The Financial Accounting Standards Board and the International Accounting Standards Board appear to be growing tired of trying to resolve their many disagreements after 10 years of ups and downs in their relationship, and the main question now seems to be whether it will be an amicable split.

Signs of trouble in the relationship have been brewing since last year. The two boards were supposed to have completed their major convergence projects by June 30, 2010, just in time for the retirement of the IASB’s decade-long chairman Sir David Tweedie. He and FASB chairman Bob Herz had agreed in 2009 to redouble their efforts to achieve convergence in order to meet that deadline, which was set at a G-20 summit.

The two boards began meeting every month in person and by videoconference to try to hammer out their differences. Yet stubborn distinctions persisted in important areas like the valuation of bank loans, and in August of last year, Herz abruptly announced his own retirement, two years before the end of his second term. He was succeeded by Leslie Seidman, and Tweedie was later succeeded by Hans Hoogervorst. At the SEC, one of convergence’s main proponents, SEC chairman Christopher Cox, was succeeded by a far more skeptical Mary Schapiro when the Obama administration took office in 2009.

Since taking over the two boards, Seidman and Hoogervorst have decided to re-propose and re-expose the priority projects like financial instruments, revenue recognition and leasing, in an effort to achieve an elusive consensus, but without yet forging an agreement on those and a multitude of other projects that have been put on the back burner.

A day after SEC chief accountant Jim Kroeker announced that the Securities and Exchange Commission would be delaying its decision on whether or not to incorporate IFRS into U.S. financial reporting, both Seidman and Hoogervorst spoke at an AICPA conference in Washington, D.C., on Tuesday. Their remarks made it clear the two boards have grown fatigued with trying to produce a converged set of standards that accountants around the world could use (see FASB Pushes for ‘Modified Incorporation’ of IFRS). In other words, the nearly decade-long convergence process has proven futile.

In her speech, Seidman quoted the poet Ogden Nash, who said, “Progress might have been alright once, but it has gone on too long.”

“Despite its challenges and, in retrospect, its overly ambitious scope, I think the convergence process has advanced global financial reporting in several key areas,” she added. “However, I believe that the side-by-side convergence model is not the optimal model in the long run.”

Hoogervorst echoed those sentiments in a speech following hers, opining, “Our convergence history with FASB has been extremely useful in getting us to a point where IFRS and U.S. GAAP are much improved and closer together. So, it’s tempting to just maintain the status quo. But for the long-term, the status quo is an unstable way of decision making that inevitably leads to diverged solutions or sub-optimal outcomes.”

He pointed out how the two boards had diverged in a part of the financial instruments project devoted to offsetting of derivatives. “Through disclosures we will try to bridge the gap, but I doubt that investors in the U.S. or elsewhere will see it as a satisfactory outcome,” he said. “At the same time, we at the IASB believe that our conclusion is right for investors. I am sure that Leslie would believe the same for the FASB. The simple truth is that when you have two boards of independently thinking professionals, sometimes they will simply reach different conclusions.”

Both Seidman and Hoogervorst still hope to achieve a consensus between the two boards on their four priority projects: financial instruments, leasing, revenue recognition and insurance contracts. But beyond that they appear to be ready to go their own way.

As a fallback position, they now appear to favor the endorsement, or “condorsement,” approach, which was outlined in an SEC staff paper in May. Under this approach, which is similar to one used in Europe and some other parts of the world, each accounting standard produced by the IASB would be considered and endorsed into U.S. GAAP by FASB. Both FASB and the SEC would retain their authority over U.S. standards, and there would still be a U.S. GAAP so debt covenants that used the term would not have to be rewritten.

FASB would still have a say as the IASB set new accounting standards in order to expedite the endorsement process once those standards were completed. As Hoogervorst pointed out, the IASB already has four members on its board from the U.S. and five U.S. trustees. “Clearly, the U.S. is in the DNA of the IASB,” he emphasized.

However, he also made the point that he doesn’t want the U.S. to carve out exceptions to the international standards. “If we end up with non-endorsements and carve-outs left and right, the gains of adopting IFRS will remain elusive,” he said.

Hoogervorst would also like the SEC to allow some multinational U.S. corporations such as Ford Motor Company to be able to use IFRS as a way to test them out in the U.S. as early adopters. However, Seidman did not agree that the time is ripe for early adoption until the lingering issues are resolved.

It may be a messy break-up after all.

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