All this might suggest that, far from moving standards toward U.S. GAAP, convergence is favoring standards developed overseas. Both Herz and Tweedie would dispute that conclusion, arguing that their boards are simply moving toward better accounting standards, regardless of origin. “When you see an area where the accounting is not very good,” observes Herz, “it usually turns out that’s where problems develop — including public-policy problems.” He points out that FASB presciently acknowledged the shortcomings of both pension smoothing and footnote disclosure of stock options when it wrote the original standards. What convergence appears to be doing, then, is loosening the political constraints under which FASB has historically labored.
Both FASB and IASB officials agree that international consensus gives them added clout to fix past mistakes — or move into uncharted accounting territory. “There’s always safety in numbers,” remarks FASB’s Bielstein. “There’s always going to be debate whether you do it separately or together. But what does help produce high-quality standards is when you have a vigorous debate around the world.”
The boards’ close working relationship also expands their resources. Staff are often shared between the two boards. And although both boards must still follow an extensive process of exposure drafts and comment periods among their own constituents, they increasingly make use of each other’s early work.
Sometimes FASB has been far ahead of the IASB, as it is, for example, on creating a framework for measuring fair values. FASB’s final standard will likely be issued as a proposal by the IASB, allowing international constituents an opportunity to comment.
In effect, such an approach may allow some projects to be developed off the radar screen, but observers dismiss any suggestion that FASB would ever use such an approach to hide behind the IASB, even on issues likely to be more controversial in the United States. “FASB certainly wants the IASB to work with it to fight these battles, and perhaps take some of the lead,” says Nusbaum. “But FASB also has tremendous self-confidence.”
“When it comes to dealing with resistance to change,” says Herz, “there is power in working together, because global investors, some large companies, the public, and policy makers can see the big picture. They see the potential benefits to world trade and capital markets.”
In fact, any impression that one board acts as a stalking horse for the other may ultimately be the result of the boards’ own learning curve. “The boards are developing a variety of techniques,” says Bielstein, characterizing the share-based payment and fair-value measurement projects as examples of a “pure lead/lag” approach, in which one board issues a final standard before the other begins deliberations.
Increasingly, however, FASB and the IASB are turning to what they call the “modified joint approach,” in which one board develops the initial thinking about a standard, but the resulting discussion paper (as the IASB calls it) or preliminary views (FASB’s term) is issued to constituents in the United States and abroad simultaneously, with the ultimate goal of issuing the final standard simultaneously as well.