Saturday, September 26, 2009

G-20 Calls For Convergence By June, 2011 - UPDATE 2

(Sept. 29, 2009 - UPDATE 2: Based on more detailed information in G-20 Progress Report dated Sept. 25, it appears to me, personally, that the G-20 call for convergence by June, 2011 relates to convergence, generally (e.g., FASB-IASB MOU). Read our Sept. 29 post for more info.)

(Sept. 27, 2009- CORRECTION/UPDATE 1: Although para. 14 in the G-20 Leaders' Statement spoke generically of a call for accounting standards setting bodies to "complete their convergence project by June, 2011," upon further contemplation, I believe that statement may specifically relate to the convergence projects on financial instruments, off-balance sheet transactions, valuation and impairment - rather than 'convergence' generally - if it is implying the specific convergence projects cited in para. 6 of the G-20 Finance Ministers' Declaration issued on Sept. 5. (An alternative interpretation, closer to my original interpretation, is the G-20 was calling for completion of the FASB-IASB MOU by June, 2011; the MOU currently specifies "2011" but not "June, 2011.") Copied verbatim below are the paragraphs in question.)

G-20 Leaders Statement, Sept. 25, para. 14 (note there are 2 sets of numbered paragraphs, this is para. 14 in the second set of numbered paragraphs which follows para. 1-31):

"14. We call on our international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011. The International Accounting Standards Board’s (IASB) institutional framework should further enhance the involvement of various stakeholders."
G-20 Finance Ministers and Central Bank Governors Declaration Sept. 5, para. 6

"6. Convergence towards a single set of high-quality, global, independent accounting standards on financial instruments, loan-loss provisioning, off-balance sheet exposures and the impairment and valuation of financial assets. Within the framework of the independent accounting standard setting process, the IASB is encouraged to take account of the Basel Committee guiding principles on IAS 39 and the report of the Financial Crisis Advisory Group; and its constitutional review should improve the involvement of stakeholders, including prudential regulators and the emerging markets.")
I am seeking some form of official clarification as to the exact scope of para. 14 in the Sept. 25 G-20 Leaders' Statement and I will update this post if I receive such information.

Our original Sept. 26 blog post follows.

In a communique published by the G-20 at the conclusion of their Summit meeting held Sept. 24-25, 2009 in Pittsburgh, PA, (see Leaders Statement: The Pittsburgh Summit), the G-20 called for a redoubling of efforts to achieve a single set of high quality global accounting standards, and for completion of convergence projects by June, 2011.

It is interesting to see the reference in the G-20 statement to a 'single set' of standards (which implies, for all intents and purposes, worldwide adoption of International Financial Reporting Standards, since over 100 countries including the entire EU are now on, or moving to adopt, IFRS, with Canada slated to adopt IFRS by 1/1/11) as well as the G-20 statement's reference to 'convergence' (which implies to some people a 'common' set of standards, but not necessarily a 'single' set of standards).

With respect to the U.S., various news sources reported last week that in the Q&A session following her prepared remarks at Georgetown University, that SEC Chairman Mary L. Schapiro indicated the SEC would formally revisit its proposed IFRS roadmap 'this fall.' More specifically, according to Sarah Lynch of Dow Jones Newswire, in her article, Schapiro Says SEC Will Discuss Transition to IFRS This Fall:

Schapiro signaled Friday [Sept. 18] the issue of switching from using U.S. generally accepted accounting principles to a global standard, however, is still very much on her agenda. "It would be ideal if we can have a single set of high-quality accounting standards that worked globally. The reason for that is it would allow for comparability for very large companies in particular and give investors the ability to make comparisons around the world," she said. "I expect we will speak a little later this fall about what our expectations are with respect to IFRS," she added.
On the subject of IFRS, Tom Selling posted in The Accounting Onion on Friday: First Missive From the New Chief Accountant: Get Ready To Roll With IFRS.

Getting back to the G-20 Summit, additional highlights from the G-20 Leaders Statement can be found in this FEI Summary. See also wider coverage of the G-20 Summit by Ellen M. Heffes, Editor-in-Chief, Financial Executive Magazine in Financial Executive Magazine Reports From G-20.

Also, see our related blog posts:
Lynn Turner Speaks Out On Financial Regulatory Reform, and
Monitoring Board Issues Statement Of Principles

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Anonymous said...

There are two issues: the most important is that convergence to current IFRS rules will result in less comparability - has anyone actually reviewed the financial statements of various public companies in Europe and attempt to compare? For example, go compares EADS and some other A&D company in Europe. There is little in the way of comparability and even something as basic as revenue recongition lacks transparency. Most professionals who have studied existing international standards have come to understand that the flexibility is huge in adopting a particular standard. In addition, there is no way you can have comparability when the guidance in the international standards is short and "concept" based. The only comparability that will be achieved is that we will all be on IFRS. Frankly, US Companies should run to IFRS because it will open the floodgates to generate creative accounting and all the subjectivity will prevent the auditors from making any fuss, becauee they won't be able to demonstrate that management's position is incorrect.

The second point is that the G-20 declaring convergence just indicates how moronic and out of touch with reality "they" are. I have no idea who really is behind the statement, but the message is laughable.

Edith Orenstein said...

Thank you for taking the tume to post a comment; based on the first point you make, it appears you have more than a passing familiarity with IFRS.

Your second point is relatively harsh for the discourse we usually find among our commenters, but it could be based on the late hour of your post.

In response to the question you raise in your second point, would suggest you take a look at the Washington Action Plan as the G-20 Declaration from Nov. 2008 is referred to, at under Publications, Communiques, and you will see the G-20 talked about the role of national regulators, but at the same time spoke of the need for certain coordinated global responses, due to the interconnected nature of global markets.

Edith Orenstein said...

Excuse the typo in first line of my comment above where "time" is spelled "tume," I guess there isn't that great a gulf between u and I, at least not on an iPhone keyboard.
Thanks again for taking the time to post a comment.

Anonymous said...

Indeed, it is regrettable that I used that language. My point is that the suggested timing is so unrealistic that it creates comedy.

WhileI understand there are egos and turf battles that are essentialy driving the call for convergence, the public interest for US investors would be much better served if the convergence focused on developing rules on a joint basis for an extended period of time, and keeping the FASB intact and in-charge along with the SEC. Once that phase is complete, which will take 5 to 10 years, then consolidaing the infra-structure with the IASB can be achieved and will be a non-event.

In summary, the current path suggsted by the international community is much more about "adoption" and has very little to do with a "convergence" activity.

Edith Orenstein said...

Your comment (particularly your latest comment about whether it would realistically take 5-10 years for FASB and IASB to achieve convergence) got me to thinking more about this, and I have corrected my post to specify that I believe the G-20 Leaders Statement calling for completion of the boards' convergence project by June, 2011 may have implied convergence projects on certain projects specified in the Sept. 5 Statement of the G-20 Finance Ministers (e.g., financial instruments, off-balance-sheet, valuation and impairment).

So, thank you for getting me to think about this more and I have posted a correction accordingly.

More broadly, I still agree with you that conversion to a 'single set' of standards vs. convergence to a common set of standards is still a subject to be reckoned with since people talk of the two almost interchangeably, and some strongly prefer one of those approaches vs. the other; some believe they are identicial in substance if not form, although maintaining two sets of common standards would be a different process than maintaining a single set of standards.

I believe there are still some questions about convergence timetables generally, and I think you raise some very interesting points.

Thank you again for contributing comments to our blog.

Anonymous said...

I think most reasonable people would seek a single standard, me included. The probalem is that the US standards are generally much more focused and detailed than the existing Europeam standards. In the US we achieved reasonable comparability in terms of accounting and disclosure. This has occurred from decades of work by the FASB, and more importantly, decades of enforcement action by the SEC. In Europe, while you will see comparability in the structure of the disclosure, don't let that fool you into believes the underlying treatment for similiar transactions has comparability. They call it conceptual based accouning, which works fine as long as your regulators believe in conceptual based enforcement. That will never be the case in the US.

The future irony of going to global rules in the near term, which would necessarily be more conceptual than current US rules, is that over time the global standards will become more detailed and precriptive such that down the road we will wnd where we already are in the US.

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