Local news item: “Last night the high school
drama club played Shakespeare. Shakespeare
lost.”

 Last week, SEC
Chairman Mary Schapiro played the 2010 annual conference of the chartered
financial analysts. Her speech is here.

Credibility lost.

Her ambitious list
of messages included a major tilt at four “myths” about the SEC’s lukewarm
attitude toward GAAP/IFRS convergence and globally merged accounting standards.

In protesting that
“you can’t always believe what you hear,” Schapiro’s pushback suffers the
inductive fallacy that opposition to your critics is not the same as proof of
your own position.

Whether or not the
agency’s own “commitment to international standards has flagged,” Schapiro either
could not face – or is still denying – the implacable international antagonisms
to convergence that her agency lacks the capacity to resolve.

 There is, indeed,
no more eloquent concession of the “convergence gap” than Schapiro’s own
admission that “US GAAP and IFRS are currently not converged in a number of key
areas,” including “the accounting for financial assets (the very types of
securities at the center of the financial crisis), revenue recognition,
consolidation principles, and leases.”

 Any other problems,
Madame Chairman? These on her list are so comprehensively grave that they will keep the international
standards standoff alive until the end of time. 

 It’s not necessary
to believe Schapiro to be as malign as Shakespeare’s Queen Gertrude, or to fault the bona fides of her commitment to the
“fundamental principle” of “comprehensive and neutral accounting standards.”
Because on the prospect of core-level GAPP/IFRS convergence, she is committed as
were the pre-Copernican astronomers to the “fundamental principle” of an
earth-centric solar system.

 It’s just that
while good faith is fine, eventually it must yield to reality.

 In assessing the
feckless attitude of America’s chief securities regulator, it helps to keep at
hand a glossary of trans-Atlantic euphemism. That is:

•  ·     
  When a
  Frenchman says, “We need to be pragmatic,” what he means is, “Agree to do it
  our way – or there’s no deal.”
• ·     
  When an
  Italian says, “You don’t understand how things are done here,” the unspoken
  message is, “You have no chance – cut your losses and head for home.”
• ·     
  And
  when the typical balls-out American attitude gives way to Schapiro’s concession
  to “understand the importance of
  process to a successful conclusion (her emphasis, not mine), it means “We know
  we’re screwed for now, so we’ll kick the can down the
  road and try to sell it as success.”

The targets for Schapiro’s
spin were not clear, as she advanced the assertion that discussion on
accounting principles “is often limited to specialized journals and a handful
of websites for the kind of people that can tell a repo 105 from a 401(k).”

As if her pimping
would be seductive. Weighing in from his base in Minnesota, academic blogger
Dave Albrecht (here) made it clear that he did not just fall off the turnip
truck, with a trenchant Twitter message that the intelligence level of Schapiro's constituents other than the mainstream brown-noses is
entitled to more respect: “Ridiculous comments, sad that some might believe
her.”

Also counting
against Schapiro’s credibility is that, despite building her speech on the
three obvious pegs of the SEC’s mission, initiatives and priorities, she gave
not a single reference to a most basic issue – the continued viability of the
global assurance function.  

Anyone still
thinking that the life-threatened auditors have “had a good crisis” over the
last three years (here) has not spent recent time around the courthouses – the
latest bullets added to the Big Four firms’ deadly game of Russian roulette being
Ernst & Young’s inclusion in the Lehman Brothers litigations (here) and the two-billion dollar claim against PwC by the winding-up board of Iceland’s Glitnir Bank
(here).

On the very day of
Schapiro’s speech, with its bare one-phrase reference to her “overseeing … the
PCAOB,” that agency published a list of some 400 non-US companies whose auditors
could not be inspected because of obstacles under their home-countries’ laws
(here).    

The PCAOB claims to
be “currently prevented” from its mission – as if the issues of non-US
confidentiality, data protection and privilege have not been readily knowable
since before Sarbanes/Oxley birthed the agency birth back in 2002.

A good index of
global-scale companies, whose audits are out of reach of the PCAOB, could be
built from that list: a quick sample of household names from around Europe
includes AB InBev, Nokia, Total, AXA, Daimler, Deutsch Bank, SAP, Ryanair,
Luxottica, ArcelorMittal, ING, Ericcson, ABB, Credit Suisse, Royal Bank of
Scotland, WPP, BP, AstraZeneca, Pearson and Unilever. 

To be really transparent,
the internationally toothless PCAOB might publish its short list of those
companies for whom audit inspection did not present obstacles (a sub-set whose total market capitalization would not
make a flyspeck on the windshield of the world’s economic engine). Or, perhaps,
the far longer list of those companies for whom auditor inspections have not
even been attempted.

Schapiro claimed that
“investors – from anywhere across the globe – come under the SEC’s umbrella of
protection. ” 

She might more
candidly confess to all investors, “bring your own foul weather gear – you’re on
your own.”

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