The U.S. Financial Accounting Standards Board and the International Accounting Standards Board have put off the target date for completion of the convergence of international and American accounting standards until “the second half of 2011,” according to a report by the boards. In January FASB chair Leslie Seidman said the target date for achieving convergence on three essential remaining issues (revenue recognition, leasing, and financial instruments) would be June 30.
Even if work on those three essential issues is completed by the end of the year, the goal of full convergence of generally accepted accounting principles and international financial reporting standards will not be reached before 2012. A FASB representative said the U.S. standard-setter will not finalize its work on insurance contracts until next year. (The insurance issue was not on the agenda of the original convergence agreement struck by the two boards in 2002, but was added to the effort later.)
In their fourth progress report since they committed to achieving convergence, the boards announced that “in the coming weeks” they would publish converged standards on five other issues. The quintet of standards are ones on fair-value measurement, consolidated financial statements (including disclosure of interests in other entities), joint arrangements, other comprehensive income, and postemployment benefits.
In a Podcast explaining the moves, Seidman cited the boards’ “desire to cross-check with stakeholders on any key changes that we are making” related to converged leasing, revenue recognition, and financial standards, noting it would “take a few more months for us to complete our work.” Those changes are needed “to satisfy ourselves that the resulting standards are of high quality,” she said.
Some differences between the two boards need to be resolved. While FASB and the IASB “are on the same track for revenue recognition and leasing,” said Seidman, “our timing is not going to be the same on financial instruments and insurance.”
The boards have approached the issue of financial instruments in different ways, and they still need to resolve their positions on such matters as impairment and balance-sheet netting. FASB also needs to decide whether to give certain rule provisions more public exposure. In terms of insurance contracts, “FASB joined the discussions fairly late” and still needs to assess public comment on the matter with the IASB, according to Seidman.
The completion date for full accounting convergence has been a matter of intense speculation among independent auditors. One major reason for that interest is that an announcement of full convergence could trigger a Securities and Exchange Commission decision on the adoption of IFRS by U.S. companies as well as possible compliance deadlines. In January, however, SEC chief accountant James Kroeker said 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.
In response to the boards’ new progress report, Kroeker said: “This is an important reminder that the quality of the standards is and must remain the top priority for the boards as they seek convergence. High-quality standards are critical to our evaluation as SEC staff continues with the work plan efforts.”
In February 2010, the SEC directed its staff to develop and promote “a single set of high-quality, globally accepted accounting standards.” That effort, called the work plan, “is intended to inform the Commission to make a determination in 2011 about whether to incorporate International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers,” according to a statement on the SEC’s Website.
Yesterday the SEC announced it will sponsor a roundtable on July 7 “to discuss benefits or challenges” of potentially incorporating the international standards into the U.S. system. The July event will feature panels representing investors, smaller public companies, and regulators.
Some think the SEC will decide to provide a choice rather than an edict to U.S. corporations. The most likely outcome “would be to allow domestic registrants to use either IFRS or U.S. GAAP for SEC reporting purposes,” thinks Bruce Pounder, vice president for accounting programs at SmartPros Ltd. and a CFO columnist.
The next most likely outcome “would be for the SEC to continue to prohibit domestic registrants from using IFRS and thus continue to require domestic registrants to use U.S. GAAP,” he said in an e-mail last month. “And I believe the least likely outcome would be for the SEC to require domestic registrants to use IFRS.”