In 2002 the FASB and the IASB signed an agreement or a memorandum of understanding on the convergence of accounting standards. The short-term goal of the project was to fix deficiencies in both standards. The long-term hope was to eliminate differences between the two standards, create a single accounting language and to unite the global economies with one set of rules to measure the financial performance of all businesses.
Now 13 years later, we look back at the efforts of the convergence project and I believe that most accounting and finance professionals would conclude that many of the short-term goals were achieved. Some of the successes included:
- The IASB and the FASB were able to achieve partial or full convergence of standards in each of the following areas: business combinations, borrowing costs, discounted operations, fair value measurement, segment reporting and revenue recognition.
- In 2005, the European Union (“EU”) required that all public companies listed on their stock exchange use IFRS.
- In 2007, the U.S. SEC eliminated the requirement that a foreign issuer using IFRS must reconcile their IFRS results to U.S. GAAP.
Although the project achieved many successes, the long-term goal of developing a single-global accounting standard will not be achieved any time soon. The convergence effort that seemed to reach a peak in 2008 is now at a stand-still. Some of the roadblocks to the project included:
- The IASB and FASB were not able to see eye-to-eye on the leasing project. Many obstacles were encountered which lead to each party developing their own model.
- In the U.S., the benefits of a full-scale move to IFRS seemed to be supported by a small group of larger, global U.S. companies that already knew IFRS because their foreign operations and related reporting requirements.
- Many smaller, more domestically-focused U.S. companies viewed a change to IFRS as just additional time and cost to change their financial reporting language from U.S .GAAP to IFRS.
- Many CPAs believe that IFRS is too flexible and that the rules-based U.S. GAAP is the better and more accurate approach.
- Finally, I think there is a simple fear of the unknown about IFRS and the overall resistance to a significant change.
After 13 years, I am not sure that the world has decided which set of accounting rules is the better global standards. But I do feel that the IFRS-US GAAP convergence project has improved both reporting standards and has given all of us a greater appreciation for doing business and measuring financial performance across the globe.