May 19th 2011
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Looking ahead to the time when International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in the U.S. have nearly completed their high priority convergence projects, Paul Beswick, deputy chief accountant at the SEC, introduced the concept of condorsement as a potential approach for global standard setting process. In a speech before the American Institute of Certified Public Accountants' (AICPA) annual conference in December 2010, Beswick stated that he used the word, condorsement, a word he coined, to describe how a process that is not convergence might work.
The majority of jurisdictions were already using either the convergence or endorsement approach, he stated, and "In my opinion, if the U.S. were to move to IFRS, somewhere in between could be the right approach. I will call it a condorsement approach."
Beswick described a process that would have the following characteristics:
- U.S. GAAP would continue to exist.
- The IASB and the FASB would finish the major projects.
- But the FASB would not begin work on any major new projects in the normal course.
- FASB would "work to converge existing U.S. GAAP to IFRS over a period of time for standards that are not on the IASB's agenda. This would entail making sure that, on a standard by standard basis, existing IFRS standards are suitable for our capital markets."
- At the same time, the FASB would have a process where they would consider new standards issued by the IASB for incorporation into U.S. GAAP and then integrate such standards into the U.S. codification
With respect to FASB's future role Beswick told his audience at the AICPA conference, "I would expect the FASB to participate in the IFRS standard setting process much like other jurisdictions do. At the same time, I would expect that the IASB would take seriously the input of the U.S. in their deliberations."
Leslie Seidman, Chairman of FASB was asked to comment on Beswick's condorsement approach in her April 4 interview with Matthew G. Lamoreaux of the Journal of Accountancy. She stated that the advantage of the approach Beswick laid out was that "it's a very deliberative approach for identifying and evaluating the specific differences."
"I think it can minimize any unintended consequences of a shift from IFRS into U.S. GAAP," she added. "I think it avoids a big bang for us. It potentially can minimize the transition costs of our country making such a significant change."
Seidman said, however, that she saw the potential "to increase the risk of national GAAP, . . . if the role of the U.S. standard setter is sort of an afterthought, I think you have that potential." One way to mitigate that risk, she stated, for example, would be "to have the FASB be an active participant in the process, and by setting very clear and rigorous criteria for when a difference would ever be warranted."
Seidman said emphatically that she did not support the piece in the approach that FASB would not enter into any new projects. "I'm not ready to sign up for that," she said in the interview. "I think that there can be cases, domestically, where we have an urgent financial reporting matter. I still think there is value in having boots on the ground for the FASB to address the issue expeditiously and hopefully cooperatively internationally so that we don't end up with U.S. flavor per se. But I'm not ready at this point to say that there's no role for the FASB to be having particular standard-setting activities.
Seidman said that she supported an approach where FASB would be part of an ongoing qualitative and quantitative analysis "an active participant along the way, so that any endorsement process would be perfunctory at that point in time."
In a May 2 KPMG IFRS Institute Webcast, presenters provided a slide summarizing the potential condorsement approach, which followed Beswick's approach very closely. They did not discuss condorsement in detail, but, by including Beswick's recommendations in their IASB revised target date presentation, the implication is that the concept has received serious consideration.