Convergence: What Do We Have After 10‐Plus Years?

• Published date: 01 September 2014
• DOI: http://doi.org/10.1002/jcaf.21982
• Author: Paul Munter,Oscar J. Holzmann
• Date: 01 September 2014

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© 2014 Wiley Periodicals, Inc.

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

DOI 10.1002/jcaf.21982

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Oscar J. Holzmann and Paul Munter

The convergence process between International

Financial Reporting Standards (IFRS) and U.S. gen-

erally accepted accounting principles (U.S. GAAP)

has evolved over the past dozen years. But for

many, progress has been frustratingly slow. Where

are we now, after more than 10 years?

© 2014 Wiley Periodicals, Inc.

C onvergence: What Do We Have After

10-Plus Years?

THE OBJECTIVES OF

CONVERGENCE

The convergence

process between

International

Financial Reporting

Standards (IFRS) and

U.S. generally accepted

accounting principles

(U.S. GAAP) has

evolved over the past dozen

years. It began with the “Nor-

walk Agreement” entered into

between the International

Accounting Standards Board

(IASB) and Financial Account-

ing Standards Board (FASB)

in September 2002, wherein 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 differences • between IFRS and U.S.

GAAP that would remain

at January 1, 2005, through

coordination of their work

programs, that is, through

the mutual undertaking

of discrete, substantial

projects that both Boards

would address concur-

rently;

Continue progress on the • joint projects that they

were currently undertaking

(e.g., business combina-

tions); and

Encourage their respective • interpretative bodies to

coordinate their activities.

1

While these early con-

vergence efforts resulted in

some reduction of differences

between U.S. GAAP and IFRS,

it became clear to the Boards

that to really make significant

headway in achieving a single

set of high-quality globally

accepted accounting standards,

it would be necessary 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 to

prioritize the Boards’ joint work

program to identify the specific

milestones to be met. The MoU

was based on three fundamental

principles

3 :

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