Comparability in International Accounting StandardsâAn Overview
Problem 15Q: Explain the relationship between the FASB and the SEC in the. the IASB or the International Accounting Standards Board is the organization for. Rather, we discuss the issues in the light of academic research with a view to The IASB's interest in convergence with US GAAP was signaled by the the FASB had developed a special relationship with the IASB. Unlike what happened with other countries, IASB and FASB have been to GAAP for foreign registrants that issue IFRS financial statements.
Different starting points, different business cultures, different regulatory environments, different financial reporting objectives, and different legal systems can make it difficult for standard setters around the world to agree on the same accounting alternative. Moreover, an alternative that is perceived as an improvement in one country may not be perceived as an improvement by another country. That result is counterintuitive to the lessons learned during the recent financial crisis. Dramatically different starting points affected the approach to the insurance contracts project.
In response to feedback from investors and others that GAAP was largely meeting their needs, the FASB abandoned the fundamental revisions necessary for full convergence to focus on more targeted improvements. Recent experiences raise questions about that conclusion.
The FASB is considering whether international comparability may sometimes require the use of different words or additional guidance tailored to the U. For example, the FASB has been told that the definition of a business in the jointly developed business combination standard is being interpreted differently in the U. He said the SEC staff is continuing to evaluate potential paths forward and, as part of that effort, is looking for feedback on other alternatives that might be explored in addition to further incorporation of or alignment with IFRS.
GAAP and international standards.
In latethe SEC issued a proposed Roadmap that, if adopted, could result in the mandatory use of international standards by U. SEC registrants as early as At inception, it had 14 Board members from 9 countries, including the U. The Norwalk Agreement set out the shared goal of developing compatible, high-quality accounting standards that could be used for both domestic and cross-border financial reporting.
It also established broad tactics to achieve their goal: That policy statement also said that the SEC expects the FASB to consider, in adopting accounting principles, the extent to which international convergence of high-quality standards is necessary or appropriate in the public interest and for the protection of investors Policy Statement. GAAP the F reconciliation. The proposed Roadmap identified several milestones that, if achieved, would support eliminating the reconciliation.
In the MoU, the two Boards reaffirmed their shared objective of developing high-quality, common accounting standards. The MoU elaborated on the Norwalk Agreement, setting forth the following guidelines in working toward convergence: Convergence of accounting standards can best be achieved by developing high- quality, common standards over time. Instead of trying to eliminate differences between standards that are in need of significant improvement, the Boards should develop a new common standard that improves the quality of financial information.
Serving the needs of investors means that the Boards should seek to converge by replacing weaker standards with stronger standards MoU. After considering the input received, the SEC issued a final rule eliminating that requirement in December Final Rule. The Concept Release sought public input on whether to give U.
Is IFRS That Different From U.S. GAAP?
Under the proposed Roadmap, the Commission would decide by whether adoption of IFRS would be in the public interest and would benefit investors. The SEC also proposed that U.
Most recently, in a joint meeting held in Octoberthe FASB and IASB reaffirmed their commitment to convergence, agreed to intensify their efforts to complete the major joint projects described in the MoU, and committed to making quarterly progress reports on these major projects available on their websites. As a further affirmation of that commitment, the Boards issued a joint statement describing their plans and milestone targets for achieving the goal of completing major MoU projects by mid The Statement makes clear that the SEC continues to believe that a single set of high-quality, globally accepted accounting standards would benefit U.
A reconciliation approach i. Some of the questions to consider before the start of the project are: What will be the consequences on your company or organization? The Finance department will obviously have to update its processes, as will Operations, which will face potential impact on how contracts are written or how the information is gathered and maintained; and Human Resources, which will have to review the compensation packages, especially when linked to business performances.
What will be the impact on management reporting and IT? The transition to IFRS will imply a change in management reporting and, in some cases, in the format of data required. For example, systems will have to be upgraded in order to gather information on liquidity risks in accordance with IFRS 7 — Financial Instruments — Disclosures. When will changes have to be looked at? Companies can leverage on the convergence process by implementing new pronouncements as soon as possible, especially those that are aimed to converge with IFRS, such as SFAS R on business combinations or SFAS on the accounting for non-controlling interest.
When should the IFRS training begin? Due to the broad impact of the transition, your company should put in place a scalable training plan on IFRS not limited to the accounting department, even before the actual transition.
Final Thought Experiences in other countries, especially in Europe, show that the process is more complex and lengthier than anticipated. However, since European countries were the first ones to make the transition, they were unable to leverage lessons learned from predecessors in the transition process and most of the time local accounting standards were not converging to IFRS.