Financial Accounting Standards Board chair Leslie Seidman is planning for a multilateral way of working with the International Accounting Standards Board in the future, even as her term approaches an end next year.

In an interview Thursday at the Accounting Today offices, Seidman talked about the status of FASB’s decade-long convergence efforts with the IASB and how the two standard-setters will be working together with other accounting organizations even after the memorandum of understanding they signed in 2002 in Norwalk, Conn., known as the Norwalk Agreement, expires. Overall she characterized the 10-year convergence effort as a success.

“Even though we do expect our relationship with the IASB to change from the bilateral sort of partnership arrangement that we’ve had in recent years, that does not mean that convergence is over or that divergence is going to start to occur,” she said. “In the early days of our relationship, we had what I would call a ‘best efforts’ approach and we accomplished a lot. It seems to me that going forward we can continue to achieve a lot even if the nature and structure of our relationship changes. We plan to continue to work cooperatively with the IASB and other standard-setters around the world to continue to improve our standards here in the U.S., as well as global accounting standards, and make them more comparable.”

Asked about why the convergence effort is perceived to be endangered amid report of disagreements between the two boards on issues such as the impairment of financial instruments, Seidman responded, “That’s why we thought it was important to take a broader look at where this started and where it’s gone. It seems to me that there is more than one approach to achieving comparability in accounting standards. What we’re suggesting is that there are ways to work together cooperatively to identify opportunities for improvement and opportunities for reaching converged solutions on standards short of, one, the bilateral relationship that we have had in recent years, in other words, an intense side-by-side convergence program. Or two, on the other side, an adoption program where the only way you can get to comparability is by adopting a set of standards. We think there’s a lot of room in between there.”

Seidman also commented on the impact of the Securities and Exchange Commission’s staff reports on IFRS and the lack of a decision by the SEC on whether to incorporate IFRS into the U.S. financial reporting system.

“Even if the SEC’s decision is deferred for some time, we still absolutely see the opportunity and reality of working together cooperatively, sharing information, and converging on standards, putting aside any of those specific ways of proceeding,” she said.

Seidman noted that there are various ways to achieve global standards beyond the convergence process that FASB and the IASB have followed since 2002. “If you’re of the view that there’s only one way to gain global comparability, you might not understand that there are other ways to achieve comparability,” she explained, referring to the IFRS Foundation report that was sent in response to the SEC staff’s final report on IFRS (see IASB Overseers Push Back on SEC’s IFRS Report).

“I thought one of the most important elements of that report included the discussion of the accounting standards forum. The idea was to form a network of global accounting standards [setters] to meet periodically and discuss topics of common interest. If you consider that the IASB currently has an advisory group made up of preparers and an advisory group made up of investors, I think it makes a lot of sense to set up an advisory group of accounting standards setters from around the world, some of which will have adopted IFRS and some of which will not have. But at the end of the day, if you want global comparability, it’s got to include the U.S., and it’s got to include some of the other major capital markets in the world, regardless of their current status relating to adoption or incorporation or other acceptance of IFRS. It shows that there are various ways to work together to end up with comparable standards.”

Seidman noted that national standard-setters, such as FASB in the U.S., the Accounting Standards Board of Japan and the European Financial Reporting Advisory Group, are “the boots on the ground” in their jurisdictions.

“We have expertise with regard to the U.S. environment, what U.S. preparers need, what U.S. investors want, etc., and we know how to gain input here that can inform the development of the accounting standards,” she said. “It seems to me to make total sense to leverage the expertise of the national standard-setters and feed that information into a global process as we’re developing global accounting standards. We’re very eager to participate in that initiative with other standard-setters and we think that at the end of the day it should lead to more timely identification of issues so that they can be worked through to end up with comparable standards. And I think it also will contribute to the acceptance of the standards in various jurisdictions around the world.”

Seidman noted that some countries have adopted IFRS and some countries have only committed to IFRS, but not yet adopted it. Others have needed to make adjustments and carve-outs, as in Europe for some aspects of the financial instruments standards, in China for government-controlled entities and in Canada for rate-regulated utilities.

“You see that in certain jurisdictions the standard-setter or whoever is responsible for endorsement has to make some tweaks to deal with jurisdictional issues,” she said. “We accept that. We think that’s inevitable. What we’re concerned about is calling that the same thing. It’s really a truth-in-labeling issue.”

Seidman noted that the SEC’s report on the so-called “condorsement” approach said the U.S. is likely to keep the term “U.S. GAAP” for practical reasons such as legislation that explicitly refers to U.S. GAAP, while incorporating as much of IFRS as possible.

“It’s a truth-in-labeling issue because we’re going to have, at least as a transitional matter, certain items where we have standards right now that are not addressed in IFRS,” said Seidman. “Let’s not pretend that it’s the same everywhere. Let’s just be very transparent about the extent of commonality and the extent of difference. It could very well be a transitional manner, whereas others seem keen on calling it IFRS even where there are differences.”

Seidman was asked about warnings that the U.S. is going to lose “most favored nation” status in having influence over IFRS after the regular joint meetings between the IASB and FASB come to an end. European Commission internal markets commissioner Michel Barnier recently sent a message to the IASB criticizing the process, reportedly saying that 2011 and 2012 had been years of wasted opportunity, and 2013 would be a year of truth for convergence.

“In terms of the frustration with the timing on the projects, let me just reiterate that the decision to pare down the agenda was widely supported, including by the Monitoring Board of the IASB as well as stakeholders here in the U.S.,” said Seidman. “Then the decision to re-expose revenue recognition and leasing [standards] were widely supported decisions. Clearly they had the effect of extending the timeframes. On financial instruments, clearly impairment is taking longer than we would have hoped, but it’s extremely important that at the end of the day, we have a standard that restores confidence in financial reporting. When we have evidence that companies are confused by what we mean and raise serious concerns about ambiguity in provisions, we don’t have a realistic expectation that comparable reporting is going to result. So when we’re faced with that kind of feedback, we feel it’s our responsibility to address it before we move forward with a final standard. That takes time. We think the time is well spent if at the end of the day we end up with an improved standard.”

Seidman insisted that the time had not been wasted. “We do believe that what we have achieved so far has been important and substantive and has had the effect of significantly improving comparability on some of the most material differences that had previously existed,” she said. “We do think that having a network of standard-setters from around the world working together will give us the opportunity to continue with that progress. I think that we can all work together on this. Sometimes the IASB will take the lead. In fact, in many cases, the IASB will take the lead, and we will work cooperatively within that system to, for example, provide input at various stages in the process, expose the documents in the U.S., with the goal of participating and trying to reach a consistent conclusion. But in other cases, I can see FASB taking the lead or Japan taking the lead, or another standard-setter taking the lead on an issue based, for example, on their expertise, availability of resources, etc., and feeding that research and work product into the process, so that we could end up with the opportunity to have global standards that are devised in various ways. In other words, I don’t think there’s only one way to achieve globally comparable standards.”

Asked whether she is disappointed that the SEC has not yet come out with a clear decision or held a vote on IFRS after it released its final staff report, Seidman indicated she wasn’t surprised. “Based on the messaging that the SEC has been doing for the last several months, we did not expect that report to include a decision,” she said. “We’re going about this as business as usual. We’re going to continue the progress on the MoU projects. We would plan to do that irrespective of the timing of an SEC decision.”

Seidman’s term as FASB chair will end next year, and she said she won’t be eligible for another term. Asked about whom her successor might be and what the prospects are for convergence, she noted that FASB’s parent organization, the Financial Accounting Foundation, is already looking for a successor.

“The FAF has a search underway for my replacement,” said Seidman. “Hopefully the new chairman would be named early next year so that we could have some transition together. I don’t really have any more information about that, but what I would say is that the structure of the FASB is designed to have turnover and this is the natural end of my 10 years with the FASB. The mission that we have does not change, depending on the people who are in place at any point in time. The priority of completing these convergence projects and working cooperatively internationally is shared by all of the members of the board, and it is my expectation that the new chairman would also share that commitment. I don’t expect any change in the commitment to moving forward with these projects and continuing to work cooperatively with other standard-setters around the world to promote even greater comparability going forward.”

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