IASB and FASB Publish First Major Exposure Draft Standard
Sir David Tweedie, IASB Chairman and Bob Herz, FASB Chairman, emphasized the value of a single standard to users and preparers of financial statements of companies around the world as it improves comparability of financial information.
"Development of a single standard demonstrates the ability of the IASB and the FASB to work together,” Tweedie continued.
In September 2002, IASB and FASB adopted a “best efforts” approach to the conversion of the provisions of IFRS and US GAAP. In a memo entitled the “Norwalk Agreement” \the IASB and the FASB established their joint goal to
- make their existing financial reporting standards fully compatible as soon as practicable and,
- coordinate their future work programs to ensure that one achieved, compatibility is maintained.
Currently, in the US, the Securities and Exchange Commission (SEC) requires non-US private companies who file with the SEC to reconcile financial statements prepared under IFRS to US GAAP. According to an SEC press release on April 21, 2005, the then SEC Chairman, William Donaldson, meeting with EU Comissioner Charles McGreevey, discussed a “roadmap” that highlights the steps needed to eliminate the US GAAP reconciliation. The SEC roadmap “establishes a goal of eliminating the requirement as “early as possible between now and 2009 at the latest.”
In another significant development that will likely drive the convergence effort, the European Parliament and Council of the European Union have determined that all listed European Union companies must prepare their consolidated financial statements in accordance with IFRS from 2005 onward. While up to now the number of companies using IFRS has been limited, this will change dramatically.
Noting the benefits of convergence to both investors and lenders. Donald T. Nicolaisen, Chief Accountant for the SEC in an article entitled “A Securities Regulator Looks at Convergence” published on the SEC web site, refers to the significant investment abroad by US individual and banks. He says “A thriving capital market requires a high degree of investor understanding and confidence. Converging with or embracing a common set of high quality accounting standards contributes immensely to this investor understanding and confidence.” Nicolaison writes further that investor confidence is likely to be greater if the differences between the IFRS and US GAAP are easy to understand and few in number.
Going forward, major IASB/FASB short-term convergence projects will be limited to areas where accounting “has failed to keep pace with new developments in the marketplace or where assets and liabilities have been kept off the balance sheet.” according to a statement on July 8 by Sir David Tweedie, IASB Chairman. Acknowledging the challenges faced by European companies complying with IFRS and US companies working toward compliance with the Sabanes-Oxley Act, Tweedie comments that nevertheless, the prize for both boards, if they press forward in an “expeditious manner. . . will be to remove barriers to investment that lie between the two largest economic areas of the world.”