The sate of major FASB IASB convergence projects.

• Author: Garmong, Sydney K.
• Position: Accounting Review - Financial Accounting Standards Board - International Accounting Standards Board

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working toward the convergence of U.S. generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) for the past 10 years. Significant progress has been made, but convergence efforts on several major projects--leases, revenue recognition and financial instruments--continue to present challenges.

While FASB's mission is to improve U.S. GAAP, many stakeholders, including the U.S. Securities and Exchange Commission, believe that the U.S. financial reporting system would benefit from the increased comparability resulting from internationally converged accounting standards.

In its 2003 policy statement reaffirming FASB as the designated private-sector standard setter for the U.S, the SEC said it expected FASB to consider, when adopting accounting principles, the extent to which international convergence is necessary or appropriate.

The convergence process between FASB and IASB began in 2002 with the Norwalk Agreement. The agreement of the boards was formalized in a Memorandum of Understanding, issued in 2006 and updated in 2008, establishing a series of priorities and milestones intended to produce common, principles-based standards. Though deadlines have been extended and some projects dropped from the current agenda, significant changes that improve standards and eliminate differences have been adopted in both U.S. GAAP and IFRS.

Projects successfully completed by the boards include issuing joint requirements for business combinations, aligning guidance on fair value measurements, amendments to presentation standards for other comprehensive income and reforms to align the disclosure requirements for derecognition of financial assets and liabilities.

The ultimate realization of convergence would be a single set of high-quality, international accounting standards that companies worldwide would use for financial reporting. Given the administrative and political challenges, as further discussed below, it does not appear likely that MRS will completely replace U.S. GAAP.

The SEC continues to explore the possibility of U.S. registrants making the transition to IFRS. The Financial Accounting Foundation, in a comment letter to the SEC on Nov. 15, 2011, observed that "a more practical goal for the foreseeable future is to achieve highly comparable (but not necessarily identical) financial reporting standards among the most developed capital markets that are based on a common set of international standards."

On July 73, 2012, the SEC's Office of the Chief Accountant published its final staff report, Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers, which summarizes the observations and analyses in six key areas identified for study. The staff report does not mean that the commission has made any policy decision as to whether IFRS should be incorporated for U.S. issuers or how any such incorporation, if it were to occur, should be implemented.

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