Is Convergence Dead?Posted: September 4, 2012
A few months ago the FASB and IASB made an announcement that didn’t make many headlines, but it now seems to be significant statement about the future of “a single set of global accounting standards.” The statement essentially said that the Boards were not seeing a lot of benefit, and were seeing increasing costs, in continuing to work jointly on new standards. It went on to state that when the current list of convergence projects was complete, no new projects would be undertaken by the Boards working as a single unit. On the one hand, if all of the convergence projects were completed, one could come to the conclusion that there really wouldn’t be many differences left to work on anyway. On the other hand, this might have been seen as a prophetic statement of the inability of the Boards to see eye-to-eye on what the appropriate accounting standards should be.
In isolation, this announcement might not seem like much, but since then two more events have occurred to put that announcement in new light. First, the SEC staff issued its final work plan with no recommendation of how or when to transition the U.S. (public company reporting) to IFRS. Second, the FASB made several tentative decisions on the accounting for impairments of financial instruments that will take the U.S. in a different direction than the current proposal from the IASB.
Looking at the work plan report, it seems clear there are several layers of concern with IFRS that the FASB seems to be latching onto in its renewed assertiveness. First, the notion that U.S. standards are somehow prescriptive and IFRS’s are principle based was somewhat debunked by the SEC. Sure the U.S. standards tend to come with a lot more guidance, but that has the benefit of reducing diversity in practice and isn’t that the point of a single set of standards. Second, the SEC hinted that IFRIC (the IASB equivalent of the EITF) isn’t doing a job good enough for the U.S. market and would need to be much more active if the U.S. were to ever adopt IFRS. In a document as politically sensitive as the work plan report, that hint was the same as you or me yelling something at the local town square.
The work plan report also pointed out that IFRS continues to be underdeveloped in several critical areas (e.g. regulated industry and investment company accounting) and effectively said going pure IFRS and eliminating standards in these areas would be a major step backwards for U.S. investors. The work plan seems to suggest a major role for the FASB if the U.S. were to ever adopt IFRS by apparently promoting an endorsement process as the best way to eventually incorporate IFRS into the U.S. market.
With this renewed support from the SEC, the FASB appears to have decided that they don’t have to get along with the IASB if they don’t want to. The first salvo is the aforementioned decisions on financial instrument impairments, but I am wondering what is next. We’ve already seen cracks in the unified solution to leasing. Will a single standard in that complicated area also disappear like a balloon in the wind? And what about revenue recognition? The re-deliberations on that standard have just begun. Is more contention on that final standard coming as well? I sure don’t know the answers to those questions, but like fans flocking to a NASCAR race, many of us will be looking on not to see the results of the race but to watch the wrecks happen along the way.