From the President’s Desk

February 2014

Since the Financial Accounting Standards Board and the International Accounting Standards Board signed the Norwalk Agreement in 2002, the Boards have made significant progress in improving and converging U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.

Working together, the Boards have issued converged standards on business combinations, noncontrolling interests, fair value measurements, borrowing costs, and segment reporting. We anticipate that they will issue a substantially converged standard on revenue recognition in the coming months, and in March will continue final deliberations on leasing – both critically important areas of financial reporting that affect virtually all companies.

To support completion of these and the other two remaining joint projects (financial instruments and insurance, where the prospects of convergence seem less likely), the Board of Trustees of the Financial Accounting Foundation recently announced that the FAF in 2014 will make a contribution of up to $3 million to the International Financial Reporting Standards Foundation, the parent of the IASB.

The decision has prompted varying reactions from our stakeholders. Some have applauded our action. Others have questioned its merit. Still others have asked about the source of the contribution and what it portends for the ongoing relationship of the FASB and the IASB.

Given the interest in this subject, I thought it might make sense to use this space to address some of the issues raised by our stakeholders and share with you some of the background of this decision.

First, the Trustees made the decision to contribute to the IFRS Foundation in consultation with senior officials of the Securities and Exchange Commission. The FAF Trustees concluded that a non-recurring contribution of up to $3 million in 2014 would make sense in the short term, in the context of supporting completion of the convergence projects. This contribution is consistent with the FAF Trustees’ support of the FASB’s commitment to complete the joint projects with the IASB so the two boards can move forward to establish a new working relationship in the years ahead.

To answer one question from our stakeholders, the funds for the contribution will come from the FAF’s reserve funds. Our reserves are funded by revenue from the sale of publications and subscriptions, and from investment income. As you know, FAF, FASB and GASB operations are funded through accounting support fees. Accounting support fees for the FASB are paid by U.S. public issuers. Accounting support fees for the GASB are paid by brokers and dealers who buy and sell municipal bonds.

In recent years, we have maintained a reserve account equal to approximately five quarters of operating expenses for the FAF, FASB, and GASB. Any publication, investment or unanticipated income that raises the reserve fund over the five-quarter target historically has been used to offset FASB and GASB operating expenses, thereby reducing accounting support fees. We refer to these funds as “residual reserves.”

Recently, the Trustees decided to reduce the amount of money held in the reserve account by about 20 percent, to the equivalent of one year’s worth of operating expenses. That reduction will take place over the next three years. As a result, we anticipated that these additional residual reserve funds would be available in 2014 to make a contribution to the IFRS Foundation, while the remaining residual reserves will be available to offset FASB operating expenses. In fact, we anticipate that FASB accounting support fees in 2014 will be six percent lower than they were in 2013. [For more information on funding, please read "How We're Funded" on the FAF website.]

While the United States considers the appropriate use of IFRS by U.S. domestic issuers, the FASB will continue to work with the IASB to converge standards, while also addressing specific needs to improve U.S. GAAP.

As outlined by FASB Chairman Russ Golden in recent public remarks, that means that the FASB will continue to focus on developing and improving U.S. GAAP. At the same time, the FASB will actively continue to participate in the development of IFRS through its membership on the IASB’s Accounting Standards Advisory Forum, by consulting on specific projects, such as the Conceptual Framework, and in other ways. Finally, the FASB will maintain and strengthen its existing cooperative relationships with other national standard setters to share best practices and promote the broader flow of information and ideas that mutually inform each other’s thinking with the intention of working toward greater global comparability.

We recognize that in some cases, the need to serve the best interests of investors in our own capital markets may outweigh the goal of creating completely converged accounting standards. We believe that this direction will enable the FASB to further enhance the process of developing the highest-quality U.S. GAAP standards possible while promoting standards that either are converged or have the fewest possible differences.

That is why we believe concluding these joint projects is so important – and why the Trustees decided to support this work with a $3 million contribution to the IFRS Foundation.

As always, I hope you’ll continue to follow our efforts, and that you’ll continue to share your views with us. I’ll look forward to hearing from you—please feel free to contact me at

FAF President and Chief Executive Officer

Have a question or comment? Contact Terri directly at

Letter to the FAF from the National Association of State Boards of Accountancy regarding FAF Contribution to IFRS Foundation—February 14, 2014