The remaining convergence projects facing the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) need to be wrapped up soon – even if the boards fall short of completely harmonising their standards, an International Financial Reporting Standards (IFRS) Foundation trustee and a UK accountancy body said separately this week.
The Institute of Chartered Accountants in England and Wales (ICAEW) was expected to publish a report Wednesday saying that it’s time for the IASB to end standards convergence with the United States and focus on nations that have adopted IFRS in whole or in part.
And IFRS Foundation Trustee James Quigley said in an interview that the current convergence projects need to be finished soon, but that the IASB’s focus on the nations that use its standards should not come at the expense of continued cooperation with the United States. Quigley also said the convergence process needs to be appreciated for its progress in moving IFRS and US generally accepted accounting principles (GAAP) closer together, rather than being criticised for the differences.
“If the ambition is a single set of high-quality, globally accepted, and, in my view, principle-based standards, we’re closer now than we were five years ago,” said Quigley, a former global chief executive officer of Deloitte Touche Tohmatsu Limited. “And five years from now, we’re going to be closer again. And the capital markets and investors will be better for it.”
The debate over the future of international financial reporting standards is intensifying as another year appears ready to conclude without a US Securities and Exchange Commission decision on mandating or allowing use of IFRS for U.S. public company financial reporting. The SEC does accept filings from foreign issuers prepared in accordance with IFRS, without reconciliation to US GAAP.
The question of what’s next for IFRS in the United States abroad has become a much-discussed topic in recent weeks for two reasons: First, there has been little indication of where the SEC stands with respect to the issue of IFRS use by US issuers since a staff paper released in July gave no recommendation on the issue.
Second, the convergence programme outlined in the Norwalk Agreement in 2002 is in its final stages. A revenue recognition standard is scheduled to be released in the first half of 2013, and remaining projects on financial instruments, insurance, and leases also are moving forward.
Against that backdrop, FASB Chairman Leslie Seidman said last week that a goal of 100% comparability such as a single set of standards is not achievable in the near term in some of the world’s largest capital markets.
Speaking at the AICPA Conference on Current SEC and PCAOB Developments, Seidman expressed disappointment with what she perceived to be a lack of urgency by the IASB with regard to implementation guidance as the revenue recognition standard is developed. Seidman also said inconsistent applicability across the world is an obstacle to IFRS.
On the same stage, IASB Chairman Hans Hoogervorst expressed frustration with the boards’ failure to find common solutions in the convergence projects, where the IASB and FASB have diverged particularly with regard to financial instruments. Hoogervorst called on US leaders to have the vision and mettle to adopt IFRS.
The ICAEW, a UK-headquartered accountancy body, is expected to weigh in on the issue Wednesday with the publication of a 23-page report called The Future of IFRS. The ICAEW urges the IASB to focus on the needs of the more than 100 jurisdictions that have adopted its standards, and on encouraging nations that have moved their standards close to IFRS – such as China – to take the final steps toward full IFRS incorporation.
The ICAEW paper says that while application inconsistencies may exist, the emergence of “local dialects” in IFRS should not be a concern as long as they are close enough to the mother tongue to be understood easily.
Quigley and the ICAEW agree that ultimately the SEC seems likely to adopt IFRS for use in the United States, and that US participation on IFRS Foundation bodies should not decrease in the foreseeable future.
“There is a continued desire for a constructive, collaborative, fully engaged relationship with the US,” Quigley said. “The US is a big contributor to global standard setting, and I see that continuing, and I see that as the attitude of the trustees as well.”
Quigley said it is necessary at this point to complete the convergence projects, even if some differences remain, in order to prevent fatigue and frustration from setting in. He said changes in leadership at the SEC (Elisse Walter replaces Mary Schapiro as chairman this month); FASB (Seidman’s term will end in June); and FASB’s parent, the Financial Accounting Foundation (Jeffrey Diermeier was named chairman of the FAF board of trustees in October) will bring different perspectives to the discussion of global accounting standards.
Constructive dialogue must continue between the IASB and FASB as progress toward convergence continues, Quigley said.
“I think we need to look at the SEC staff paper as another data point, another step in a long-term journey,” Quigley said. “I don’t think it’s time to wave the white flag.”
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.