Subject: File No. 4-600
From: Peter Harris, CPA,CFA
Affiliation: Professor and Chair of Accounting and Finance, NYIT

September 4, 2012

In response to your 127 page report on IFRS , I have the following comments: "Comments Attached"

I recently wrote an article which was published in the 2012 July/August edition of Internal Auditing, entitled:A CASE STUDY: US GAAP CONVERSION TO IFRS WITH AN ANALYSIS ON EARNINGS MANAGEMENT, which I have attached.
In this article, I discuss my concerns on the IFRS deviation from the historical cost principle,coupled with the philosophy of a principles based approach, rather than rules based, leading to possible excessive management subjectivity and input in the preparation of financial statements.
The results can lead to potential earnings management behavior which could cloud the financial reporting process.
I have illustrated situations specific to IFRS which could result in higher earnings-impairment loss reversals as an example, and situations where losses can be created and controlled such as the easier threshold of recording a contingency loss.
Auditors will also have a greater and more difficult responsibility here as they ultimately may need to define and decide the appropriate accounting principle.This will undoubtly lead to higher audit risk and audit costs.
My case study illustrates many avenues of earnings management specific to IFRS(not evident in US GAAP). This can result in higher earnings as well as lower earnings.
In my opinion, it is critical to maintain the historical cost principle , which may prevent many of these potential concerning issues addressed. Reliability is critical and should be maintaned. Another question in the IFRS scope relating to the revaluation of long term assets to fair market value,and aimed at more relevant financial statements, involves its defintion. Is it an entry value or exit value? Who are the market participants? Which method do we use? Who does the valuation-insiders vs. independent individuals?
The result here is worldwide adaption of IFRS in no way results in comparative financial reporting. Differing assumptions, (fair market value being one example), will lead to a comparison of apples to oranges.

These are some ideas, and I thank you for your consideration in this important matter.
Please find my paper attached.

"Comments Attached"

Thank you,
Peter Harris

Copyrighted material redacted. Author cites:
Harris, Peter "A Case Study: US GAAP Conversion to IFRS with an Analysis on Earnings Management." Internal Auditing, July/August 2012. Web. 10 Sept. 2012.