Financial Accounting Standards Board chair Leslie Seidman gave an overview of the work of the board as it tries to achieve its convergence goals with the International Accounting Standards Board, and said they were taking extra time to get the standards right and trying to simplify them to make them easier for accountants to apply.
At a conference last Thursday on financial reporting at Baruch College in New York, she noted that the two boards are still working through the differences on their major convergence projects: financial instruments, leasing and revenue recognition. The two boards recently announced that they were extending the convergence timeline for those three standards, along with their project on insurance standards (see FASB and IASB Extend Convergence Timeline). The boards have decided to focus on a limited set of standards for now, and Seidman said that the “winnowing-down process” had been useful for the boards in digesting the comments they had received.
Seidman emphasized that the delays were necessary to get feedback from constituents, and the two boards are making painstaking efforts to reach out to groups that haven’t been forthcoming with their comments, particularly investor groups.
“There is no desire here to indefinitely delay these projects or to lose momentum on them, for that matter,” she said. “But we felt that it was extremely important to proceed at a pace that would allow people to continue to participate actively and then to allow time for us to actively evaluate the proposals as a whole and to determine what other steps might be necessary from a quality control standpoint to make sure the standards were ready to be issued and implemented by people widely around the world.”
She noted that the two boards are in “active re-deliberations” on the three main projects as they carefully work through all the issues raised.
“A common theme among all the proposals was a level of complexity that did not seem warranted, and we’re taking that particular concern to heart and trying to find ways to provide improvement and useful information without making the proposals unnecessarily difficult to understand or to apply,” she said. “We want to do this, of course, without compromising the quality of the information that will ultimately be provided to investors.”
The two boards are still aiming to complete some of that work by the end of June, which was the date that had originally been set by the Securities and Exchange Commission and the G-20 economic leaders as the target for completion of the major convergence projects.
“We hope to have the major decisions made on each of these projects, with the exception of insurance, on or about the June timeframe,” said Seidman. “I’m not saying that we’re going to be done, or have a draft of some kind done. I’m just saying we’re hoping to complete the board meetings around that timeframe.”
The two boards are taking a careful, slow-going approach. Once they complete their work on the standards and take into account the comments and other feedback they have received during meetings and roundtables, they plan to post the documents on their Web sites and give people another chance to send in their comments and suggestions.
“There will be a pause in the process to give people another chance to take a look at the document as a whole and let people know if there is something that we’ve missed,” said Seidman. She noted that the two boards have also been asking people for suggestions on the timing and effective dates and said they would give companies and accountants “ample time” of “at least a couple of years” to get used to the new standards.
The Securities and Exchange Commission is also supposed to make a decision around June on whether sufficient progress has been made with the convergence effort to give the go-ahead for incorporating International Financial Reporting Standards into the U.S. financial reporting system.
SEC Chief Accountant James Kroeker and Deputy Chief Accountant Paul Beswick gave an update on how matters stand. Kroeker noted that the SEC staff has produced a progress report on the status of the work plan for achieving convergence. He also said the SEC is planning to host a financial reporting series of roundtables this year to hear about risks and trends, which would help with early identification of risks and potential areas for improvement. The first session will be held later this summer.
“I’m pleased that the boards are working on these important financial reporting issues as they’re making progress towards resolution,” said Kroeker. “To me, the boards’ issuing high-quality standards is of the utmost importance…. I’m also pleased the boards are committed to following rigorous due process procedures, including reimplementation testing and outreach, so they’re able to achieve this high quality while performing research and implementation testing.”
Beswick noted that the SEC may decide on one of several approaches with regard to IFRS, including incorporating the standards or simply endorsing them. However, he steered clear of using the word “condorsement,” a term he had coined during a speech at an AICPA conference last December, and said the SEC would try to stick with the English language. “We’re not allowed to make up words anymore, so we look for words in the dictionary,” he said.
Beswick said the SEC staff is working on a report comparing U.S. GAAP with IFRS to identify the differences, and another report on how a potential incorporation of IFRS might work. One of the approaches it took was to see how other countries have transitioned to IFRS, short of adopting it wholesale.
“As we started a survey on the jurisdictions, we saw that there were other ways that people had incorporated IFRS into their financial reporting system,” he said. “As we looked around, one of the things we saw was a model that focused on endorsement of new standards, so that the IASB would issue a standard and then the local standard-setter would then endorse that standard into their national GAAP.”
He noted that Europe and Australia do it that way. The SEC staff is trying to work out what would be done with the existing GAAP standards once the IFRS standards had been endorsed. The SEC also wants to take into account what would happen with smaller public companies.
“One of the things that the staff is becoming very focused on is the effect on small and medium-sized companies,” said Beswick. “It’s easy to take any of the Fortune 50 or Fortune 100 companies and think about [whether] they have the resources, but when you start to get some of the smaller companies, the benefit may not be as significant to them in terms of going to IFRS, so we’re thinking about other ways that can be managed a different way.”