The Path to Global Standards?

The new FASB chairman spells out an ambitious agenda that could produce a clear road to the adoption of international financial reporting standards by U.S. companies.

In perhaps her first public appearance since becoming chairman of the Financial Accounting Standards Board, last week Leslie Seidman laid out her “three highest priorities” through June 30. Remember that date. Not long after that, the Securities and Exchange Commission could reveal whether it intends to require all U.S. public companies to incorporate international financial reporting standards into the current U.S. financial reporting system.

Speaking on a FASB Webcast, Seidman, who became the top U.S. accounting standard-setter on December 23, said the board’s main tasks for the first two quarters of 2011 are to achieve, along with the International Accounting Standards Board, melded standards in three areas: financial instruments, revenue recognition, and leasing.

Seidman said the target date for achieving convergence on those three matters would be June 30. “To me, the June 2011 target date signals our strong commitment to work as hard as we can to develop final standards on these projects as efficiently as we possibly can,” she said.

But since the projects “represent key issues for many companies and nonprofit organizations, I want to underscore that we want these standards to provide useful information and to be understandable and implementable at a reasonable cost,” she added. “Let me assure you, if it takes a little longer to reach that comfort level, we will take that time.”

On Thursday, speaking at a Standard & Poor’s conference on hot topics in accounting, IASB member Patricia McConnell expressed relief that FASB wasn’t regarding the June deadline as absolutely fixed. “Yes, we do have a target date of June 30. But if we’re not done, we’re not done,” she said, adding that none of the standards would be effective before 2013.

Seidman

James Kroeker, the SEC’s chief accountant, said via a phone hookup to the S&P conference that the commission could decide “sometime in 2011″ if and how it will require U.S.-registered companies to incorporate IFRS into U.S. financial reporting. “Particularly important to that” timing are “the projects that FASB and the IASB are working on,” he added.

Driven by the recent global financial meltdown, the standard-setters have put the convergence of their rules on financial instruments at the top of the list, and hope to produce a final standard by the second quarter of 2011. “I think the recent financial crisis highlighted the key problems we have with the current accounting for financial instruments,” Seidman said during the Webcast.

On Monday, the day before Seidman spoke, FASB reversed course on perhaps the most controversial provision, financial-instrument reporting standards. The board unanimously decided that the value of collectible loan portfolios could be measured on the basis of their amortized cost. Previously, in a position that for years has been vociferously opposed by banks, the board favored measuring the worth of loans held by banks at fair value.

For nonfinancial-services companies that don’t tend to lend much money or issue securities, the regulation of financial instruments is a lesser concern. Still, it’s a “sleeper issue” for many corporations outside the banking, broking, and insurance businesses, Neri Bukspan, S&P’s chief quality officer and chief accountant, tells CFO. Depending on the outcome of the standard setting, the accounting for such items as derivatives, financing arrangements, loans granted to customers, and vendor financing could all be affected, he says.

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