The following conversation with Bruce Pounder addresses the issue of why U.S. accountants can no longer afford to ignore convergence.
These days, we often see the word "Convergence" in news articles about accounting. What exactly is Convergence?
For accountants, the word "Convergence" has two related meanings. First, Convergence refers to the ongoing efforts of accounting standard-setters in the United States and around the world to eliminate differences in accounting standards among countries. Second, Convergence refers to the absence of differences in accounting standards among countries. Thus, as reflected in those two meanings, Convergence is both a process and a goal. And as the process continues to bring us closer to the goal, the implications of Convergence for U.S. accountants are growing in significance.
Is Convergence is new phenomenon?
No. Accounting standard-setters around the world have been working towards Convergence for decades.
If Convergence isn't new, then why have we only recently started to hear about it?
Convergence has finally reached a "tipping point" in the United States due to decisive actions recently taken by the Financial Accounting Standards Board (FASB), which is the accounting standard-setter for U.S. private-sector enterprises. Although the FASB has been a long-time advocate of Convergence, only recently has it begun to make truly newsworthy progress towards Convergence. And the progress we've been hearing about lately is just "the tip of the iceberg" â there will be even more substantial progress towards Convergence in the U.S. in the near future.
Why are the FASB and other standard-setters around the world working towards Convergence? Who will benefit?
Accounting standard-setters like the FASB exist primarily to serve users of financial statements that are prepared by private-sector enterprises. Those users include investors, creditors, and securities analysts. Users want to be able to analyze and compare financial statements without having to think about where a company is located or which standards the company used when preparing the statements. So Convergence will directly benefit the users of financial statements.
But while Convergence will directly benefit only a relatively small segment of the world's population, the potential indirect benefits of Convergence are very broad in scope. Accounting standard-setters and securities regulators around the world operate on the assumption that the universal acceptance of a single set of high-quality standards would make the world's capital markets more efficient by enhancing the consistency and comparability of published financial statements. Greater efficiency in the world's capital markets would in turn lower the costs of capital for businesses, and lower capital costs would encourage economic growth on a global scale. And because economic growth creates jobs and lowers the cost of goods and services, nearly everyone stands to benefit from Convergence.
Has Convergence begun to affect the day-to-day work of U.S. accountants?
Absolutely. Convergence has already resulted in significant changes to U.S. accounting standards, particularly in areas like employee stock options and fair value measurement. And even bigger changes are going to come at an accelerating pace in the near future. For example, the FASB and its international counterparts are working on a complete overhaul of the standard financial statements. The presentation formats of balance sheet, income statement, and cash flow statement will soon be very different from what they are today.
What other effects is Convergence having on U.S. accountants?
In the short-term, Convergence is creating opportunities and incentives for companies operating in the U.S. to abandon U.S. Generally Accepted Accounting Principles (GAAP) in favor of an existing set of country-neutral standards known as International Financial Reporting Standards (IFRSs). Although U.S. GAAP and IFRSs will continue to evolve and converge with each other, two facts create a compelling reason to switch to IFRSs prior to the eventual convergence of U.S. GAAP and IFRSs: first, IFRSs have already been adopted by more than 100 countries (including the countries of the European Union), and second, IFRSs are likely to be adopted by about 50 more countries within the next five years (including Canada, China, and India). The sooner companies adopt widely-accepted country-neutral accounting standards like IFRSs, the sooner they will be able to reduce the costs of accounting and obtain access to low-cost capital on a global scale. But regardless of whether individual companies switch to IFRSs or stick with U.S. GAAP as it evolves, Convergence will require all U.S. accountants to continuously update their knowledge, skills, and abilities for many years to come.
Are there any long-term effects of Convergence that U.S. accountants should be aware of?
Yes, and they're very significant. By eliminating country-specific differences in accounting standards, Convergence is likely to globalize and commoditize the accounting labor market. In other words, U.S. accountants could find themselves to be small fish in a big global pool of accountants â all of whom will be qualified to compete against each other for jobs anywhere in the world, and most of whom will be willing to work for far less compensation than U.S. accountants now enjoy. This phenomenon, coupled with the increasing ease of off-shoring accounting and financial reporting work, is a major threat to the continued employability of U.S. accountants.
How did you come to focus on Convergence in your consulting and teaching?
In designing, developing, and implementing financial reporting systems for multi-national Fortune 500 companies, I often struggled with the challenges arising from multiple country-specific accounting standards. So I have long awaited relief from Convergence. But once Convergence actually started to happen, I realized that it was making my country-specific knowledge, skills, and abilities obsolete. That led me to realize that Convergence and other global trends would require new approaches to educating accounting and finance professionals like me, and so I began to focus on creating the kind of consulting services and educational experiences that accounting and finance professionals would need in order to succeed in an increasingly globalized business environment.
What specifically are you doing to help U.S. accountants deal with Convergence?
Today, I find myself talking about Convergence constantly in my role as host of the Internet-based seminar series "This Week in Accounting." And I've developed "The Convergence Seminar," a face-to-face learning experience that I am presenting throughout North America. In my seminars, I help accountants acquire the fundamental skills needed to prepare, consolidate and analyze financial statements under continuously changing national and international standards.
Bruce Pounder, CMA, CFM, is an internationally-recognized Convergence consultant and educator. He is based in Asheville, North Carolina and can be reached by phone at (828) 254-4812 or by e-mail at [email protected].
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