If you spot Bob Herz on Cannon Street in London more often over the next year, or discover that David Tweedie is spending more time in Norwalk, Connecticut, it’s because the two accounting standard-setters have agreed that their boards should meet more frequently now that the deadline for converging international and American accounting standards is creeping closer.
Speaking at an industry conference Thursday, Herz and Tweedie, who work in Norwalk and London, respectively, confirmed their goal of completing major projects in their standards-convergence effort by 2011. To do that, they will need to hold more joint board meetings, because it’s a more efficient way of reaching consensus about prickly accounting issues. So every month for the next year, the boards will come together, either physically or via teleconferences, to hammer out principles and guidance on the accounting treatment for such items as financial instruments, pensions, leases, and revenue recognition.
Incidentally, look for an exposure draft on asset impairment this week, a draft on hedge accounting in December, and a more comprehensive proposal on financial instruments by early 2010.
The ultimate goal is a single set of global accounting standards that mesh the best from international financial reporting standards and U.S. generally accepted accounting principles. The timing is right for American companies, as 2011 is the year the U.S. Securities and Exchange Commission is scheduled to decide whether it will require publicly traded companies in the United States to file financial results using the new and improved (and converged) IFRS. If IFRS gets the green light in this country, the SEC expects that companies will have to file results using the international standards by 2014.
In line with their pledge of efficiency, Tweedie announced that the International Accounting Standards Board and the Financial Accounting Standards Board have agreed that neither board will jump the gun on releasing major new rules slated to be converged until the other board has had a chance to release a draft rule for public comment and gather feedback. In that way, there will be less revising of rules and guidance for standards earmarked for convergence.
From a practical perspective, “we’ve put a lot of effort toward convergence, but we need to go work out implementation gaps,” especially regarding the U.S.’s “insatiable” appetite for guidance, added Herz. Herz and Tweedie, chairmen of their respective boards, spoke at the IFRS conference sponsored by the American Institute of Certified Public Accountants and the International Accounting Standards Committee Foundation.
The duo reassured corporate finance executives that their aim is to give financial-statement preparers one year before making a published rule effective, and they vowed to review the practical implications of the new standards two years after implementation, to gauge whether the rules work as planned.
The convergence project, which began in 2002, became an unlikely political priority last year when accounting was vilified by bankers and politicians — including some heads of state — as exacerbating the global financial crisis, especially with regard to valuing financial instruments such as derivatives and mortgage loans and setting up reserves for bad debt.