New mechanisms eyed by FASB, IASB in long march toward global comparability

BY KEN TYSIAC
January 10, 2013

The mechanisms for continuing to facilitate global comparability in accounting standards will change over the next few years.

But the leaders of two major standard-setting boards said Thursday during a meeting in New York City that the commitment to global comparability remains. With their joint board meetings and convergence projects nearing an end, FASB and the International Accounting Standards Board (IASB) plan to engage each other in new ways.

The language in the discussion about harmonizing the FASB and IASB standards appears to be changing, too. The idea of a “single set of global accounting standards” remains a goal of the IASB, but IASB Chairman Hans Hoogervorst said he doesn’t see any indication that the SEC will act soon to require U.S. public companies to use IFRS for their financial reporting.

The idea of instead achieving “global comparability” in standards is being advanced by FASB in the absence of a decision by the SEC on whether to require—or allow—public companies to prepare their financial statements in accordance with IFRS.

A recent letter to the IFRS Foundation from the trustees of the Financial Accounting Foundation (FAF), FASB’s parent, said there is a more practical goal for the foreseeable future than a single set of accounting standards. That goal is to achieve highly comparable—but not necessarily identical—financial reporting standards.

FASB Chairman Leslie Seidman used similar language Thursday at a New York Society of Security Analysts conference session, where she spoke along with Hoogervorst.

“My comments must be taken in the context that the SEC has not made a decision that we should adopt IFRS,” Seidman said. “The question is, what do we do in the meantime? What I want to do is emphatically state that we do believe that having globally comparable standards is extremely important.”

Hoogervorst, while expressing frustration that a 10-year convergence process has not resulted in a decision by the SEC to adopt IFRS in the United States, also appeared willing to working toward further harmonization.

“As long as there is no decision [by the SEC], the best you can do is try to move as close together as possible,” Hoogervorst said.

That path toward harmonization will be less formal once the convergence process comes to an end. Just three convergence projects remain—on revenue recognition, leases, and financial instruments—and they are entering closing stages.

Seidman explained Thursday how global differences could continue to decrease even after the convergence projects end. First, FASB hopes to play a role on the Accounting Standards Advisory Forum (ASAF) the IASB is creating.

The new body will be a forum of national and regional standard setters that will advise the IASB. FAF has presented concerns that FASB would be excluded from the ASAF because the IFRS Foundation has proposed that forum participants should commit to making their best efforts to promote the endorsement or adoption of IFRS in full.

But Hoogervorst has said he would like FASB to participate in the forum. He said Thursday that using slightly different language to describe the commitment required of ASAF participants should pave the way for FASB’s involvement.

Another mechanism for increasing comparability will come in the IASB’s conceptual framework project. FASB and the IASB completed two chapters of a joint conceptual framework agreement in 2010, but dropped that project to focus on achieving standards-level convergence.

The IASB is restarting its conceptual framework project, which won’t be undertaken jointly with FASB. But a FASB member will take part in the conceptual framework discussions with the IASB.

“We’re going to commit to try to work together to try to end up with a converged conceptual framework,” Seidman said.

Seidman also foresees increased cooperation between FASB, the IASB, and other standard setters throughout the world. The ASAF is one example of this; another is FASB’s work with the European Financial Reporting Advisory Group (EFRAG) to develop a disclosure framework. Seidman said the IASB has agreed to review the frameworks that emerge from this project to inform its future discussions.

SEC needs more time on IFRS

Former FASB Chairman Robert Herz, who moderated Thursday’s standard setters panel, described FASB’s description of harmonization as a narrowing of differences over time that is geared toward getting to the point where differences are minimal.

A single set of global standards remains the IASB’s goal. The AICPA also supports global standards for public companies.

But SEC Senior Associate Chief Accountant Jenifer Minke-Girard said Thursday that the SEC has decided that additional analysis and consideration is necessary before it makes a decision on IFRS in the United States.

“Everyone knows we have a new chairman of the commission (Elisse Walter), so we’ll have to wait and see what changes or what additional considerations there are,” Minke-Girard said.

In the interim, at least, efforts toward harmonization of the standards of FASB and the IASB will continue, even if the joint board meetings that have marked the convergence projects come to an end.

Seidman said the boards need to have a sincere commitment to working together, with active engagement and sharing of technical perspectives and practical views during the development of standards. She said the boards should coordinate implementation efforts and post-implementation reviews, and share information about emerging issues.

“We remain committed to the goal set many years ago,” Seidman said. “We still believe that improving U.S. GAAP and promoting its convergence with IFRS ultimately will result in differences so insignificant that for all intents and purposes we have a single set of standards, sort of like American English and the Queen’s English.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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