Challenges in Achieving Convergence Between U.S. GAAP and IFRS—The Case of the Revenue Recognition Standard

• Author: Paul Munter,Oscar J. Holzmann
• Date: 01 September 2015
• Published date: 01 September 2015
• DOI: http://doi.org/10.1002/jcaf.22087

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22087

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FASB

Challenges in Achieving Convergence

Between U.S. GAAP and IFRS—The Case

of the Revenue Recognition Standard

Oscar J. Holzmann and Paul Munter

Since the “Norwalk Agree-

ment” was entered into between

the Financial Accounting

Standards Board (FASB) and

the International Accounting

Standards Board (IASB) in

2002, the agendas of the FASB

and IASB have been domi-

nated by their efforts to achieve

greater convergence between

U.S. generally accepted

accounting principles (GAAP)

and International Financial

Reporting Standards (IFRS).1

In the Norwalk Agreement,

the Boards pledged to:

• Undertake a short‐term

project aimed at remov-

ing a variety of individual

differences between U.S.

GAAP and IFRS;

• Remove other remaining

differences between IFRSs

and U.S. GAAP through

coordination of their

future work programs;

that is, through the mutual

undertaking of discrete,

substantial projects which

both Boards would address

concurrently;

• Continue progress on the

joint projects that they are

currently undertaking (e.g.,

business combinations); and

• Encourage their respective

interpretative bodies to

coordinate their activities.

While these early con-

vergence efforts resulted in

some reduction of differences

between U.S. GAAP and

IFRSs, it became clear to the

Boards that to really make

significant headway in achiev-

ing a single set of high‐quality

globally accepted accounting

standards, it would be neces-

sary for them to work together

more closely on major projects.

In February 2006, the FASB

and the IASB entered into a

subsequent Memorandum of

Understanding (MoU) wherein

the Boards identified a number

of projects to be completed on

a converged basis.2 In 2008,

the Boards updated the MoU

prioritizing the Boards’ joint

work program to identify the

specific milestones to be met.

The MoU was based on three

fundamental principles3:

• Convergence of account-

ing standards can be best

achieved through the devel-

opment of high quality,

common standards over

time;

• Trying to eliminate dif-

ferences between the two

standards that are in need

of significant improvement

is not the best use of the

FASB’s and the IASB’s

resources—instead, a new

common standard should

be developed that improves

the financial information

reported to investors; and

• Serving the needs of inves-

tors means that the Boards

should seek convergence

by replacing standards in

need of improvement with

jointly developed new

standards.