The U.S. Financial Accounting Standards Board is expected to be one of the standard-setters participating in a multilateral group that will be advising the International Accounting Standards Board, but it will be among at least a dozen standard-setters from around the world participating in the group.
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Earlier this month, IASB’s parent organization, the IFRS Foundation, announced that it was creating an Accounting Standards Advisory Forum consisting of national accounting standard-setters and regional bodies with an interest in financial reporting. FASB chair Leslie Seidman and IASB vice chair Ian Mackintosh indicated Monday that FASB is likely to be participating in the new group, even as FASB and the IASB continue to work on completing their four main convergence projects left over from their decade-old memorandum of understanding. FASB has not yet made a formal decision to join the new group, though it plans to submit a comment letter.
Mackintosh, sitting alongside Seidman, noted that there would be formal opportunities for the two boards to work together in the future, including on the new Accounting Standards Advisory Forum.
“We’re going to form this group of standard-setters,” said Mackintosh. “It would be very surprising if FASB was not a member, and a fairly dominant and important member. We’re still going to be working together, but we’ll be doing it on a multilateral basis rather than a bilateral basis. That group will be meeting in a few months and having in-depth discussions on all the issues. FASB will be very influential in the group, I’m sure.”
Mackintosh noted that it was important for the board to operate more globally as the financial industry expands further in Hong Kong, Singapore, Brazil and other parts of the world.
“Going forward, we’re going to have a globalized capital market, and a globalized capital market won’t work without globalized financial reporting standards,” he said.
Mackintosh was asked by panel moderator Gary Kabureck, vice president and chief accounting officer at Xerox, about the Securities and Exchange Commission’s failure so far to approve the use of International Financial Reporting Standards by U.S. companies.
He added that the IASB hopes the SEC decision will be an important priority for the incoming administration. Even though the SEC issued a staff report in July on IFRS, there was no decision made one way or the other. The IASB recently published a response to the SEC staff report essentially stating that there was no insurmountable obstacle to supporting IFRS in the U.S.
The United States is better prepared than many other countries for IFRS, Mackintosh pointed out.
“We’ve had a 10-year convergence program,” he noted. “The standards are not all that far apart. That’s a big advantage. The big hurdle for the U.S., in my view, is that it’s the largest economy in the world. It’s very important, and so it has to start to feel its path in a globalized economy rather than standing out on the side.”
Seidman agreed with Mackintosh that FASB’s priority is to continue to work together with the IASB to complete the convergence projects on revenue recognition, financial instruments, leasing and insurance. “We are planning to move forward with a final standard on revenue recognition in the near term,” she said. “At this point, we are converged on it. With some of the other projects, there have been some areas where we have not agreed on some of the major issues in the documents, but sometimes you need a little bit more time to work these issues through. I would hope that all three of those cases are going out for public comment, so there is still clearly an opportunity to bring them together.”
The two boards still have some disagreements over issues such as impairment in the financial instruments project, but they plan to hold a joint education meeting next week on where they are on their differing approaches, with the goal of eventually ending up with a joint standard. However, both boards have agreed on rejecting the current approach to impairment and moving to an expected loss model.
Seidman said that after they issue a classification and measurement document, FASB will work on the hedging standards. She admitted that the IASB had already leapfrogged ahead of FASB in hedging standards by taking a more comprehensive approach while working on the financial instruments standards. FASB will consider the IASB approach when it starts discussions in the first half of next year.
Seidman noted that they are making progress on leasing standards, but that there won’t be as much guidance available for real estate leases in the converged standard as there is under U.S. GAAP. The old guidance will be superseded by the new converged standard, which in some cases conflicts with the old guidance, she later explained during a press conference.
The insurance standards are also making progress, but self-insured entities will not be part of the scope of the new standards and not all captive insurance entities will be covered under the new standards either, especially if they are self-insured.
“We are making progress and we can see light at the end of the tunnel,” said Mackintosh. Looking ahead, he noted that the IASB has issued a consultative document about its proposal for the multilateral group it is forming, the Accounting Standards Advisory Forum, or ASAF.