FASB and the International Accounting Standards Board will begin meeting monthly to try to speed up efforts to develop a common set of accounting standards by the target date of 2011, the heads of both boards said Thursday during a general session at a conference on IFRS held in New York.
“We make the most and best progress when we meet together,” said FASB Chairman Robert Herz. “We are now committed to meet about every month, six times a year face to face and off months by video conference. The end game is to try to bring things together in a converged way on all these major projects, including financial instruments.”
IASB Chairman Sir David Tweedie echoed those sentiments.
“The SEC quite rightly said, ‘Don’t even try to converge standards that are outdated. Write a joint one together.’ This is what this will be all about,” he said. “(In the interim) U.S. GAAP and IFRS will still be different, but a lot more close together.”
The IASB and FASB have been working together since 2002 to arrive at a set of common standards by the end of 2011.
The convergence project began with The Norwalk Agreement reached between FASB and the IASB in 2002 and subsequent memoranda of understanding (MoUs) under which the two standard-setting boards have agreed to converge their separate sets of standards. Under the agreement, the boards are taking the best approach from either U.S. GAAP or IFRS or jointly developing entirely new standards where the current standards of neither body are deemed to be of sufficient quality.
The aim now is to allow one year after publication of the standards before implementing them and to conduct a review of the standards once they have been applied for two years, Tweedie said.
“My expectation is we’d have fairly long lead times for implementation. We’re going to need that because they’re complex standards,” Herz said, addressing concerns expressed by the audience. “The challenge to us right now is to get those standards finalized and then provide enough lead time for companies to be able to do it and for users to understand the challenges.”
“We guarantee, if there’s still an area of major controversy, the boards will look at it again—it’s not set in stone,” Tweedie said, trying to ease people’s concerns. “We’re determined to try to finish this as best we can.”
The leaders applauded the progress that various organizations are making and highlighted some of the more than 100 countries that have adopted IFRS. But Tweedie also pointed out that there’s “one big economy missing,” the United States.
“The feeling in the U.S. is the U.S. has the world’s best accounting standards, and the rest of the world ought to follow the U.S.,” said Paul Volcker, chairman of the President’s Economic Recovery Advisory Board. “That may have sounded good 20, 30 years ago, but I think we’ve learned differently. The logic is international, not ‘made in the USA’ anymore. We can’t take the approach that what we adopt is necessarily good for the world. If there’s anything that’s globalized these days, it’s finance.”
“No one country has a monopoly or the right answer for a global economy. We’re trying to find the right answer,” Tweedie added. “It makes no sense to speak different languages if we could all speak the same one.”
Diverse presentation of financial statements resulting from different standards is one of the problems Tweedie said the IASB wants to concentrate on moving forward.
“We’re trying to make sure this is a package that will show very clearly what is happening so financial statements worldwide will start looking the same. Right now, they look very different,” Tweedie said.
Having a set of standards people understand will increase credibility and investing across borders, and result in compatibility across companies and political boundaries, Herz said.
However, he emphasized the need for one set of standards without country-specific variations, which he said is the major problem in the European Union and results in inconsistencies.
“IFRS as adopted by Antarctica doesn’t really help,” he said.
In an agreement reached Sept. 25 to make dozens of changes to the regulation of financial markets, systems and institutions, the leaders of the G-20 called on “international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011.”
This most recent statement by the G-20 leaders follows previous statements calling for a single set of global accounting standards and other accounting changes at summits held in Washington last November and in London in April.
On Thursday, Volcker said the SEC should, “take into account the wisdom of political leaders getting together and … not inhibit the process.”
And Herz expressed his satisfaction with their views.
“I didn’t think it was completely appropriate from the G-20 to say, ‘Here’s the accounting fix you need to do.’ But I was happy with the last G-20 (pronouncement) that came out of Pittsburgh and encouraged that they acknowledged differences between (financial institutions’) capital requirements and accounting rules,” Herz said.
FASB’s Future Focus
One key area FASB will monitor moving forward is loans.
“It’s been clear the reserves against loans tend to lag the deterioration of the underlying credit position,” Herz said. “We need to look at more forward-looking ways at doing loan-loss accounting. We have to look at this carefully to come up with something not only operational but auditable and better than the current loss approach.”
During meetings earlier this week, both groups said they would like to focus on basic standards relating to income taxes, but Herz said they may have to wait for resources to free up because conceptual changes may be needed.
Another area is insurance contracts, which now have numerous standards. Herz would like to see a common standard. FASB had planned to release an exposure draft on that subject in the fourth quarter of 2009, but Herz said that timeline may be pushed back because of some ideas he picked up this week that will require staff follow-up.
The conference, jointly sponsored by the AICPA and the International Accounting Standards Committee Foundation, continues Friday.
Watch an exclusive JofA video interview with Paul Volcker at the conference in which he discusses the advantages of adopting IFRS in the United States, whether 2011 is a reasonable deadline for the convergence project, and how the independence of FASB and the IASB should be maintained.
—Alexandra DeFelice is a JofA senior editor. If you want to comment on this article or suggest an idea for another article, she can be reached at email@example.com or 212-596-6122.