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International Convergence of Accounting
Standards—Overview

IASB-FASB Update Report to the Financial Stability Board Plenary on Accounting Convergence [April 5, 2012] 


What Does “International Convergence of Accounting Standards” Mean?

The phrase international convergence of accounting standards refers to both a goal and the path taken to reach it.

• The FASB believes that the ultimate goal of convergence is a single set of high-quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting.
   
• Today, the path toward that goal is the collaborative efforts of the FASB and the International Accounting Standards Board (IASB) to both improve U.S. generally accepted accounting principles (U. S. GAAP) and International Financial Reporting Standards (IFRS) and eliminate the differences between them.

The FASB believes that there is demand for international convergence, driven by investors’ desire for high-quality, internationally comparable financial information that is useful for decision-making in our increasingly global capital markets.

The FASB and the IASB have been working together toward convergence since 2002. The two Boards have described what convergence means and their tactics to achieve it in two different documents—the Norwalk Agreement issued in 2002 and the Memorandum of Understanding (MoU) between the IASB and the FASB, originally issued in 2006 and updated in 2008.

The main way the FASB and IASB collaborate is through joint projects to develop common standards. The FASB issues those standards as U.S. GAAP and the IASB issues them as IFRS; over time, the two sets of standards are expected to both improve in quality and become increasingly similar if not the same. (For information about the current status and plans for the FASB’s and IASB’s joint standard-setting activities, please refer to the FASB’s Technical Plan and Project Updates.)

At their October 2009 joint meeting, the FASB and IASB reaffirmed their commitment to convergence and agreed to intensify their efforts to complete the major joint projects described in the MoU. 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-2011, and their commitment to providing the public with a periodic reports on their progress. To date, progress reports have been issued in April, June, and November of 2010. The November progress report describes certain changes made to put the boards in the best position to complete their priority projects by the June 2011 target date. In particular the boards (a) deferred until after June 2011 substantive deliberations on four joint projects (the broader financial statement presentation project, financial instruments with characteristics of equity, emissions trading schemes, and the reporting entity phase of the conceptual framework), (b) agreed that consolidation of investment companies was not a priority for June 2011 (the Boards plan to complete that project by the end of 2011) and (c) decided to defer deliberations on several of their independent standards setting projects (such as contingency disclosures for the FASB).

Most recently, in February 2011, the Financial Accounting Foundation and the FASB issued a brief letter to the IFRS Foundation Trustees providing their views on several key issues with respect to mission, governance, and process raised in the Strategy Review the IFRS Foundation published for public comment on November 5, 2010.

How Does Convergence Fit into the FASB’s Mission?

The FASB’s mission is to improve U.S. financial accounting standards for the benefit of present and potential investors, lenders, donors, and other creditors. The FASB believes that pursuing convergence of accounting standards is consistent with that mission. That is because investors, companies, auditors, and other participants in the U.S. financial reporting system should benefit from the increased comparability that would result from internationally converged accounting standards.

The SEC has directed the FASB to consider international convergence as it develops new accounting standards. In its 2003 policy statement reaffirming the FASB as the designated private-sector standard setter for the U.S., the SEC said that it expects the FASB to consider, in adopting accounting principles, the extent to which international convergence on high-quality standards is necessary or appropriate in the public interest and for the protection of investors. The FASB believes that working cooperatively with the IASB to develop common standards that improve financial reporting in the US and internationally and that foster global comparability fulfills that expectation.

Sometimes, as in the case of responding to the financial reporting crisis that began in late 2008, the FASB will need to take timely actions to improve U.S. GAAP while also working with the IASB on longer term global solutions in the same area. Some refer to that as “riding two horses.” Unless and until a decision is made to adopt IFRS in the U.S., or until we have achieved substantial convergence between U.S. GAAP and IFRS, the FASB will need to continuously manage the challenging task of balancing the demand for improved U.S GAAP with the desire to eliminate differences between it and IFRS.

What are the “Statement” and “Work Plan” Published by the SEC in February 2010?

In February 2010, the SEC issued a statement (Statement) that lays out the SEC’s current position regarding global accounting standards. That Statement reflects the Commission’s consideration of the input it received on its November 2008 proposed rule, Roadmap for the Potential Use of Financial Statements Prepared In Accordance With International Financial Reporting Standards (IFRS) by U.S. Issuers.

The Statement makes clear that the SEC continues to believe that a single set of high-quality, globally accepted accounting standards would benefit U.S. investors. The Statement also:

• Continues to encourage the convergence of U.S. GAAP and IFRS
• Outlines factors that are of particular importance to the Commission as it continues to evaluate IFRS through 2011
• Directs the staff of the SEC to develop and execute a work plan (Work Plan) that transparently lays out specific areas and factors for the staff to consider before potentially transitioning our current financial reporting system for U.S. issuers to a system incorporating IFRS.

For more information about the history of the convergence effort, please refer to International Convergence of Accounting Standards—A Brief History, which describes the major events in the evolution and development of international accounting standards.

International Convergence of Accounting Standards—Frequently Requested Documents