The Financial Accounting Standards Board appears to be once again on the slow path to convergence with International Financial Reporting Standards, but it will probably get there in the end.
While various accounting organizations and large firms had been demanding a “date certain” for convergence, FASB for various reasons has needed to abandon any pretence of meeting its original June 2011 goal. With the timeline for convergence constantly shifting, FASB and the International Accounting Standards Board have now decided to focus on just three or four major convergence projects: financial instruments, revenue recognition, leasing and, last but not least, insurance (see FASB and IASB Re-deliberate Standards).
But as FASB chair Leslie Seidman said at last week’s Baruch College financial reporting conference, “We hope to have the major decisions made on each of these projects, with the exception of insurance, on or about the June timeframe. I’m not saying that we’re going to be done, or have a draft of some kind done. I’m just saying we’re hoping to complete the board meetings around that timeframe.”
However, the June timeframe is still a significant one, even if the goalposts have been moved a few times. According to the proposed roadmap for convergence of U.S. GAAP and IFRS, 2011 is supposed to be the year when the SEC will evaluate whether sufficient progress has been made on the convergence work plan to give the go-ahead for eventually incorporating IFRS into the U.S. financial reporting framework starting in 2015. It’s also the year that the G-20 has recommended for achieving convergence of the major accounting standards, though the G-20 pushed back the deadline from June to the end of 2011. Plus, the final term of long-time IASB chairman Sir David Tweedie ends on June 30.
On the other hand, accounting organizations have complained that producing too many converged standards in quick succession in order to meet that June 2011 goal would not give them sufficient time to provide feedback on the proposals, much less absorb their ramifications once they’re approved. And as FASB and the IASB rolled out the new proposals, they quickly encountered resistance from the banking industry and others to many of the proposed standards.
Now FASB is planning to conduct more roundtables with various groups, especially investors, to gauge their reactions to some of the latest proposals and then fine-tune them, re-expose them, and absorb any new comments the board receives. That could delay the issuance of the new standards well into next year. And it would probably be at least another two or three years before companies would be required, or even allowed, to adopt the new standards. FASB is also consulting with constituents on the timing of the effective dates of any new standards.
That should give accounting firms and companies more time to get comfortable with the new standards, and more time to tell FASB how they feel about the new rules or principles, depending on what you want to call them. Meanwhile, the two sets of standards, U.S. GAAP and IFRS, will slowly morph into one, as they have since FASB and the IASB first signed their Norwalk Agreement in 2002. Still open to question is what will happen when the new leadership of the IASB, chairman Hans Hoogervorst and vice chairman Ian Macintosh, take over in July and whether they will try to pressure FASB and U.S. regulators to act sooner.
The SEC still appears to be considering several models for how to deal with IFRS, including simply “endorsing” the standards as some other countries have, rather than outright adopting or incorporating them. Standards could be endorsed on a one-by-one basis, allowing the convergence process to take place even more slowly. That may be the way to ease the U.S. into IFRS with as little friction as possible, but any hope of a “date certain” or a "Big Bang" approach to adopting IFRS appears to be fading into the distance.
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