Subject: File No. S7-20-07
From: Don R. Anderson
Affiliation: Graduate Student, Middle Tennessee State University

November 11, 2007

If someone began to tell a story about company officials forming a special purpose entity for the purpose of carrying out an accounting fraud and personal enrichment you would likely be expecting to hear Enron mentioned. Yet this example involved the formation of an entity named Credit Mobiler by the board of the Union Pacific railroad in the 1880s (King 2006). In the 1830's President Andrew Jackson traveled and communicated in the same manner as Alexander the Great in 325BC. Yet a short one hundred and eighty years since Jacksons time, presidential travel has progressed from horseback to Air Force One and technology has made the world a much smaller place. I attended college in the 1980s and the first computer program I wrote was on punch cards. So what does this have to do with IFARS and GAAP? Regardless of how complicated the world becomes and should future technology literally erase borders between countries one thing will remain constanthuman nature.
For anyone who entered the business world in the last twenty years the pace of change has been nothing less than phenomenal. Employees of this era have come to understand that the only constant is change. The Norwalk Agreement between FASB and the IASC in 2002 indicated that both bodies realized that increased global trade and multinational organizations would eventually force harmonization of standards around the world. The Federal Accounting Standards Boards consideration of allowing both foreign and domestic reporting according to IFAR standards is not an if but a when question. If FASB chooses not to adopt this concept during this round of consideration it will certainly have no choice but to embrace global standards at some point. Espousing this position puts me in the lofty company of such individuals as: Gregg L. Nelson, vice president, Accounting Policy and Financial Reporting, IBM Corporation and Jim Campbell, vice president and corporate controller, Intel Corporation (Heffes and Graziano, 2007) and Robert H. Herz, Chariman, Financial Accounting Standards Board (Heffes 2007)
Given the inevitability of global accounting standards either now or in the future, FASB, academia, and the accounting community must give serious consideration to the human element in the equation, namely the difference between rules based and principles based applications between the two systems. Regardless of what unimaginable future technology accountants have at hand to perform tasks the element of human judgment will not be removed from equation. The FASB with its endless rules and specific rulings have given accountants a huge GAAP in which to hide (pardon the pun). Arthur Andersen and Company might be the most notable example, but recent history if filled of censures and fines by firms that justified borderline or discreditable behavior by claiming but we were following GAAP. In actuality, the firms had been given the position the client desired and combed over rules and regulations with more diligence that an audit engagement to find some way the position could be justified by GAAP. This is the genesis of a rules based system.
My greatest concern is how the accounting industry will conduct itself when prolific rules are replaced with a system requiring true substance over form. Accountants steeped in and only in GAAP governed compliance may find they do not have the KSAs to survive the shift. FASB and especially academia must develop strategies to educate or reeducate accountants to allow them to survive and prosper in this new environment. For an accountant to successfully practice in a principles based system, he or she must have a better understanding of the client and business environment. Interesting, while management accounting has been practiced in relative obscurity of late in the United States, it has flourished in areas of the world practicing principles based accounting (Pounder, 2007). Theories abound about how this situation developed but the usual consensus is that many foreign countries have had no choice but to be international to survive while U.S. businesses prospered for many years while ignoring globalization (Pounder 2007). U.S. isolation required reporting expertise while force globalization in foreign counties required accountants to also develop management accounting skills.
Accounts and firms who will prosper under the inevitable IFAR adoptions and in a principle based reporting system must move beyond being mere scorekeepers and become true business partners to clients. An incorporation of management and financial accounting prowess and the courage not to hide behind rules and regulations will be necessary to survive in the new environment. Whether FASB chooses to incorporate these reporting changes now or in the future, the regulatory board must stand ready to assist the profession in weathering the transition. Rules, regulations, technology, and innovation aside, the human element will require accounting professionals to have the ability and motivation to make the right decisions when faced with difficult choices.

References
1.King, Thomas A, More Than a Numbers Game A Brief History of Accounting. Hoboken, New Jersey, John Wiley and Sons. Inc 2006.
2.Ponder, Bruce, How Globalization Is Affecting U.S. Accountants, Strategic Finance Jan 2007 88, 7 pg. 40.
3.Heffes, Ellen M. For FASBs Herz: The Ultimate Destination ľa Single Set of Common Standards, Financial Executive, 23, no 6 July/August 2007 pg 12.
4.Heffes, Ellen M. and de Mesa Grazino, Cheryl. Accounting Without Borders, Has Its Time Come? Financial Executive, 23 no 7 September 2007. pg 22.