During a Webcast hosted by RiskMetrics Group, Herz again touted his new idea to create a blueprint that would accelerate the convergence project and outline target dates for moving the U.S. financial-reporting system to an IFRS-based system. As it is now, the standard-setters have no set deadline for finishing the project. “I personally believe that if everything went completely smoothly, the minimum time [to complete convergence] would be a minimum of five years,” he said.
But the SEC may not be patient enough to wait for Herz’s plan to take hold, as the commission has already proposed eliminating its reconciliation requirement by 2009. The SEC’s intentions will become clearer later this year after staffers finish poring over more than 100 public comment letters it received on the reconciliation proposal.
For now, practical issues stand in the way of expanding the IFRS outside of Europe’s borders. For example, in the past week Herz and ISAB counterpart David Tweedie have noted that there are at least 10 major accounting issues that must be ironed out before a global set of standards is ready, including snags with lease and pension accounting, as well as revenue-recognition issues. Plus, education for future accountants will have to change, and the CPA exam will likely need to be modified. In addition, the future stability of the IASB is in question, as it currently receives voluntary contributions (compared with FASB, which receives funding from SEC registrants’ fees).
Many unanswered questions also remain: Will private companies need to start using a modified version of the IFRS? How will state laws and securities regulations tied to GAAP have to be changed? How will the use of XBRL, the interactive data language touted by the SEC as the future of financial reporting, be affected?
Other hindrances could lie with the European Commission’s protests against the IASB’s version of the IFRS, as well as the various modified versions of the IFRS that are popping up in Europe. “Our mission fails completely if that’s tolerated and it’s allowed to continue,” said IASB member James Leisenring during the Webcast. Meanwhile, the SEC’s proposal specifies that it would eventually accept only those financial statements that are prepared using the IASB’s version of the IFRS.
Currently the two standard-setters continue to chip away at rules that are difficult to converge. Leisenring admitted that the process has not been easy as both boards have had to overcome their cultural differences amid pressure by regulators, businesses, and investors that are torn between the European tradition of more principles-based standards and the American reputation for relying on more rules-based standards.
“As we’ve debated the issues in the past four to five years, it’s never come down to one board feeling one way and another board feeling another,” he said. “It’s usually individuals on both boards feeling one way and individuals on both boards feeling another.”