Baruch College in New York brought together the former chairman of the Financial Accounting Standards Board, Bob Herz, and the former chairman of the International Accounting Standards Board, Sir David Tweedie, last month to discuss the evolution of accounting standards and the convergence process.

Baruch’s Robert Zicklin Center for Corporate Integrity has just posted a video of the hour-long discussion online. You can watch it here.

The two men worked closely together on trying to harmonize the two sets of standards and had some fascinating stories to tell about the hurdles they faced from politicians and business interests, along with how they adjusted accounting standards that were unfairly blamed for precipitating the financial crisis. They also reflected on why the convergence process has still not been completed.

“You can have international standards without the U.S., but you can’t have global standards without the U.S.,” said Tweedie. “You have a great profession here. We need your ideas. If you’re going to have really good international standards, you can’t ignore the United States. You’ve got to have them in.”

Tweedie believes convergence will happen eventually. “I don’t know when, but hopefully it will happen and the U.S. will be a major part of it,” he said. “Our standards aren’t that far apart. The real problem, as I’ve said on many occasions, is what I call the three C’s. It costs money to change, but as Canada proved, it’s not that expensive. There’s change itself, and nobody likes it. Even if it’s a new standard, nobody likes it. And the third one, which is a key one, is loss of control. You know, it’s now London, and Congress can’t stop us.”

Herz seemed more cautious about the prospects for IFRS, and believes there was a turning point in 2007 when the Securities and Exchange Commission removed the requirement for non-U.S. companies that reported under International Financial Reporting Standards and traded on U.S. markets to reconcile their financial statements with U.S. GAAP. “We can debate whether the U.S. should go to IFRS or allow an option for companies to use IFRS,” he said. “That’s an important subject, but what the lifting of the reconciliation did at that point was there were a lot of countries around the world that were kind of on the fence as to what to do. Once the U.S. said, ‘Well, you’re a foreign company and you can come to our capital markets and use IFRS,’ a lot of those countries decided, ‘We’ll go to IFRS.’”

Herz believes there is room for improvement in both sets of standards. “Both of them are what I call capital markets standards,” he said. “If you looked around the rest of the world before, you had a hodgepodge. What it did was propel the lifting of financial reporting in other parts of the world, and that I think is to the benefit of not only those countries and their investors, but U.S. investors who want to invest in foreign securities.”

Herz and Tweedie were asked by Baruch professor Robert Colson what it would take to bring FASB and the IASB back into a closer relationship to achieve a single set of global accounting standards.

“For good or for bad, I think the U.S. has moved steadily away from that idea in the last few years,” said Herz. “There was convergence and talk of adoption. The financial crisis came, and the SEC said, ‘Well, we still support the idea of a global set of high-quality standards.’ Then they came up with this ‘condorsement’ idea, to have the FASB systematically look at the differences. That seems to have gone by the by now. Jim Schnurr, the SEC chief accountant, floated this idea of selective IFRS information on a supplementary basis. I think right now, for good or for bad, in the U.S. we have become very comfortable with the idea that we’ll have U.S. GAAP. If there are things in IFRS that we kind of like or the markets like, maybe we’ll consider adopting those, but there’s no systematic program to further converge at this point. It’s good that the rest of the world has gone to a quality standard in IFRS. So a two-GAAP world from the U.S. point of view seems to be a comfortable notion at this point. I don’t see at this point any direct pressure other than, if the U.S. were to shrink significantly in terms of share of global GDP and global capital markets, the geopolitical, geoeconomic forces might force that kind of thing on us, but I don’t see it really.”

“As Bob said, the geopolitical politics will come into it,” said Tweedie. “When we started the IASB, the U.S. equity capitalization as a percentage of world capitalization was 52 percent. At the time I left, it was 33. And it’s Asia where the developments were. Asia is moving to IFRS. China is 95 percent there, with some differences. Japan is moving that way. India is talking about 2017. There will be that pressure that Bob just mentioned. Also, the way this all happened when the IASB came into being, people don’t realize the influence that the SEC had had. They were really pushing for it. I remember them saying that the world shouldn’t take U.S. GAAP because U.S. GAAP had been written for the U.S. markets without taking into account international things. But you want something like FASB that can do it for the international markets. There was this pressure from [former SEC chairman] Arthur Levitt and it was continued with [former SEC chairman] Chris Cox and so on. And I was very fortunate in having a partner and soul mate in Bob. The whole thing just came together. Enron pushed it a bit. These sorts of conditions don’t exist at the moment. Gradually perhaps it will come. I remember [former Treasury Secretary] Tim Geithner after the crisis saying, ‘How can we get banking regulation together if we can’t get the accounting together?’ We still don’t agree on impairment. For goodness sake, we’ve just got to agree on these sort of things because we can’t have two different ways of impairing assets. Can’t we just get some group to say, ‘Do that one’?”

After the session, I asked them both if they felt the two boards were drifting apart. “I don’t know that they’re drifting any more apart,” Herz replied. “Over the last few years, they’ve tried to work together and not found common answers in some areas. That makes it difficult. I think there’s a kind of time-out period almost.”

Tweedie replied, “I think they haven’t got the same aim now. The IASB has been under a lot of pressure. People say, ‘Hey, you spent 10 years on America. What about us?’”