Editor's note: The heads of FASB and the International Accounting Standards Board (IASB) announced they will take “a few additional months” beyond their June target date to complete priority joint convergence projects on revenue recognition, leases, financial instruments and insurance. Below is a summary of their discussion. Also read "FASB, IASB Announce Delay on Priority Projects."
Sir David Tweedie, Chairman of the IASB
Leslie Seidman, Chairman of the FASB
Interviewed by Mark Byatt, Director of Corporate Communications, IFRS Foundation
Mark Byatt: Welcome to a podcast summary of the Joint board meeting between the IASB and the FASB in London that took place on 12-14 April 2011. My name is Mark Byatt, Director of Communications for the IFRS Foundation, and I am delighted to be joined for this podcast by David Tweedie, Chairman of the IASB and Leslie Seidman, Chairman of the FASB.
Let’s begin by looking at where we are with the overall convergence project. The IASB celebrates its tenth anniversary this month while the convergence program has been going for almost nine years. Can we start with an assessment of what has been achieved to date and what is still left to do?
David Tweedie: The convergence program has really fallen into two distinct phases. The first was trying to get rid of the differences between our two standards, and the second was working together to improve the standards. Looking at the reconciliation requirement that was then in place, if you were listed in the United States using IFRSs you had to reconcile to US GAAP, that showed where the differences were, and what we did was try to look through our standards and if FASB had a better standard, we should take it and vice versa. That was going to take forever so in 2006, the Memorandum of Understanding (MoU) was instituted and that set out a different policy, namely that we should look at certain standards, and for each of these standards, if it was complex or out of date there was no point in trying to converge them otherwise we would just get a complex out-of-date converged standard when what we should really do is write a better one. That’s really been the thrust of the convergence program during the last five years and looking back, we have completed most of that program and it’s been a great success, the two sets of standards are much closer together and frankly IFRSs are much better quality than they would have been otherwise.
Leslie Seidman: Let me just mention a few of the achievements that we have reached together to date. In that first category that David talked about, the short term convergence projects, we have completed or nearly completed most of them, including standards on inventory, accounting changes, borrowing costs and fair value options and as David said, in some of those cases the US went towards the IFRS standards and in some of those cases the IFRS standard went towards US GAAP. We have also completed major projects in a couple of key areas, namely stock based compensation, business combinations and non-controlling interest, and those standards together eliminated a significant number of differences between US GAAP and IFRSs. In the last few years we have also developed consistent disclosures on derecognition and consolidations, and moved to substantially converge the accounting for securitizations and special purpose entities. We are also about to issue final converged standards on fair value measurement and other comprehensive income. So, together those represent very significant convergence efforts. What we have got left, as David said, is a few priority MoU projects including leasing, revenue recognition, financial instruments and insurance, and that is what we have been focusing on this week.
Byatt: Clearly it has been a busy time for the two boards, there has been some concern though regarding the boards’ ability to deliver high quality standards as the same time as completing their work by the June 2011 target. How do you respond?
Seidman: Let me assure you that as professional standard-setting boards we are taking these concerns very seriously. We would never let a target date take priority over thorough and robust due process. Our due process is designed to be open, inclusive and deliberate and we want our stakeholders to be active participants in the process, so let me clarify any misunderstanding about the June 2011 date. It was always intended to be a target, not a deadline, and we always said that achieving the target was subject to the nature and extent of the feedback that we got on each of the exposure documents. At this point on each of the exposure documents we have received significant and very constructive feedback and we are in the process of working through those issues. The quality of the standards remains of the utmost importance. Every board member wants to issue high quality standards that we think are going to withstand the test of time.
Tweedie: That is why we have adjusted the work program continuously over the last couple of years. In 2010 we looked at the elements of the program that were considered to be critical, and those that were less important. We decided that several projects were desirable but actually not essential, so we pushed them back. Furthermore, in November we really cleared our agendas of all the other smaller issues that were not on the Memorandum of Understanding we were working on together, quite important things like emissions trading and some other projects that were not really part of the central focus, so we limited our current work program to just to the core projects that Leslie mentioned. We have been working on these now for some five years so this is hardly a rush job and what we have done, and I think this is a big change in standard-setting over the past couple of years, is we have gone out deliberately to get high quality in put in addition to that required by our due process. This extensive outreach is something that hadn’t been done to the extent that it is now. We get constant input, and we test these ideas as we finalize the standards.
If there are comments in response to an exposure draft we then look at it and we go out to make sure that what we are proposing meets the needs of the markets. So there has been a lot of round tables, webcasts, meetings with stakeholders and individual companies.
Byatt: So, that leaves three priority projects to conclude; revenue recognition, leases and financial instruments as well as insurance as a joint project. To date the boards have said that June 2011 was the target for completion. Is that still the case?
Tweedie: Well as Leslie said earlier, the June date is a target, it actually gave both boards great focus, and we are probably further ahead than we would have been had we not had that focus. However, we have always emphasized, and I said it just a few weeks ago at the US Chamber of Commerce, that we would never release a standard before it is ready and ultimately it must be a high quality standard or you just can’t issue it. When we are conducting this outreach, we are embracing the whole need for full and effective due process, and this week’s discussions have been part of that process.
Seidman: Absolutely, and as I said before, we have already achieved an enormous amount of progress on the convergence program. We have recently, in fact this week I would say, made great progress on the remaining MoU projects and we are working hard to respond to the feedback that we have received and come to high quality solutions on the projects. After evaluating the issues yet to be addressed we jointly concluded that, without extending the work out indefinitely, we all could benefit from a few more months to develop these standards, some of which really go to the core issues of many companies.
Tweedie: So as Leslie was saying there, we have decided to extend the timetable for a few additional months to enable us to check whether our conclusions will last the test of time. We are also mindful of the G20 target, we have been reminded of that many times over the last few years, and we intend to try to finish this convergence program by end of 2011. The June target has helped us to get there but at the same time it is clear that we need a little more time to check the conclusions, and to ensure that the standards are of the highest quality.
Seidman: Right, so our next step is to lay out the plans for the completion of the work on the remaining projects. This is going to include: how are we going to complete our technical discussions, and importantly, how are we going to consult with stakeholders as we move forward to finalizing these standards. We intend to post our conclusions on those items in the next convergence progress report, which is due to be published in the next few days.
Tweedie: And we are working with our respective oversight bodies to set out this timetable to conclude these remaining projects.
Seidman: Let me mention one other thing, we have yet to decide on the effective dates for these standards but we do want to reassure people that we will allow ample time for them to understand the requirements and to plan for an effective transition to the new standards once those decisions are made.
Byatt: That is very helpful, thank you. Is there anything else you would like to cover?
Tweedie: I would just like to say that 10 years ago when we started, the objective was a single set of high quality standards internationally. The convergence program has done more than anything else to achieve that aim, if we didn’t have that we would have IFRSs and US GAAP as two totally independent sets of standards. During the last nine years the two boards have really done a lot to bring the standards together. There are still differences, obviously, between the two, but the major differences have been removed. I think this has been fundamental and highly successful as we move towards global financial reporting standards.
Seidman: And one last thing - David, I am sure I speak for you when I say a tremendous thank you to the boards and staff of the IASB and the FASB for their dedication in delivering such excellent work on a timely basis over the last few months especially, but certainly years before that. We would also like to thank the hundreds of interested parties who follow our work closely and provide such helpful input on a timely basis, often in addition to their day jobs. This has been an impressive collaborative effort and we are immensely grateful for your on-going commitment to developing high quality converged standards. So thank you.
Byatt: David, Leslie thank you very much for taking the time out of what is undoubtedly a very busy schedule; we will look out for the progress report which is due out shortly, which will be posted on the IASB and the FASB websites. Thank you for listening to this podcast summary a transcript of which will be posted on the IFRS and FASB websites.