Convergence with the International Accounting Standards Board (IASB)
FASB and IASB Reaffirm Commitment to Enhance Consistency, Comparability and Efficiency in Global Capital Markets
In October 2002, the FASB and the International Accounting Standards Board (IASB) announced the issuance of a memorandum of understanding ("Norwalk Agreement"), marking a significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards.
The FASB has undertaken the following six key initiatives to further the goal of convergence of U.S. GAAP with International Financial Reporting Standards (IFRS):
- Joint projects being conducted with the IASB. Joint projects are those that standard setters have agreed to conduct simultaneously in a coordinated manner. Joint projects involve the sharing of staff resources, and every effort is made to keep joint projects on a similar time schedule at each Board. Currently, the FASB and IASB are conducting joint projects to address Revenue Recognition and Business Combinations.
- The short-term convergence project. The short-term convergence project is an active agenda project that is being conducted jointly with the IASB, and it is expected to result in one or more standards that will achieve convergence in certain areas. The scope of the short-term convergence project is limited to those differences between U.S. GAAP and IFRS in which convergence around a high-quality solution appears achievable in the short-term. Because of the nature of the differences, it is expected that a high-quality solution can usually be achieved by selecting between existing U.S. GAAP and IFRS.
- Liaison IASB member on site at the FASB offices. One of the most visible features of the FASB’s daily operations that promotes convergence is the presence of a full time IASB member in residence at the FASB offices. James J. Leisenring, a former FASB Board member, is the IASB member currently filling the role of liaison Board member to the FASB. The role was created to facilitate information exchange and increase cooperation between the FASB and the IASB.
- FASB monitoring of IASB projects. IASB projects are monitored by the FASB based upon the FASB’s level of interest in the topic being addressed.
- The convergence research project. The FASB staff is currently working on a research project related to convergence. The project seeks to identify all of the substantive differences between U.S. GAAP and IFRS and to catalog those differences according to the Board’s strategy for resolving them. The project scope includes differences in standards addressing recognition, measurement, presentation or disclosure. Any topic in which a specific accounting treatment would be permissible under one basis of accounting but would not be permissible under the other basis of accounting is included in the project scope.
The IASC-U.S. Comparison Report, 2nd ed. (1999), a comprehensive study of International Accounting Standards and U.S. GAAP, is available from the FASB. Standard setters, financial statement preparers and auditors, and regulators should be aware of similarities and differences between the financial reports that would be produced under IASC standards and those produced under national standards. This report compares each of the IASC's "core standards" (up to and including IAS 39) to its U.S. GAAP counterparts in areas such as scope, definitions, recognition and measurement requirements, and display and disclosure requirements.
- Explicit consideration of convergence potential in all Board agenda decisions. Within the framework of the Board’s agenda criteria, all topics formally considered for addition to the FASB’s agenda need to be assessed for the possibilities for cooperation with the IASB (or another standard setter). Factors that the Board considers in assessing topics for the agenda include (a) the possibility that resolution would increase convergence of standards worldwide, (b) the opportunities the topic presents for cooperation with other standard setters, and (c) whether appropriate and sufficient resources are available for a joint or other cooperative effort.
As a result of these and other initiatives, the FASB expects to make significant progress toward international convergence in the next few years. However, because of the volume of differences and the complex nature of some issues, the FASB anticipates that many differences between U.S. and international standards will persist well beyond 2005. (By 2005, all EU-listed public companies are being required by the European Union to prepare their consolidated financial statements using IASB Standards.)
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