- Financial Instruments
- Consolidations
- Derecognition
- Fair Value Measurement
- Revenue Recognition
- Leases
- Financial Instruments with the Characteristics of Equity
- Financial Statement Presentation
- Other MoU Projects
- Other Joint Projects
Strive to Align Project Timetables
In response to concerns voiced about 'leapfrogging' - i.e. when one of the two boards gets ahead of the other on a joint convergence project- the joint statement notes:
We will strive to avoid creating timeline differences like those that have complicated our efforts to improve and align standards for financial instruments and other areas. If such differences do arise, we will work together to eliminate differences between standards as soon as practicable by drawing stakeholders’ attention to each others’ proposals and reviewing our own requirements with a view to addressing differences on a timely basis.
In addition, the joint statement expresses the boards' commitment to: "Fundamental first principles about the purposes of accounting standards and the process by which the standards are determined, as set out in the statement of the Monitoring Board of the International Accounting Standards Committee Foundation, issued on 22 September 2009."
"Single Set," "Common" Set of Standards
It is interesting to note that the FASB-IASB joint statement speaks in some places of converging to a 'single' set of standards, and in other places of converging to a 'common' set of standards. To some, these terms can mean a world of difference. However, the terms are often used interchangably by many different parties. For example, here are some excerpts from the joint statement:
We are redoubling our efforts to achieve a single set of high quality standards within the context of our respective independent standard-setting processes.
Our goal is to develop together common standards that improve financial reporting in the US and internationally and that foster global comparability. Achieving such improvements is consistent with the objectives of the IASB that are set out in the Constitution of the IASC Foundation. It also fulfils the responsibility the FASB has under US law and the Securities and Exchange Commission’s 2003 Policy Statement to consider, in developing standards, whether international convergence is necessary and appropriate in the public interest and investor protection.
Presumably, once a set of 'common standards' is acheived, the next step would be to officially adopt one set (again, presumably, IFRS, which is used in over 100 countries) as the 'single' global standard. FASB Chairman Robert Herz said as much in remarks at various conferences and Congressional hearings in 2007 and 2008. For example, in testimony before the Senate Banking Committee, Securities Subcommittee, in October, 2007, Herz said:
[W]e agree with the Securities and Exchange Commission that a widely used single set of high quality international accounting standards for listed companies would benefit the global capital markets and investors. The ultimate goal, we believe, is a common, high-quality global financial reporting system that can be used for decision-making purposes across the capital markets of the world.
However, achieving the ideal system requires improvements and convergence in various elements of the infrastructure supporting the international capital markets, including a single set of common, high-quality accounting standards, a well-funded, global standard-setting organization, and a global interpretive body to handle guidance and implementation issues.
Improvements are also needed in disclosure requirements; regulatory, enforcement and corporate governance regimes; auditing standards and practices; and education of capital market participants.
Herz first acknowledged that the likely, ultimate 'single' set of accounting standards would one day be an improved version of IFRS, in remarks he gave at an FEI Global Convergence Conference in Sept., 2007, as noted by Marie Leone of CFO.com in Sweeping Away GAAP, 9.28.07.
For some interesting reading on the practical aspects of convergence, see Convergence Doesn't Necessarily Mean the Same, also by Leone, published Nov. 5 in CFO.com, in which she quotes D.J. Gannon of Deloitte and other experts.
Relevant, Transparent, Neutral and Comparable
Appendix B of the joint statement, Shared Goals, Values and Principles, will likely be very significant, taking on perhaps an almost equal role to the Conceptual Framework of the two boards.
The phrase 'relevant, transparent, neutral and comparable' is emphasized, in the context that:
[I]t is critically important to achieve high-quality, globally converged financial reporting standards that provide relevant, transparent, neutral, and comparable financial information, regardless of the geographical location of the entity.
High-quality accounting standards are those that foster the provision of relevant, transparent, neutral, and comparable financial information.
Some may view the only critical missing factor in that list of four factors as 'reliability,' although the decreasing emphasis on 'reliability' in favor of 'transparency' and 'relevance' has been happening for some time now in the boards' proposals to amend the conceptual framework.
FASB's Mission Statement (as described in the April 2009 edition of Facts About FASB) continues to emphasize relevance and reliability:
To accomplish its mission, FASB acts to [i]mprove the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency.
My two cents (I remind you of the disclaimer which appears in the right margin of this blog): The tipping of the scales with what some may perceive as more weight on relevance than reliability within the emerging revised conceptual framework, and statement of goals in today's joint statement, reflects the view of some that information about what an asset is worth today, based on what a market participant or third party would say, is more important to investors (i.e. more 'relevant') than a value based on some other valuation methodolog(ies), which may be more reliable. (Keep in mind, third party information for a nonliquid financial instrument, or a formerly liquid instrument in a disorderly or inactive market, can, in theory, be a quote from a broker who is giving a reference price, but may not necessarily actually want to buy and hold the item.) Caught in the middle, however, are preparers and auditors (not to mention members of the boards' of directors) who have legal liability for the information provided in financial reports, who may prefer keeping the historic balance between relevance and reliablity.
One Paragraph Statement By SEC Chairman
A one paragraph statement was issued by SEC Chairman Mary L. Schapiro, in recognition of the FASB-IASB joint statement, in which she said:
I am greatly encouraged by the commitment of the IASB and the FASB to provide greater transparency to the standard setting process and their convergence efforts. I believe that these efforts will result in improved financial information provided to investors.
Although brief, Schapiro's statement may help pave the way for the SEC to, as Schapiro said at a conference in September: "... speak a little later this fall about what our expectations are with respect to IFRS."
UPDATE: Regarding the status of the SEC's proposed IFRS Roadmap, Reuters' Emily Chasan reports that at a New York State Society of CPAs conference on Nov. 5, SEC Deputy Chief Accountant Julie Erhardt explained that, while commenters on the roadmap generally concurred on moving to a single set of accounting standards, there was no one clear view on how to get there. Read more in Chasan's article, Lack of Accounting Rules Consensus Vexes SEC.
G-20 Finance Ministers Meet This Week
The issuance of the joint statement by IASB and FASB, noting support of the G-20 - specifically, the G-20 Progress Report issued on Sept. 25, which "call[s] 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" - comes one day ahead of the 10th anniversary meeting of the G-20 Finance Ministers and Central Bank Governors, set to take place in St. Andrews, Scotland Nov. 6 and 7. Following are some early reports relating to this week's G-20 Finance Ministers meeting:
A Deluge of G20 Meetings (FT, Nov. 4)
G-20 Will Discuss 'Bubble-Building,' Meirelles Says (Bloomberg, Nov. 3)
France Sets New Bonus Rules for Banks Ahead of G20 (DJ Newswire, Nov. 5)
Big Bank 'Living Wills' Gain Traction in G20 (Globe & Mail, Nov. 5)
Strauss-Kahn Sees G-20 Adopting Timeline, Method on Imbalances (Bloomberg, Nov. 4)
Learn More About IFRS
Learn more about IFRS at FEI's IFRS Boot Camp Nov. 18 in NYC sponsored by Deloitte. Or come to the two-day IFRS conference offered by Executive Enterprises Institute, cosponsored by FEI, Nov. 9-10 in Chicago, or Dec. 2-3 in Las Vegas. And, if you want to get an update on all the hot issues currently in the mix on the financial reporting scene, its not too late to sign up for FEI's 28th Annual Current Financial Reporting Issues (CFRI) conference, Nov. 16-17, at the Marriott Marquis in NYC. Francine McKenna of Re: The Auditors will be among press covering the event, we look forward to seeing you there!
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