When I first read the post The Economic and Regulatory Shadow by accounting professor David Albrecht, I thought I was reading a treatment for a movie. Plucky protagonists, the accounting professors, stand up against the evil machinations of their arch-villain antagonists – regulators and the State-DoD-NSA complex. Usually in movies of this type, despite all the odds, the protagonists win. But in this case I don’t think the movie has a happy Hollywood ending.
The real gestalt of Albrecht’s post appears to be about the power of the auditing establishment over the accounting establishment. However that’s not what interests me here. I’m more concerned with the general lack of support in the post for the notion of global accounting standards.
Perhaps it’s helpful to start by reminding ourselves that international accounting standards are not new. One of the first was called ‘double entry bookeeping’, which is probably the only international standard to have emanated from Venice. This standard took many centuries to take hold probably because lots of accounting professors around the world argued against it. Yet who now remembers that competing standard – hexagonal entry bookkeeping – proposed by the Abacus Chair of the University of Bhutan?
Today, I believe double-entry bookeeping is widely accepted and in use – even in the USA. Yet despite its significant worldwide impact, Summa de arithmetica, geometria, proportioni et proportionalita is notably absent from Amazon’s bestseller list (so what hope is there for the XBRL-GL taxonomy?) I also know from personal experience that not everyone agrees with double entry bookkeeping, even in Italy. I well remember a call I received in 1989 from an accountant at the Vatican asking me how to make a single-sided entry in the accounting software I used to sell. Apparently they had something they wanted to keep off-balance sheet.
But back to the post. As Paul Wilkinson’s well-argued comments on Albrecht’s post essentially point out, accounting and auditing are just data management tasks – no more, no less. What is important is that these data management tasks can generate information that is accurate and reliable and can be consumed and leveraged by non-accounting professors. Information that can be compared like-for-like whatever ‘mumbo jumbo’ accounting standard like IFRS or GAAP generated the data. Investors don’t care about IFRS or GAAP they care about whether a company’s earnings per share means what they think it means or this company’s revenues can be reliably compared to that one’s.
That’s why an internationally-accepted financial information-management ‘meta-standard’ – like XBRL for example – is so important. XBRL helps to ensure that the data generated by IFRS, GAAP and whatever else a national jurisdiction dreams up, can be mapped to something that most people agree on. By all means allow accounting professors around the world to dream up double entry bookkeeping and triple bottom lines, and even movie plots, but let’s make sure that these academic innovations can be mapped into standardized concepts that are capable of generating information that information consumers, whoever and wherever they may be, can understand and make use of to help them in their decision-making processes.
So how does the movie end? We expect to see the pipe-smoking accounting professors watching with satisfaction as the evil regulators and Armani-suited auditors are led off to prison. Then as the dramatic strings of a John Barry soundtrack ratchet up the emotion, the band of brothers (plus the token bespectacled ‘sister’) board their station wagons and return to a leafy campus for a well-deserved victory sherry. Instead we find said professors sitting in an ‘Introduction to XBRL’ class, diligently tagging away at the financial statements of Halliburton and dreading their post-class detention when they will have to write a thousand times: ‘It’s the information that matters’ (as an XBRL-tagged footnote of course).
