Major FASB-IASB convergence projects will be completed by 2011*, according to an update of their Memorandum of Understanding issued today (the “2008 MOU Update” or “the update”) and as noted at the top of a related news release. Dating back to the 2002 “Norwalk Agreement” followed by the 2006 MOU, the update outlines progress to date and next steps remaining on the 11 major convergence projects and the additional short-term convergence projects set forth in the 2006 MOU. * NOTE: The subtitle of FASB-IASB's news release states: "2008 update establishes goal of completing joint projects on major topics by 2011." Virtually all of the 11 projects are scheduled to be completed by 2011, except for intangibles (which is inactive) and Financial Instruments, for which the completion date is listed as "to be determined."
FASB expects to release proposals in 2008 on Subsequent Events and Income Taxes, according to the 2008 MOU Update. Noting that “in light of the possibility that some or all U.S. public companies might be permitted or required to adopt IFRS at some future date,” the update says the income tax project will be handled by FASB issuing an Invitation to Comment later this year on IASB’s proposed replacement of its own Income Tax standard, IAS 12. “At the conclusion of that review, [FASB] will decide whether to undertake projects that would eliminate differences in the accounting for taxes, investment properties, and research and development by adopting the relevant IFRS standards..." This sounds similar to the ‘improve and adopt” approach described by
FASB Chairman Robert Herz in his recent interview in Financial Executive Magazine and in his Senate testimony last year.
We have summarized the next steps on the 11 joint convergence projects described in the 2008 MOU Update in this FEI summary (FEI members only).
Other matters noted in 2008 MOU Update: Conceptual Framework: Work is ongoing on the boards’ joint conceptual framework projects. Consultation Requirements: FASB and the IASB recognize the need for due process, including consultation with third parties. “Therefore, the timetable for completion is subject to change depending on input received throughout a project’s development.” Staggering of Effective Dates: With several projects anticipated for completion in 2010 and 2011, “The Boards will consider staggering effective dates of standards to ensure an orderly transition to new standards.” Work Programs Include Other Matters: The boards “remain committed to completing the MoU projects because they represent a significant step toward the goal of a common set of high quality standards.” However, they will also devote resources to other active projects and respond to other market demands.
PCAOB’s Niemeier Outlines Concerns With IFRS
In related news, an article published by CFO.com yesterday, “Regulator Rips Into Global Accounting Plan,” cited remarks by PCAOB Board Member Charles Niemeier at a New York State Society of CPAs conference yesterday, in which he reportedly said: "There is no effort underway to converge standards… Up until the last couple of years, we were on that path . . . but now it seems that decisions were made that it was too hard and would take too long to actually converge."
The coincident timing of the release of FASB-IASB’s MOU Update today reminds me of stories earlier this week like this one published by MSNBC: “Apple’s Jobs: Reports of my death exaggerated.” That is, I can imagine FASB and the IASB saying, “Reports of the death of convergence are highly exaggerated.”
The news release issued by FASB and the IASB today notes: “In giving a report of the progress of projects laid out in the MoU, the Boards have again affirmed their commitment to developing a common set of high-quality standards. ... The Boards are aware that continued progress toward convergence is a factor that the Securities and Exchange Commission will consider in evaluating its recent proposal to permit or require use of IFRSs in the U.S.”
Additionally, the news release says that FASB and the IASB "believ[e] that [a comon set of high quality standards] would improve the quality, consistency, and comparability of financial information for investors and capital markets around the world.” Niemeier discussed some of these issues in his remarks yesterday, including what he called a number of ‘myths’ about IFRS. Citing reports showing a lack of comparability among companies reporting in IFRS, and concerns with applying the less mature set of IFRS in the U.S. system, Niemeier said, "All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?”
Another aspect of discussions about 'convgence' may be one of terminology. There may be a variety of understandings among different parties as to whether FASB and the IASB are converging to, or whether they should converge to “common standards,” “compatible standards,” or a “single set of high quality international (or global) standards.” Some of the terms seem to be used by various parties almost interchangeably. I would go by what FASB Chairman Robert Herz said in today’s press release: “This reflects our continued commitment to work together to develop a single set of high-quality international accounting standards.” In the past – dating back to FEI’s Global reporting conference last fall, Herz has said he believes that the single set of high quality international standards will one day be an improved version of IFRS. SEC staff have pretty much said the same thing, noting in various speeches that the trend around the world (with over 100 countries currently on or moving toward IFRS, including the EU, Canada, and others) is that the single set of globally accepted accounting standards is likely to be IFRS. (See, e.g. the SEC Chairman Christopher Cox' remarks at the Aug. 27, 2008 open commission meeting at which release of the SEC's IFRS Roadmap was approved, and see SEC Corp Fin Director John White's remarks at FEI's June 5, 2008 IFRS conference.)
In another reflection on coincident timing of the release of the 2008 MOU Update today, on September 11, one could perhaps hope that a single set of high quality global accounting standards may be one small, even symbolic gesture in enhancing harmonization among different people around the world. I remember being in a meeting in the basement of the old SEC HQ building (450 5th Street) in Washington, D.C. on 9/11/01. At the time I was a member of SEC staff and we were in a meeting with some FASB staff. Some of the people who were in that room I am still in touch with today (literally). My sympathies go to the families who were affected by the tragedy of 9/11, and my appreciation goes to those who risk their lives to help others.
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