Accounting standard-setting: convergence drives more change: uncertainty remains over whether, how and when the SEC will make the decision for U.S. companies to incorporate or converge with IFRS, leaving U.S. GAAP behind. Will a decision come in June, or beyond? Here's what to consider in the meantime.

• Author: Munter, Paul
• Position: FINANCIAL REPORTING - Securities and Exchange Commission - Generally Accepted Accounting Principles - International Financial Reporting Standards

At this time last year, the Financial Accounting Standards Board and International Accounting Standards Board had just pledged to "redouble" their convergence efforts and had targeted completion of nine projects by June 2011. Shortly thereafter, the U.S. Securities and Exchange Commission, in Commission Statement in Support of Convergence and Global Accounting Standards, reaffirmed its commitment to global accounting standards.

The SEC also directed its staff to develop and execute a work plan such that "successful completion of the work plan and the FASB/IASB convergence projects according to their current work plan" (emphasis added), would position the SEC to make a determination in 2011 as to whether International Financial Reporting Standards should be incorporated into the United States domestic financial reporting system.

Over the past six to 12 months, however, it has become increasingly clear that FASB/IASB completion of the nine projects on a converged basis by June 2011 was an unrealistic goal. As a consequence, FASB and IASB have found it necessary to re-prioritize their projects and have now whittled the list down to the five highest priority projects that they hope to complete by this summer.

While the list of projects targeted for completion by June is shorter, it remains a substantial list with the potential to significantly impact United States financial reporting regardless of what the SEC's decision is on incorporating IFRS into the domestic reporting system.

As a result, much of the efforts of the boards and their constituents over the next six months will revolve around standard-setting activities on the following five projects: financial instruments, revenue recognition, leases, fair value measurement and insurance contracts.

How Will Convergence Affect U.S. GAAP?

While the boards have cut back on the number of projects targeted for completion by June, the projects that remain for completion in the coming months bring with them the promise of significant change to U.S. generally accepted accounting principles, as well as the potential to further converge them with IFRS.

As a result, monitoring the boards' activities on these highest-priority projects requires U.S. constituents to ask two questions: "How is U.S. GAAP likely to change?" and "Will the project result in further convergence and if so, how will that impact the SEC's thought process?" Let's look first at how these projects could change U.S. GAAP.

Financial Instruments

The financial...