International Convergence

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Although the majority of efforts have been focused on an international convergence, the Securities and Exchange Commission has proposed a plan that would eventually lead to a complete FASB bodied endorsement. It all began with a SEC staff paper in May of 2011. It suggested easing into a kind of “condorsement” phase in which, “the framework would retain FASB as U.S. standard setter to facilitate the transition process by incorporating existing IFRS into U.S. GAAP over a defined period of time such as five to seven years.” Basically the desired outcome would be for a U.S. company to be compliant with both GAAP and IFRS at the end of the period. Throughout the transition the FASB and SEC would be hard at work breaking down IFRS into three categories and evaluating those for GAAP incorporation. The convergence process would still be underway during the period. The goal of this would be to make a more successful and efficient joint project than the original convergence, but it also causes a variety of concerns. From the IASB perspective, comments in the July 2012 issue of The CPA Journal suggested that the “biggest drawbacks from continued joint project efforts is that that’s probably not practical or workable from the IASB’s standpoint…on a long-term basis.” On the other hand there is wide support of the new leading role that the FASB would play as an active standard setter with the guidance of the SEC. This results in questions about whether U.S. companies would take international proposals as seriously as they do from FASB. The entire project has the chance to run smoothly if the FASB facilitates it in the right direction. During the endorsement period the FASB would help develop IFRS and have the authority to modify new IFRS issues. At the same time they would still be the designated U.S. standard-setter. It is relatively clear that this endorsement plan could take far beyond five to seven years to implement, but if done correctly it would be exactly what international and U.S. businesses have needed.

Beyond the struggles between IFRS and U.S. GAAP is the fact that there are still countries without a solid IFRS. Over 115 countries have adopted IFRS but what about the rest? The extensive steps that a company has to take to convert to IFRS can be daunting. It is important for these companies to have guidance and a successful start but there also needs to be a reasonable process that can be implemented. The beginning goal is for the company to have a set of IFRS statements as if they had always reported that way. To achieve this they have to identify the timing of their first IFRS statement, make an opening balance sheet at that time, select IFRS approved accounting principles, and thoroughly explain the transition to IFRS. This could take quite a bit of time but it is absolutely essential that we encourage these companies or even make the process simpler so that these practices will be followed.

The common ground of the convergence and endorsement project is the high number of remaining differences between IFRS and U.S. GAAP. FASB chair Leslie Seidman had a good viewpoint on how this could be approached. While discussing transition issues in the July 2012 issue of the CPA Journal she suggested that, “…I think we’ve got to do some qualitative analysis about who cares about these differences and do a cost-benefit analysis on them.” In some cases it could just boil down to stubbornness between IFRS and GAAP and the need for one of them to give in. Whichever approach is used, one solid standard establishing body is needed. There will be plenty of bumps to smooth over and delayed projects along the way, but the ending product will benefit accountants and make our jobs easier all around the world.

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Works Cited

Lamoreaux, Matthew G. "Beyond Convergence." Journal of Accountancy, Aug. 2011. Web. 29 Aug. 2013.

Pacter, Paul. "What Have IASB and FASB Convergence Efforts Achieved?" Journal of Accountancy, Feb. 2013. Web. 29 Aug. 2013.

"Revenue Recognition: Boards Decide on Constraining Revenue, Collectibility, and Licenses." Kpmginstitutes.com. KPMG, Nov. 2012. Web.

"Revenue Recognition—Joint Project of the FASB and IASB." Fasb.org. FASB, 5 Aug. 2013. Web. 29 Aug. 2013.

"Status of Adopting International Standards-Should We or Shouldn't We?" The CPA Journal. N.p., July 2012. Web. 29 Aug. 2013.

"US GAAP versus IFRS: The Basics." Ernst&Young, Nov. 2012. Web.

Weygandt, Jerry, and Terry Warfield. "IFRS Insights." Intermediate Accounting. By Donald Kieso. 15th ed. N.p.: Wiley, n.d. 155. Print.