Jennings, Kinney Discuss Challenges of Financial Reporting in Global Economy
McCombs Accounting Professors Ross Jennings and Bill Kinney took part in a panel discussion Feb. 20 on the challenges facing corporations, governments and regulators in moving toward international standards in financial reporting. The event was sponsored by the Strauss Center at The University of Texas at Austin and it also featured Christopher Hossfeld, associate professor in the Management Accounting and Audit department at ESCP-EAP, Paris, and Phil Denning, accounting policy adviser, Shell Oil.
Kinney, who moderated the event, began by saying that "accounting is central to some of the solutions of the problems in the world," before leading the discussion on the historical foundation of accounting and auditing rules in the United States and the European Union. In the United States, corporate accounting is currently using rules set by the Financial Accounting Standards Board (FASB), whereas in Europe the standard-setting body is the International Financial Reporting Standards (IFRS).
The panel discussed the difficulty in uniting FASB and IFRS, a process that is underway, as well as getting countries to agree to abide by those standards, which means giving up sovereignty to an outside agency.
Jennings brought up the cultural differences between accounting practices. In the United States, accounting is "rules-based," as opposed to the European tradition which is "principles-based." He used an analogy from traffic laws. Rules-based means setting a specific speed limit. Principles-based means that you must drive safely according to road conditions. "It requires a completely different perspective," Jennings said.
The event can be seen in its entirety at: http://www.robertstrausscenter.org/webcasts/view/33