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Global Accounting Standard Covergence

March 19, 2009

It doesn’t matter whether your company adopts IFRS effective 2014, 2015, 2016 or beyond, there are some activities you should begin doing now. One of those activities is monitoring and staying current with the FASB and IASB accounting standards convergence plan.

FASB & IASB Memorandum of Understanding

The FASB and IASB have been working together on developing a common set of high quality global standards since 2002. Their commitment was formalized at that time in a Memorandum of Understanding (MoU) known as the “Norwalk Agreement” (the MoU was signed in Norwalk Connecticut). The MoU has been reaffirmed (in 2005) and revised (in 2006) with specific milestones to be achieved by 2008. Based on progress achieved through 2007, the SEC removed the requirement for foreign private issuers who use IFRS (as issued by the IASB) to reconcile their financial results to US GAAP.

At their April 2008 meeting, the Boards agreed on joint project priorities and milestones to be achieved by 2011 (2011 is also the year the SEC will “ratify” its decision on the timetable for adoption of IFRS – coincidence?). Their agreement included 11 topics set forth in the MoU in which they either (a) completed a common standard, reached similar conclusions, or are currently working jointly to develop a common, high quality standard (7 of the 11 topics) or (b) are at different stages of developing their approach to the topic to address immediate areas of concern (4 of the 11 topics).

The FASB and the IASB have pledged to use their best efforts (a) to make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained.

We can see that the two standard setters have been working together for a long time to converge accounting standards toward “compatibility”. How should we respond to the efforts of the FASB and IASB? I submit that we would be well advised to stay current with what the two boards are doing, comment on discussion papers and exposure drafts, and advise our companies of the potential impact to their financial statements, management reports and metrics. If we do not have the time to do so, then a designated individual within our companies should be tasked with staying current on global accounting standards convergence. Staying current is especially important now because there are some very important topics to be addressed be the FASB and IASB over the next couple of years (Financial Statement Presentation, Revenue Recognition, Consolidation, Derecognition, and Fair Value to name a few).

In the meantime, the difference between “stable” IFRS standards and “stable” US GAAP standards should be analyzed for the impacts to your organization. By determining the financial statement impact of differences in “stable” accounting standards and staying current with global accounting standard topics that are converging we will help our companies anticipate the financial reporting impact of implementing IFRS.

Are you ready to learn IFRS?

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