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.

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.

[IMGCAP(1)]“After we complete these remaining projects, where we have conducted our discussions with the IASB on a joint basis at the table making decisions, I think it’s necessary for the relationship to change,” said Seidman at Financial Executives International’s 31st Annual Current Financial Reporting Issues conference in New York on Monday. “When I look back, we have used different techniques to work together over the course of 10 years, ranging from very occasional check-in kinds of meetings to a much more formal approach in recent years. And we have accomplished a lot, if not just as much, in those early days by using a different approach. Just because the convergence process as we know it in the last few years is going to come to an end, I don’t think that signals a change in the FASB’s commitment to trying to converge and reach globally comparable standards. We’ve had a commitment not to diverge for many, many years. I don’t think any change in the relationship signals any change in that regard. I am optimistic that over the next year or so when we finish up these projects, we will have a very solid basis to work together in a different capacity going forward.”

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.

[IMGCAP(2)]“As a practical matter, it means that any decision is delayed, and given that you’ve just had a presidential election and a whole lot of other things, the delay is going to be more than one, two, three or four months,” he responded. “It seems inevitable now that we’re going to have to wait and then there’s further uncertainty what decision will be reached when the decision is made. How do we view that from the IASB point of view? Our strategy going forward is to finish the convergence projects with Leslie and her board. We’ve got a strategy review, which urges us to work more on a multilateral basis with the standard-setters around the world, and we’re working on that. We were told that there isn’t a consistent implementation of IFRS around the world, and of course it’s a very diverse world, but we’re working on that with organizations like IOSCO and the regulators in general. We’re not regulators. We can’t enforce our standards, but we can work with the enforcers to see that we get consistent enforcement, that the different countries do come up with a similar answer.”

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.

“The consultative document says that we get a forum of 12 made up of standard-setters and regional groupings, like EFRAG (European Financial Reporting Advisory Group) and the AOSSG (Asian-Oceanian Standard-Setters Group),” he said. “The proposal is two from North America, one from South America, three from Europe, three from Asia Oceania, one from Africa and two at large. We have proposed 12 because we think that’s a workable number, but already we have heard feedback: What about 16, what about 18, what about 20? The difficult task is going to be picking the 12 because you’re leaving somebody good out, even if you get 16. So we’ll see what our constituents say. We aim to meet every three months and to be working actively on current projects, so it’s not a long-term process. It’s working with the board, with the IASB, on current projects. We want to get perspectives from all around the world and understand conditions around the world. It’s a new way of setting standards, so it’s very much an experiment. I’m very hopeful it will be a very positive engagement. We’ll give it a couple of years and see if we have to expand it, if we have to do something different. We’ll find out as we go. But I think this is a good start on working on a multinational, multilateral basis. We have the first meeting next March.”

The new group will not include regulators. The regulators already meet separately from the standard-setters, he noted.

The IASB recently had a consultation on what its future agenda should be. After a “period of calm,” the IASB plans to tackle some changes in agricultural standards as well as standards for rate-regulated industries such as power companies. Mackintosh also believes there will be a large group of research projects conducted by different standard-setters, with the aim of producing discussion papers that will be used to determine whether a particular project should be moved onto the IASB’s agenda, Mackintosh noted. The aim is to get those concept papers completed by 2015.

Seidman said FASB hopes to tackle some projects that are currently on the back burner after consulting with its advisory board, FASAB. Those are likely to include pension accounting and the treatment of government grants. FASB has been receiving inquiries about these topics and its staff has already begun researching them. In some cases, FASB will build on the work done by its sister organization, the Governmental Accounting Standards Board, as well as the IASB.

“We’re going to concentrate over the next year or so on completing the projects that we’ve been working on,” she said. “With revenue recognition going out as the first of the major projects, we’re going to be focusing significantly on making sure that we have the right support for a good implementation of that standard. We’re currently developing a plan for how to do that and planning to work with the AICPA, the FEI’s committee that’s been set up on rev rec for implementation, and trying to make sure that we’re hearing about any questions people have on a real-time basis and providing transparent responses to them, but stopping short of developing any sort of a cookbook or detailed rules to go with, which would sort of defeat the purpose of the whole thing.”

During a later press conference, Seidman clarified that FASB will be coordinating with the American Institute of CPAs to be in line with its industry audit guides. “The AICPA has industry audit guides out on many, many industries, so at a minimum they need to update them for any change in accounting-related revenue recognition,” she said. “They have reached out to us and we have reached out to them. What we would like to do is coordinate out efforts so that we’re surfacing issues on a timely basis, and if there’s a need to provide any interpretive guidance that we do that on a timely basis so everybody knows what to do. What we want to avoid, though, is creating a bunch of detailed guidance to supplement what is widely viewed as a principle-based standard.”

Seidman briefly discussed during the panel the disclosure framework that FASB has been developing to reduce disclosure overload on financial statements. Mackintosh noted that the IASB is also planning to host a forum in London next January to discuss disclosure overload.

Seidman said she is excited about working with the newly established Private Company Council, whose first meeting will be in December. The PCC will initially review some of the comments received on the proposed differential framework for determining when to set differences in private company standards.

Seidman noted that her own agenda will be full, even though her term as the head of FASB ends next year. “I have seven months to go, but I’m not planning to wind down until June 15,” she said.