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In the eternal dispute “rules based  vs principal based”, you are obviously a supporter of rules based standards.  In a recent article, published in Canadian Accountant, you noted that  It’s time for Canadian regulators to seriously consider breaking from IFRS and adopting U.S. GAAP for public companies.  However, the some violations that you found in the reports of Canadian companies are also in the reports of American companies. Howard Schilit pointed out similar violations in the United States twenty years ago. If an accountant wants to deceive the user of reporting, he will do it under US- GAAP. Do you agree?

A.R.:  Contrary to your observation, financial reporting in my view, requires both principles and rules.  Over the years, our investigative firm has handled more large alleged financial reporting fraud cases than any other firm in Canada.  We are therefore not talking “theory”, but the realities of what is occurring in daily life.  We see the suicides, the bankruptcies and other hardships.

Yes, there always will be financial reporting trickery.  But:

1. how much?  how often?
2. how easy is it to commence and continue the scams for years?
3. can the weakest of thinkers easily carry out schemes that annually cost investors millions?  Or, do certain rules curtail specific types of swindlers?
4. which effective cross-checks exist in any adopted set of financial reporting Standards?
5. did the “dirty tricks” expand in Canada after IFRS was introduced?  [Yes; by far.  Just look at the financial reporting by marijuana companies and real estate investment trusts, and pension asset managers.]

Canada is one of those countries that has protected external auditors against lawsuits, for having signed clean audit reports on materially misstated financial statements.  Hence, IFRS (with its bias of letting corporate management choose its own reporting variations, by altering probabilities and interest rates, and much more) is especially dangerous for investors in Canada, and elsewhere.

IFRS and Canadian laws together allow management (with little or no auditor objection) to assemble materially misleading financial statements that IFRS then allows!!  Revenue and income are being shown years in advance of any likelihood of cash receipt or equivalent.  Why?  Management permission is granted by IFRS’ revenue recognition, etc. (50.0001% probability latitude, etc.)

IFRS does not have built-in cross-checks such as cash or equivalent receipt that prevents extreme accrual accounting, that then separates fantasy from actual third-party bargained transactions.  This ill-conceived IFRS freedom of choice allows Ponzi Frauds to continue for dozens of years (A revolving scheme.)

In short, the IFRS’ “principles” are imaginary, with each management doing what it wants.  A universal system is impossible with IFRS.  [The so-called IFRS “principles” are minor amendments of the U.S. “Concepts” material from the 1960s.]

Summarizing, in my actual experience, U.S. GAAP has deficiencies, but only 10-15% or so of those that are part of IFRS.  The most elementary of frauds (e.g., inflating income, and mixing accruals and cash flows) can be carried out under IFRS and continued for years until liquidity problems arise with oncoming bankruptcies.

You are proposing to give a national enforcement regulator full authority over acceptable accounting rules. Do you mean authority to carve-in or carve-out  IFRS?

A.R.:   I am NOT proposing a “national enforcement regulator” having full authority over reporting.  Canada needs an independent group instead of biased, conflicted auditors (such as those who refuse to admit that IFRS is a “gift from heaven” for criminals, to report whatever they want.)

In 2017, the NYT wrote about your position regarding IFRS: this standards give much more leeway to corporate managers when it comes to valuing assets and recording cash flows, and they can also mask problems at a company. Is the revaluation model of property, plant and equipment very unreliable for an investor?

A.R.:   Revaluation by changing interest rate expectations, net operating income, and similar is giving the “keys to the jail” to those who want to deceive.  I have had to testify in Court on many occasions on such re-valuation nonsense.  See our “Easy Prey Investors” book.

IFRS has to be “reigned-in”.  Pension and savings money will be lost by many if it is not abandoned.  IFRS is not built on a workable foundation.  [In 1972, the Canadian Institute of Chartered Accountants published a book on “Current Value Accounting.”  I was the sole author.  I am not guessing about IFRS’ extreme dangers.]