Officials from the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) spoke about the path forward on harmonizing US GAAP with International Financial Reporting Standards as the two boards near the end of their convergence efforts.
Accounting Today reports that while the two boards managed to produce a mostly converged standard on revenue recognition earlier this year, key elements of the leasing and financial instruments standards still differ, and they remain far apart on their insurance project.
IASB vice chairman Ian Mackintosh (pictured above), speaking at the American Institute of Certified Public Accountants’ (CPA) conference on Current SEC and PCAOB Developments in Washington, DC earlier this week said: “Next month, we will probably have our last meeting with the FASB on the leasing standard.
“We have not reached agreement on every aspect, but we are 100% converged on the fundamental issue, which is that leases are present obligations that need to be recognized as liabilities on the balance sheet. With the end of the leasing project, we will reach the end of a decade of work on our convergence projects.
“In that decade, the bilateral relationship between the FASB and the IASB dominated much of our work programs. So the question is: how do we take it from here?”
Mackintosh, who substituted for IASB chairman Hans Hoogervorst as a speaker at the conference, noted that about two years ago, the IASB founded the Accounting Standards Advisory Forum (ASAF). The ASAF brings together 12 national and regional accounting standards bodies.”
“It heralded a new, multilateral setting for our standard-setting, which properly reflects our identity as an international body,” said Mackintosh, speaking alongside FASB chairman Russell Golden (pictured).
“Still, both Russ and I believe that the bilateral relationship between the FASB and the IASB needs to remain strong. We have a joint responsibility to protect the body of convergence that has been reached and to minimize differences in the future.”
He added: “Convergence was not a perfect process but it was a good one and we achieved a great deal. The similarities between the two sets of standards are bigger than the differences. We both work in the same public interest, serving the needs of investors in public capital markets. For all these reasons, the IASB looks forward to continue working closely with the FASB.”
Golden pointed out that FASB’s mission is to improve GAAP for those who use it in the US capital markets and elsewhere around the world. “GAAP is critical to sound financial reporting, and many regard it as the gold standard in that area,” he said. “But GAAP certainly can be improved. That’s what we at the FASB work on every day. As many of you in this room know already, one of the ways that GAAP can be improved is to reduce its complexity.”
Golden described several of FASB’s simplification initiatives and noted that FASB had reset its agenda to focus on reducing complexity in financial reporting, eliminating some projects that don’t address that goal and performing cost-benefit analyses that in some cases led to differences with the IASB.
“Sometimes, the answers we arrive at through our cost-benefit analysis conflict with other goals,” said Golden. “Based on what we learned through that process, we have come to different conclusions from the IASB on a number of standards, including leases, impairment, classification and measurement, and insurance.
“That said, I believe that continuing to work toward the development of more comparable global accounting standards is an important way to help reduce complexity. That’s why we continue to collaborate and cooperate with the IASB and national standard-setters with an eye toward agreeing on and adopting standards that either are converged or that have the fewest possible differences.”
Golden emphasized that FASB’s first priority is to improve GAAP for those who use it, in the US and abroad.
“Even as we remain committed to the ideal of global convergence, we—and other national standard-setters—must address the pressing needs of users, preparers and practitioners in our individual capital markets,” he said. “In addition to the work we continue to undertake with the IASB, we also are strengthening our existing relationships with other standard-setters. This will help promote the broader flow of information and ideas that mutually inform each other’s thinking and contribute to an environment that will foster greater convergence.”
Mackintosh pointed out that many CPAs in the US would nevertheless need to be familiar with IFRS.
“Even if there is no additional progress on adopting IFRS in the U.S., many of you will interact with it at some point in your career,” he said. “Whether it is working for a multinational, working overseas, negotiating cross-border business or reading competitors’ financial reports, IFRS is likely to be relevant to you sooner or later. Obviously, to derive the full benefits of IFRS, adoption alone is not enough. Proper implementation and application of the standards are also essential.”