Mary Elizabeth Murphy's contributions to the development of international accounting.
Murphy was ahead of her time in advocating for international accounting standards, and her contributions offer lessons for how CPAs can help achieve the goal of a single set of global standards.
The Early Years
From her 1928 employment in the New York office of Lybrand, Ross Brothers and Montgomery (a precursor to PricewaterhouseCoopers) to her retirement in 1973 from the accounting faculty of California State University, Los Angeles, Mary Elizabeth Murphy (1905-1985) practiced, researched, lectured, and taught in the United States and abroad. In 1930, the Iowa native took the CPA exam in her home state and received certificate number 67, becoming the first woman CPA in that state.
In 1938, she received a doctorate in accountancy--only the second woman in the United States to do so--from the London School of Economics. In 1952, she received the first Fulbright professorship in accounting, with assignments in Australia and New Zealand. In 1957, she was appointed as the first director of research of the Institute of Chartered Accountants in Australia.
During Murphy's career, most individuals failed to realize the need for international accounting standards. In this time before international accounting standards obtained acceptance in the accounting profession, Murphy enthusiastically supported their development and educated others on their benefits and how to overcome their impediments.
Murphy's doctoral dissertation compared American and English professional accountancy practices and thoughts. She also prepared case studies for the Harvard University Graduate School of Business on international auditing topics. In addition, Murphy published 31 reviews in the Journal of Accountancy and the Accounting Review. Of these, 90% covered international subjects.
From 1946 to 1965, Murphy was the most frequently published author in the Accounting Review, as well as its leading author on international issues. She published more than 100 articles in various journals in the United States and abroad. Most of them explored the accounting practices and economic and social conditions in other countries, including Australia, Brazil, Canada, England (most frequent), France, Germany, Italy, and the Netherlands. Murphy authored or collaborated on more than 20 books. Two of these had a direct international focus. A 1942 project covered the accountancy profession in England. In 1954, she contributed a chapter in a treatise exploring the accountancy profession in Australia.
Murphy thought that the unwillingness of professionals to travel internationally represented a hurdle to the cause of global accounting standards. To overcome it, she urged the American Accounting Association (AAA) to invite educators from institutions in Australia and New Zealand to lecture at colleges and universities in the United States. Murphy believed that travel gave accounting instructors and practitioners a wider perspective and clearer understanding of the issues in the international accounting standards process. She practiced what she preached through her many speeches at foreign universities and international professional conferences on the benefits of international accounting standards.
Murphy realized that the goals of increased conformity and standardization of international accounting practices would not be easy to attain. Two obstacles to international uniformity that she addressed were the inability to study the accounting practices of socialist countries and the parochial attitudes and viewpoints of the accounting profession. She believed that international research and travel could diminish this roadblock. Other barriers she noted were caused by different nations' laws, cultures--beliefs, norms, traditions, and values--and languages. Murphy also promoted the ability of accountants to practice internationally. She proposed the establishment and adoption of a universal certification program and title for international accountants. She also advocated international reciprocity agreements.
The Recent and Current Situation
Murphy's retirement in 1973 coincided with the formation of the London-based International Accounting Standards Committee (IASC, which became the International Accounting Standards Board [IASB] in 2001). Murphy urged countries with highly developed accounting systems to lead the world to a set of uniform accounting standards. In particular, Murphy desired leadership on this issue from Australia, Brazil, Canada, England, France, Germany, Italy, the Netherlands, New Zealand, and the United States. These countries have stepped forward.
In 2002, four notable initiatives took place. The Council of Ministers of the European Union (EU) adopted a directive that mandated the use of International Financial Reporting Standards (IFRS) in the near future for publicly traded entities in the EU. The Canadian Securities Administrators proposed allowing foreign companies to report the financial position and results of operations in Canada without accompanying reconciliation to Canadian GAAP. The Financial Reporting Council (FRC) of Australia endorsed the adoption of IFRS in a few years for reporting entities in that country. Through a formal memorandum of understanding known as the Norwalk Agreement, the IASB and FASB manifested their commitment to converging IFRS and U.S. GAAP.
Three major events occurred in 2005. In accordance with the 2002 EU regulation, companies incorporated in its member countries with securities listed on a stock exchange regulated by the EU now had to prepare their consolidated financial statements--previously reported under each home country's accounting principles--according to EU-endorsed IFRS. The EU has grown in size and importance; how-ever, although the United Kingdom is a member of the EU, it still has U.K. GAAP for small companies. This also marked the year of convergence in Australia to IFRS per the 2002 FRC mandate. New Zealand joined the group by essentially embracing IFRS for its financial reporting.
In 2007, the SEC provided its support of IFRS through two actions. The SEC agreed to accept financial statements--for fiscal years ending after November 15, 2007--from foreign private issuers (e.g., a German company listed on the New York Stock Exchange [NYSE]) prepared per IFRS as promulgated by the IASB without reconciliation to U.S. GAAP. Along the same lines, the SEC issued a concept release for discussion that proposed allowing U.S. issuers to prepare IFRS-based financial reports.
The SEC and the A1CPA contributed to the international accounting standards movement in 2008. A proposed road map issued by the SEC listed milestones (e.g., education and training in IFRS in the United States) as components of a transition by U.S. public companies to IFRS. As an update to Rule 203 of the Code of Professional Conduct, the AICPA Council officially recognized the IASB as an international accounting standards setter.
In 2009, the IASB issued IFRS for Small and Medium-Sized Entities (SME). These "little IFRS" rules take up about 230 pages and require fewer disclosures and notes to the financial statements than the 2,500 pages of "big IFRS." Countries have been adopting IFRS for their public companies and IFRS for SMEs for their private companies.
In 2010, Brazil adopted IFRS. The SEC's 2008 proposed road map marked 2010 as the year of early adoption of IFRS by U.S. issuers. The SEC released a new timeline in 2010, abrogating the early adoption option but leaving the door open to reconsider it in the future. In addition, the SEC kept on the table the possibility that U.S. companies may be allowed to select between U.S. GAAP and IFRS.
Beginning in 2011, IFRS will appear on the Uniform CPA Examination. In addition, the U.S. Internal Revenue Code references features of U.S. GAAP; that would seemingly have to be changed if U.S. Standards were to converge with IFRS. For example, IFRS does not include the last-in, first-out (LIFO) inventory method, as U.S. GAAP and tax law do.
At one point, Canada intended to converge with U.S. GAAP; however, its public companies will transition to IFRS in 2011 as the replacement for Canadian GAAP. The United States is the only country today to use U.S. GAAP, which applies to all (big and small) companies. Canada rejected IFRS for SMEs, opting, instead, for its own standards (a stand-alone version) for private companies.
The SEC's new timeline includes a planned vote in 2011 to determine if the federal agency should proceed with a mandate for U.S. public companies to follow IFRS. FASB and the IASB extended their-deadline for completing convergence projects by six months, to December 2011.
The original SEC proposed road map called for 2014 as the year of required use of IFRS by U.S. issuers. The SEC's new timeline designated 2015 as the earliest possible date for mandated use of IFRS by U.S. public companies.
The countries identified by Murphy from the 1940s to the 1960s have stepped to the forefront in the process of adopting international accounting standards in the early 21st century. Her research accurately predicted the major movers and shakers in advancing the process.
The Benefits of International Accounting Standards
Murphy elucidated the driving reasons for worldwide financial accounting rules a half century ago. These same reasons--reduced cost, multinational enterprises, and global capital markets--drive the demand for IFRS today.
Murphy understood the cost-benefit equation behind harmonizing accounting standards. For example, the world's capital markets and investments would benefit from enhanced economic prosperity. According to Murphy, this would be accomplished throughout the world by international accounting and auditing practices permitting the recognition of trends (e.g., measurement bases [historical cost versus fair value] of assets and liabilities, inventory valuation methods [FIFO versus LIFO], and earnings composition [realized versus unrealized gains and losses]).
She recognized trends and the growing interdependencies of a world marketplace; moreover, Murphy viewed the end of World War II as a trigger for global capital investment. She stressed that the role of accounting was to meet the needs of society. Murphy felt that the pillars of accounting (auditing, cost/managerial accounting, financial accounting, social accounting, and taxation) worked in concert as an interdependent system serving a national and international public. Thus, she maintained that these efforts encouraged economic balance by enhancing the operation of national and international capital markets, improvements in production processes, and a more informed direction for national and international economies.
Murphy believed that the standardization of worldwide accounting and auditing practices would add to the prestige of the profession. She discerned the benefits of international accounting standards years ahead of most in the profession.
Accounting standards setters in key countries are leading the way in the world wide momentum toward international accounting standards. Today, about 100 countries mandate or allow the use of IFRS as their GAAP, to varying degrees. The globalization of business will continue to drive the United States and the world in the direction of uniform recording and reporting standards grounded primarily in IFRS.
Andrew D, Sharp, PhD, CPA, is a professor of accounting and the Thomas E. Caestecker Endowed Chair in the Liberal Arts at Spring Hill College, Mobile, Ala. Dale L. Flesher, PhD, CPA, is the Arthur Andersen Alumni Professor of Accountancy and associate dean of the Patterson School of Accountancy at the University of Mississippi, University, Miss.
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|Title Annotation:||historical perspective|
|Author:||Sharp, Andrew D.; Flesher, Dale L.|
|Publication:||The CPA Journal|
|Date:||Mar 1, 2011|
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