The International Accounting Standards Board is making more of an effort to complete its major convergence projects by the middle of next year.

IASB Chairman Sir David Tweedie told a meeting of the monitoring board of government regulators in New York on Thursday that the movement toward IFRS in the next two years in countries like India, Japan, South Korea, Canada, Argentina, Nigeria, Malaysia, and Taiwan is causing them to press the board to complete its convergence work by mid-2011. The IASB and the U.S. Financial Accounting Standards Board had earlier pushed back the deadline for completing some of their major convergence projects from mid-2011 to the end of 2011.

“The movement toward IFRS in these countries has led to pressure on the board in the sense that we are hearing that these countries really want us to complete our present work program by mid-2011 so that they don’t have to change twice,” he said. “We are very aware of that. The G-20, after the financial crisis, asked the FASB and ourselves to complete our major convergence projects by mid-2011.”   

He noted that the IASB will have four new board members next year who will need to get up to speed on the standards, and that will produce an extra incentive to get finished by mid-2011. (Tweedie’s term on the board ends in June 2011 as well.)

The SEC will make a decision in the middle of next year and convergence will be part of the decision, Tweedie noted. The monitoring board meeting took place at the SEC’s offices in New York.

“We had a very successful meeting with the FASB last week,” Tweedie added. “We have agreed that the important thing about our work is to complete the critical projects that we identified last June by June of next year. So our priority is going to be the memorandum of understanding subjects. We are not going to stop work, but not bring subjects to either board that really don’t affect the memorandum of understanding. So it’s a case of if it’s not in the memorandum of understanding, then it’s postponed.”

For two of the nine subjects in the memorandum that the IASB had said it would try to finish towards the end of 2011, “we’re not going to take any chances that they may jeopardize finishing what we call the priority subjects,” said Tweedie. “We will not be bringing them back to the board by June, so there will be no exposure drafts in the first half of the year.”

Tweedie noted that the plans have not yet been set out in a formal document with FASB, but he wanted to provide the thrust of their discussions from the joint meeting last week.

The standard on financial statement presentation has been very controversial, he noted, and both boards feel they have to do much more work on them. They will examine the subject in great detail, but not before June. The liability and equity standards are in roughly the same position, he added.

“There’s an inclination to move towards our standard, which is by no means perfect and does require some additions,” he said. “We’re not under pressure to change it at the moment, and there are issues to be looked at in the United States about how it would apply in certain situations. So again, that one, which we’ve already decided to defer, will not be brought to the boards before June.”

Tweedie also disputed press reports that the convergence program is disintegrating. He said that perception was based on one standard, for financial instruments, and the boards are still determined to bring that standard to a converged solution “if at all possible.”

On the derecognition standard, he noted that FASB has removed a major difference, for qualifying special purpose entities, by consolidating them. The IASB has adopted FASB’s “superior disclosure requirements,” so Tweedie said the two boards were “pretty close on this one and we believe that one is completed.”

On the consolidation standard, Tweedie said the main problem has been special purpose entities and the boards have agreed to a united position in that area. On the voting interest entities, “the normal type of subsidiary, under IFRS if you control a subsidiary you consolidate, but in the United States, you have to have 50 percent plus one for the equity,” he said. “That is going to be a big jump for the U.S., and FASB is going to explore that in roundtables next month. We will be present at the roundtables. We have a standard ready to publish. If there are any fatal flaws that emerge at the roundtables, we’ll have to look at our standard. Otherwise we expect to publish that next quarter.”

As far as fair value measurement, Tweedie noted that the boards are unanimous on that standard. They have largely adopted FASB’s standards, made a few changes, FASB has put them out for comment, and he expects they will try to finalize it next February.

On the pensions standard, Tweedie said the IASB is getting closer to the U.S. position by removing all the “smoothing devices.”

That leaves the boards with the revenue recognition standard, which the boards have voted through unanimously. However, he acknowledged that they were having problems with particular industries and are actively seeking comments from them to make sure the standard can be completed on time.

On the leasing standards, Tweedie said the two boards are mostly unanimous on the lessee proposals, although there are still a few controversies that need to be amended. The lessor proposals also had some areas of disagreement, but he believes they have asked enough questions to help them make up their minds about how to move in the future.

Of the financial instruments standards, Tweedie noted that FASB has proposed a fair value model and the IASB favors a mixed model, which has been widely supported and accepted already by various countries like Japan, Australia, Hong Kong, and South Africa.

“Today we published the liability side of that, which really just removed the ‘own credit,’ the gain or loss, which has been a major source of contention in the financial crisis, but otherwise we left the liability side alone,” he said (see IASB Fixes Debt Gimmick in Liability Standard).

Tweedie said the IASB is working on the hedging provisions of the financial instruments standard. FASB is watching this one as well but is busy with its “mean standard,” but will get involved at a later stage. “We are completely redoing the hedging rule to make it easier to have the accounting more in line with what actually happens,” said Tweedie. “Where the hedging doesn’t work, we make sure the ineffective part of it goes to the profit and loss account. We think this is going to be a major change in accounting, and one which certainly non-financial companies will welcome.”

Of the seven subjects, Tweedie said he thinks they may have some “slight problems” with voting interest entities, consolidation, financial instruments and especially lessors. They will have three days of meetings next month on impairment to try to make sure that loan loss provisioning under U.S. GAAP and IFRS is the same. They will expose the results of the meetings.

“We are really trying to pull all of this together and I believe we have a fair chance of a considerable part of the financial instruments standard actually being converged,” he said.

He said the two boards are now completely aligned on the standards for business combinations, capitalization of interest, share options, joint ventures, discontinued activities, and are mostly aligned on fair value options.

“All of these things have happened since we started our convergence program,” said Tweedie. “The two sets of standards have come very close together. We won’t get exactly the same answers, but we will be in the same area. In both sets of standards, there have been vast improvements, aided by the other board, and that really was the objective of the whole convergence program.”

Tweedie noted that FASB and the IASB have also begun asking for comments on the timing of when the standards should take effect, whether some of them need to be pushed further out, and if they should take effect individually or in batches. He said the IASB also plans to expose a list of subjects that people want the board to look at after the subjects covered in the memorandum of understanding.

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