Thursday, October 29, 2009

FASB, IASB To ‘Retriple’ Efforts To Meet 2011 Convergence Deadline

This week may stack up as a big one on the global accounting convergence front, with FASB Chairman Robert Herz calling yesterday for 'retripling' the two boards' efforts toward meeting their 2011 convergence target established in the FASB-IASB MOU. Herz’ remarks were reported by BNA's Steve Burkholder in IASB, FASB to Meet Monthly, Plan Aligning Schedules, Substance of Instruments Rules (BNA sub req’d). Monthly meetings could include videoconference meetings as well as in-person meetings, increasing the frequency of joint board meetings from the current practice of 2-3 joint board meetings per year. Additional information on the results of this week's joint board meeting between FASB and the IASB can be found in FASB's Summary of Board Decisions.

The 'retripling' of effort suggested by Herz builds on the call issued by the G-20 Leaders for “our international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards …and complete their convergence project by June 2011.”

FASB and IASB leadership are on the speaking circuit in the U.S this week, with Herz and his counterpart at the IASB, Sir David Tweedie, providing a convergence update at an AICPA-IASCF conference in NYC earlier today, and Herz, his fellow board member Mark Siegel, and IASB board member Pat McConnell providing an update at the NYSSA's 16th Annual Financial Reporting Conference, chaired by Mark R. Newsome, CFA.

Status of SEC’s IFRS Roadmap To Become More Clear This Fall
According to the AICPA-IASCF conference website, SEC Chief Accountant Jim Kroeker is scheduled to address the conference tomorrow on: “IFRS in the U.S.: Progress and Plans.” Presumably, he will include an update on the Commission’s plans for finalizing the SEC’s proposed IFRS Roadmap, released last November, with a comment deadline in February this year. Since that time, the SEC has been analyzing comment letters received.

Last month, SEC Chairman Mary L. Schapiro said that the SEC will “speak a little later this fall about what our expectations are with respect to IFRS," as reported by Sarah Lynch, DJ Newswire, in Schapiro Says SEC Will Discuss Transition to IFRS This Fall.

Speaking at an AICPA-SIFMA conference last week, SEC Associate Chief Accountant John W. Albert, referencing the G-20’s recommendation for global convergence to be achieved by June, 2011, said, “The SEC will not be bound by that recommendation. I think the whole purpose of proposing a road map is to add some discipline to the process and keep it [as] emotionless as possible. So I don't see that as causing a change to the road map.” Albert’s statement was reported by BNA’s Stephen Joyce in the Oct. 23 article, SEC Decision on Accounting Convergence Not Affected by G-20 Statement, Official Says. (BNA sub req’d). Invoking the customary disclaimer used in SEC staff speeches, BNA’s Joyce noted that “Albert … said he was speaking for himself and not the SEC.”

Personally, (I remind you of the disclaimer posted in the right side of this blog), I would expect to see more color to be filled in on the SEC’s palette as to their planned next steps on the IFRS roadmap, possibly by the time of the 10th anniversary meeting of the G-20 Finance Ministers and Central Bank Governors set to take place in St. Andrews, Scotland on Nov. 6-7.

Later in November, speakers from the SEC, FASB and IASB are set to appear at FEI’s 28th annual Current Financial Reporting Issues (CFRI) Conference on Nov. 16-17 in NYC, followed by FEI’s one day IFRS Boot Camp, sponsored by Deloitte, on Nov. 18 in NYC.

There May Never Be A 'Perfect Calm'
As we await further word from the SEC on the speed and path on which it plans to take its proposed IFRS Roadmap, I am reminded of remarks made by John White, then-Director of the SEC's Division of Corporation Finance, at an FEI conference in June, 2008.

Noting that, “The use of IFRS has become a global movement," he added, “I think it would be a disservice to U.S. issuers and investors, and the American market as a whole, if the SEC were not looking at IFRS for U.S. companies.” He cautioned, "It would not be appropriate for the U.S capital markets, and the SEC as its regulator, to simply follow the herd. The herd may be running off a cliff.” However, he observed, "the herd may also be running to better, greener pastures."

White referred to "the age-old chicken-and-egg problem… What has to happen first: is it appropriate for the Commission to wait until large swatches of the investment community and other U.S. market constituencies clearly have developed a full and deep understanding of IFRS before U.S. companies are permitted or required to publish IFRS financial statements?"

He spoke of a concept he termed "the perfect calm," which he defined as "the opposite of the perfect storm,” i.e., a situation in which “there is no question that the time for transition has come." "I am not sure we will ever reach that time of a perfect calm," said White in June, 2008. However, he added, "The SEC can play a significant role in advancing the adoption of IFRS by showing leadership, and conviction, in helping to determine whether the U.S. market is ready for IFRS."

I Think We're Alone Now... But That Is Likely To Change

Speaking figuratively, with more than 100 countries currently permitting or requiring listed companies in their jurisdiction (and in some cases, private companies as well) to report under IFRS as published by the IASB, the usage of U.S. GAAP is narrowing to one major market: our own.

Importantly, the European Union has extended permission for listed companies reporting in certain third country GAAP, including specifically U.S. GAAP, to continue to report to listing authorities in the EU for without reconciliation to IFRS, conditioned on the status of, and ongoing efforts of, FASB toward convergence to a common or ‘equivalent’ set of standards with the IASB, as noted in this EU press release issued last year. Canada will also continue to permit certain companies that are cross listed in the U.S. to file in Canada in U.S. GAAP, even after Canada adopts IFRS, as noted here.

However, the impending move of Canada and Mexico to adopt IFRS in 2011 and 2012, respectively will shine an even brighter light on the U.S. in terms of its consideration of whether to permit or require IFRS.

A useful map and timeline showing countries adopting or converging to IFRS can be found on pg. 4 of the IASB's Who We Are and What We Do. Read more about the impact on public companies of Canada’s impending move to IFRS here.

While it is true that U.S. GAAP, established by the Financial Accounting Standards Board (FASB), has been on a path toward convergence with IFRS since the Norwalk Agreement struck by FASB and the IASB in 2002 (applauded by the SEC), FASB Chairman Robert Herz has noted in numerous speeches over the past couple of years that continuing to be engaged in U.S. focused accounting standard-setting projects (see FASB Technical Plan), concurrent with major convergence projects under the FASB-IASB Memorandum of Understanding (MOU), poses a challenge akin to riding two horses. (Herz made this reference most recently on pg. 17 of his prepared remarks at the National Press Club, June 26, 2009.) The question is: how long can someone ride two horses, particularly when the speed or gait may differ.

Additionally, some have suggested that, in a world increasingly moving to IFRS, if the historically unwavering support of the U.S. for the IASB as a global standard-setter, and in support of a global set of accounting standards, remains strong - but stops short of taking a decision to adopt IFRS in the U.S. as of a date certain - that the role of the U.S. could be marginalized with respect to global standard-setting.

For example, IASB Chairman Sir David Tweedie, reportedly said recently that “pressure is increasing for the United States to commit to some date for moving domestic companies to IFRS, even if it’s not as soon as 2014, the date currently suggested under the SEC’s proposed roadmap for IFRS adoption,” adding that, outside the U.S., “There’s a group that’s saying, ‘The United States is not interested. Throw them off the board.’ Tweedie’s remarks were reported by Compliance Week’s Melissa Klein Aguilar, 10/13/09, in IASB Steps Up Calls For SEC To Adopt IFRS (CW sub req’d). NOTE: Look for additional coverage of Tweedie’s remarks in the November edition of Financial Executive magazine.)

In comment letters filed on SEC’s proposed IFRS roadmap, and in other forums, some have come out strongly in favor of adopting IFRS in the U.S., while others are strongly against such a move; yet others are somewhere in the middle: supporting, in concept, a move to a ‘global’ set of standards, but with concerns about the timing of such a move. See, e.g. IFRS- Two Sides of the Story, part of a website established by the AICPA,

Among the reasons cited by some parties in the U.S., as to their reluctance to move to IFRS from U.S. GAAP, is a fear of political interference from a range of countries, acting with their sovereign interest in mind, which some say could potentially differ from, or dilute, broad or particular interests in the U.S.

One of the more outspoken European leaders on matters relating to accounting has been French Finance Minister Christine Lagarde, who referenced accounting and other matters in her Oct. 7 oped published in the Financial Times, The Crisis Demands That We Finish What We Started . Regarding accounting, she said:
“Further progress is also needed on accounting standards. Regulators should have
their say on their ultimate purpose and ensure they do not promote volatility. Market value must be used, when relevant, in considering how a business uses its assets. But it should not be an excuse for failing to measure, assess and account. This is not a political issue but rather a matter of concern for society."
Lagarde's remarks were covered in articles including The French Finance Chief, Society and Accounting (Gavin Hicks, editor, Accountancy Age), and France’s Lagarde Dissatisfied With Accounting Rule Plan, (Tamora Vidaillet, Reuters.)

Moreover, the fear that some have of non-US interests potentially having a disproportionate influence on IFRS may be viewed by some as an exponential multiplication of an analogous fear some have, that there is too much outside influence by politicians or others in the standard -setting process here in the U.S.; however there is a strongly held alternate view, that politicians have exercised appropriate and necessary oversight, and that other constituents have participated appropriately and necessarily in providing feedback to the standard-setters regarding practical issues, as well as regarding the theoretical underpinning, of accounting standards.

Additional reading on the role of politicians, constituents, and standard-setters can be found in Politicians Accused of Meddling in Bank Rules (Floyd Norris, NYT, 7.28.09), and more recently, Europe Must Stop Its Meddling, Says FASB Chief (Mario Christodoulou, Accountancy Age 10.15.09).

Further on the subject of politics and constituent input, a particularly important document is the Statement of Principles issued by the IASCF Monitoring board, issued earlier this year. Although the Statement held that the accounting standard setting process “should remain free of undue pressures from political and corporate interests,” (I would submit that the word “undue” is highly significant in that sentence), the Statement also noted that “members with a decision-making role in the standard setting organisation should collectively be reasonably representative of the constituents whose interests the standards seek to address.”

Additionally, the IASCF Monitoring Board’s Statement specified that: “Interested parties must be afforded the opportunity to provide input to inform the standard setter’s evaluation of pertinent issues,” adding that “The IASB and FASB have benefitted from informative input into their financial instruments and fair value measurement standard setting initiatives from a broad range of stakeholders,” and that, “robust participation of interested parties is an essential element of a standard setter’s transparent due process.” The Statement continues, “Equipped with this input, it is the responsibility of the standard setters to evaluate the knowledge they have gained against the overarching objectives of financial reporting and the principles that reinforce those objectives, in a manner engendering independent decision-making.”

Personally, (once again, I remind you of the disclaimer on the right side of this blog): I have the sense that over the long run, (i.e., potentially a period of time a few years beyond the proposed 2011 decision date, and proposed 2014 adoption date originally specified in the SEC's proposed IFRS Roadmap) that the U.S. will, at a minimum, be fully converged with IFRS, and at a maximum, may indeed fully adopt IFRS (with respect to SEC requirements for public companies; private company issues are to be separately considered, and will be in a future blog post). Such a move (either to full convergence with, or full adoption of IFRS),will take the U.S. out of the increasingly near-alone category of countries that do not permit or require IFRS.

Reflecting on the subheading of this section, whether you began practicing accounting around the time of the original version of I Think We're Alone Now by Tommy James and the Shondells (1967), or the later version by Tiffany (1987), (or, for all intents and purposes, any time prior to the 2011 anticipated FASB-IASB convergence date) if you are a finance exec, auditor, or investor in the U.S., you were probably steeped in (or have a greater familiarity with) U.S. GAAP vs. IFRS, and you may be looking for some help in understanding the potential impact of increasing convergence with IFRS, if not a full-scale adoption of IFRS. If so, FEI has some programs coming up you may find of interest, listed below.

FEI Upcoming Events, Publications
FEI, an association of senior financial executives, has held and continues to hold conferences to keep our members (and members of the public) apprised of IFRS developments, including our Sept. 2007 Global Financial Reporting Convergence Conference, our June 2008 conference The World Is Moving to IFRS: Are You? sponsored by BNA Tax & Accounting, and our IFRS Boot Camp programs sponsored by Deloitte for the past two years, which immediately follows our annual Current Financial Reporting Issues (CFRI) conference.

This year, our Current Financial Reporting Issues (CFRI) conference is taking place on Nov. 16-17 in NYC, featuring remarks by SEC Commissioner Kathleen Casey, SEC Chief Accountant Jim Kroeker, FASB Chairman Robert Herz, with additional remarks by senior staff of FASB and the IASB, and CNBC Senior Analyst Ron Insana. CFRI is followed by the one-day IFRS Boot Camp on Nov. 18 in NYC sponsored by Deloitte. The IFRS Boot Camp will examine important conversion issues and present a strategic perspective on IFRS transition activities. Participants will explore how to develop an IFRS transition plan that addresses company needs while working to reduce implementation costs. The program includes lectures, case studies, and interactive discussions, so participants can deepen their understanding of the IFRS conversion process and what it means for their organization.

Recently FEI has added more IFRS programming by cosponsoring select IFRS training programs offered by Executive Enterprise Institute. The EEI IFRS conferences are chaired by Prof. Tom Selling, (who in his personal capacity is the author of the Accounting Onion blog), and upcoming programs include a two-day IFRS Conf. Nov. 9-10 in Chicago, and a two-day IFRS Conf. Dec. 2-3 in Las Vegas.

We have also increasingly featured IFRS-related topics in our monthly magazine, Financial Executive, and in reports published by FEI's research affiliate, the Financial Executives Research Foundation (FERF), such as the June 2009 report, IFRS for Midmarket Companies - Tips for Transition. FEI committees are also engaged in commenting on accounting and regulatory proposals of the FASB, IASB, SEC and others, see FEI comment letters. Feel free to contact me directly if you have any questions about FEI membership or programs. If you received this blog post from ‘a friend’ and you’d like to sign up to receive the blog, send an email to and write in Subject line: Sign Up. You can also follow us on Twitter at

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Anonymous said...

Non-accountants (and thankfully they run the companies) generally look at this hand-wringing as yet another classic moment of validating why accountants are accountants. Firstly, adoption without convergence is a train-wreck and everyone sees this that takes time to think rather than trying to make this a jobs program. Sound bites that we (the US) will stand alone or be the tall moose in the forest might sound trendy, but they are off base and misleading. But more importantly, what really matters is the cost of financial reporting. In my view, getting to a single standard scenario (only through acheiving an orderly convergence) will lower the cost, because the single standard will necessarily be conceptual based to accomodate the global scale. This in turn will provide companies great lattitude in how to apply the concepts, which means lower cost because auditors can rubber stamp the outputs as long as judgments are deemed 'reasonable', and the level of accountants can be dumbed down because the FASB rules (like they are today) which are overly complicated, will be no longer. Exhibit A for crazy FASB concerns the long, sad and complicated saga concerning variable interest entities. FIN46, then FIN46R and now FAS167 (or whatever the codification calls it now) is an embarrassment to the profession, IMHO.

Edith Orenstein said...

Anonymous 6:16 pm,
Thank you for your comment.
You sound like you speak from a background of practical application; I am curious what your thoughts are as to whether a broader application of fair value reporting (currently contemplated as part of the upcoming 'simplification' of financial instruments accounting)- if that would result in a 'dumbing down' or true simplification, which you recommend.

Anonymous said...

I have some game. My point was not to support a dumbing down, I am merely pointing out that will be consequence. This will in return result in a lower cost of financial reporting, because companies will have a broad range of ways to get to an answer, and the auditors will have to simply say: 'looks reasonable to us'. On the other hand, I pointed out the VIE matter as other extreme, to the point where I am embarrassed to be an accountant. With respect to fair value, that is such a subjective area, I don't think it matters if standard setters try to dumb it down or not because fair value by definition varies depending on perspectives that will be unique to those that need to make such judgment.