International Accounting Standards Board Chairman Sir David Tweedie told a group of European finance officials that the IASB and the U.S. Financial Accounting Standards Board are on track to converge their standards by June 2011, after which there will be a period of stability in accounting standards.
In an address during a meeting of the Economic and Financial Affairs Council of the European Union, or ECOFIN, Tweedie reported on the IASBs progress on convergence and how the IASB is addressing European concerns on financial instruments accounting. Tweedie noted that the IASB and FASB have been meeting on a monthly basis since November to meet the goal expressed by G-20 leaders that they produce a single globally accepted set of accounting standards by June 2011.
The two boards have been hashing out differences between U.S. GAAP and International Financial Reporting Standards in areas such as consolidations, securitizations, pensions, leases and revenue recognition. They will be issuing quarterly reports on their progress. In our soon-to-be-published report, the boards will state that despite the challenging technical issues to resolve, we remain on schedule to achieve the June 2011 target, said Tweedie.
He noted that the U.S. Securities and Exchange Commission recently reaffirmed the U.S. commitment to make a decision in 2011 to adopt IFRS by 2015 or 2016, and that the SEC emphasized the importance of convergence in reducing the cost of the transition.
The IASB will do its part to ensure that IFRS is accepted globally, said Tweedie. It is already used in more than 115 countries.
Tweedie added that a second major wave of IFRS adoption had begun this year and would continue through 2012, with Brazil, India, South Korea, Canada, Japan, Malaysia, Mexico, Argentina and Indonesia among the countries in the process of IFRS adoption. However, he promised a period of stability following the convergence efforts with the U.S.
We do not want IFRS to be a constantly moving target, he said. By completing our convergence work in 2011, the IASB will provide a period of stability of accounting standards for newly adopting countries, similar to the stable platform given to European companies and investors between 2004 and 2009.
Tweedie also addressed the concerns of the European financial community with the IFRS 9 standards for financial instruments.
A number of countries, including Japan, Brazil, China (including Hong Kong), South Africa, and Australia, have taken steps to permit or even require the use of the new IFRS 9, he said. Similarly, EU stakeholder groups, including some major banking institutions in Europe, organizations representing the investment community across Europe and elsewhere, and national standard-setters, have called for the endorsement of IFRS 9. At the same time, the IASB understands that, despite the earlier request for speed in completing this phase of the project, the European Commission now wishes to follow the normal endorsement procedure for IFRS 9.
One reason for caution in Europe has been worries about an expansion in fair value accounting standards. Tweedie tried to reassure the European financial officials on this score. For a traditional bank, being one that takes deposits and lends money to customers that it holds to collect principal and interest, we expect IFRS 9 to result in fewer rather than more items being measured at fair value, he said.
Tweedie acknowledged that FASB might differ in its approach to fair value, but he also tried to offer reassurances on this point. We appreciate the concern of this Council and other stakeholders internationally that we and the FASB may arrive at different conclusions when financial instruments should be measured at fair value, he said. Both the FASB and the IASB have agreed on common principles to help us to achieve a common standard. That is our objective. At the same time, the IASB is conscious of the strongly held view of investors and other stakeholders internationally that a combination of cost-based and fair-value accounting remains appropriate for financial instruments.
FASB has been taking a tougher approach on the fair value measurement of loans and loan losses than the IASB in some of its proposed standards.