by Melissa Klein

Marking another step forward in the push toward convergence on global accounting standards, domestic and international accounting rulemakers agreed to a joint project that would address the convergence of global accounting standards.

Following a meeting at the Financial Accounting Standards Board’s headquarters in Norwalk, Conn., last month, members of FASB and their overseas counterpart, the London-

based International Accounting Standards Board, announced plans to work together on a short-term convergence project.

The staffs of both boards are working along with the staff of the Securities and Exchange Commission to develop the scope of the project, which aims to eliminate some key differences between existing United States generally accepted accounting principles (GAAP) and international accounting standards, FASB spokeswoman Sherry Thompson said.

With a 2005 deadline for European countries to adopt international standards looming, pressure to bring accord between U.S. and international standards has heightened.

The FASB-IASB project is expected to address about a dozen areas in which "both boards have agreed there is a synergy," said Thompson. "This is a short-term project that deals with convergence, but it’s part of larger efforts on the

parts of both boards to support convergence," she said. "In the future, the two boards will try to coordinate their agendas."

One issue that will be included in the project is income taxes, where Thompson explained, "both boards have the same basic approach, but the application of the accounting is different. Business combinations - an issue on which the boards are already working on a joint project - and financial performance reporting will not be part of the project, Thompson said. "Revenue recognition is a huge project that doesn’t fit into the short-term project scope."

Once FASB members vote to formally approve the convergence project, which Thompson said was expected to happen at the board’s meeting in early October, a steering group that would include members of both boards and staff members would be designated. "There seems to be great support for it," she noted, though no date was set yet for the two boards to meet again.

The boards’ tandem commitment to eliminate the differences in standards was well received by members of the profession, who noted that it was no small task. "I think it’s a very good move," said Edmund Jenkins, immediate past FASB chairman. "I’m pleased that the IASB was able to meet in Norwalk and that they came to this conclusion."

While the move is a step in the right direction, moving toward convergence will prove to be a challenge, observers noted. "It’s difficult because, to extent that there are differences, it requires one group to change, and change is hard," Jenkins said. "As we’ve seen when companies do make changes, they tend to take a beating for it. A lot of investors don’t take the time to understand why a change was made."

He added, "The case is so strong to eventually have one set of global financial standards, because we have a global financial market, that it’s inevitable that it’s going to happen."

"Both boards have a conceptual frameworks that are pretty similar. The standards haven’t always been as faithful to conceptual standards as they might be, because of political pressures, business pressures and practical reasons," Jenkins continued. "The boards will have to demonstrate the superiority of the standards they choose."

"I think there’s a strong view in our Congress, and certainly at the SEC, that we need to have one set of standards," he said. "It’s up to the boards to demonstrate that the investor is the beneficiary and that’s the way they need to go. In this environment, I suspect that Congress would agree to that."

"The question is, who’s going to change?" asked Dennis Beresford, former FASB chairman and an accounting professor at the University of Georgia. "You have to identify the best approach. The problem is, in a high percentage of cases, it’s hard to demonstrate which approach is best. Different people have different views. All the public companies in the U.S. might not see the benefit of having to change their accounting because someone in France or England or Japan has different ideas. And a lot of people will view it as change just for the sake of change."

"When the FASB works on a rule, it has to [reach an] internal agreement, then it has to put the rule out for comment. Sometimes they get a disagreement from the business community, the SEC or Congress," noted Beresford. "To work in lockstep with groups located in another country is not an easy thing to do. It would be hard enough if FASB was working with the California Society of CPAs on a joint project. To add the distance component makes it even more difficult. I wish them all the best, but it’s not going to be easy."

The IASB began operations in 2001, replacing the former part-time International Accounting Standards Committee. The board’s 12 full-time and two part-time members reside in nine countries. FASB, for its part, has seven full-time members.

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