to be. It is bereft
of life. It rests in peace.
He recalled that as chairman he had begun a process intended to eventually
require United States companies to switch to international accounting rules. But
that was several years ago, and a great deal has changed since then. Today, I come to
bury I.F.R.S., not to praise them.
As it happens, that speech came at a time when the current S.E.C. chairwoman,
Mary Jo White, has raised hopes among I.F.R.S. supporters that she might be more
open to wider use of international rules than was her predecessor, Mary L. Schapiro.
I.F.R.S. is not dead in the United States, although there is little or no chance of a
complete conversion to international rules, something Mr. Cox envisioned when he
led the commission. It seems possible that some United States companies will be
allowed to convert to international rules if they wish to do so.

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Whether or not his crystal ball was clouded, Mr. Cox could have made better
disclosures in his speech to the S.E.C. and Financial Reporting Institute Conference.
He devoted much of the speech to an attack on proposed rules to change the
accounting for leases. He went into considerable detail about what was wrong with
the proposal, which would force many companies to show leased items, like cars and
computers, as assets, along with an offsetting liability of the amount owed on the
lease. The widespread view among accountants has long been that many leases are
little more than disguised financing arrangements and that the assets and liabilities
should be reported, just as they would be if the company had bought the item and
borrowed money to pay for it. Mr. Cox does not like the proposal.
Hes entitled to his view, of course. But he might have mentioned that he had
previously been paid to voice that opinion. In a comment letter sent to the standardsetting boards considering whether to change the rules, Mr. Cox, now a partner in
the law firm Bingham McCutchen, made many of the same arguments he made in
the speech. That letter said he had been asked to consider the issues by our client,
Majestic Realty Company.
When I suggested to Mr. Cox that he should have mentioned the fact he had a
client involved in the dispute, he seemed surprised. No one paid me to make that
speech, he said. Those are my views.
In the speech, he attributed much of the problem with the proposed rule to the
International Accounting Standards Board, which sets international rules, rather
than to the Financial Accounting Standards Board, which sets United States rules
and has been closely cooperating with the international board, although it now
appears likely that the final rules issued by the two boards will differ in some
respects.
The proposed rule, he said, had a heavy perfume of I.F.R.S. He complained
that the international board isnt listening to American stakeholders and said the
United States board is becoming more like the I.A.S.B.
All of that reminded me of the way French executives used to complain about
the I.A.S.B. when it was adopting a rule on accounting for derivatives. They said the
board was overly influenced by Americans. In 2003, I heard Claude Bbar, the
chairman of the French insurer AXA, describe Sir David Tweedie, the chairman of
the international standards board at the time, as a super-superayatollah who was
not responsive to European opinion.

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The French later persuaded the European Union to allow French banks to
ignore part of the accounting rule that was eventually adopted by the board.
In 2007, when the S.E.C. decided to allow foreign companies to file financial
statements using international rules without providing additional information on
how the statements would have looked under United States rules, Mr. Cox, who was
the chairman, emphasized that only companies that followed the full international
rules would be eligible. S.E.C. officials made clear they were offended by the
European Union action.
A year later, the S.E.C. issued a road map for eventual full acceptance of
international rules in the United States. Mr. Cox said, A global set of high-quality
accounting standards would be an international language of disclosure, transparency
and comparability. He called it a goal worth pursuing.
John W. White, whom Mr. Cox had chosen to be the director of the
commissions division of corporation finance, told a group of financial executives
that I truly believe that the endpoint will be U.S. issuers using I.F.R.S. and that it is
time to move in this direction.
The financial crisis put that on the back burner, and Ms. Schapiro, Mr. Coxs
successor at the S.E.C., showed little interest in the idea. After long delays, the S.E.C.
issued a staff report in 2012 that showed a distinct lack of enthusiasm for moving to
the international rules. It said adopting those rules was not supported by the vast
majority of participants in the U.S. capital markets.
In a speech last month, Ms. White, the current S.E.C. chairwoman, said that
international regulators wanted to know what the United States was going to do, and
that while she had no answers to give at that time, I hope to be able to say more in
the relatively near future. She added that she agreed with a statement by Ms.
Schapiro that the role the United States plays in the development of international
standards must be an important consideration.
Ms. White, by the way, is married to John W. White, the former head of
corporation finance at the commission. The S.E.C. this week said she was traveling
and not available to comment. Mr. White, now a New York-based partner in the law
firm of Cravath, Swaine & Moore, declined to discuss the issue.
At the moment, there is substantial United States representation in the setting
of international standards, and some Europeans have said that should end if the
United States remains aloof. Harvey Goldschmid, a law professor at Columbia

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