Friday, June 3, 2011

Modified Plan Revealed for Converging Accounting Standards

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In a recent letter to leaders of the G-20 nations, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) outlined a modified accounting standards convergence strategy.  This modified convergence strategy retains a June 2011 target completion date for converging accounting standards deemed higher priority, but allows for delays in completing the convergence of standards deemed "relatively lower priority," according to a progress report to G-20 nations that accompanied the letter.  A memorandum of understanding, drawn up between the IASB and FASB in 2006 and updated in 2008, set out nine project goals for completion by June 2011.  The June 2011 target date remains in place for projects deemed urgent, including "joint projects on financial instruments, revenue recognition, leases, the presentation of other comprehensive income, and fair value measurement."

Constituent concerns about overload from the number of documents slated for release led the IASB and FASB to rethink the timing of some projects and to push others onto the back burner, IASB Chairman David Tweedie said.  Practitioners have known for months that the original timeline was too ambitious, but IASB and FASB came to that conclusion only recently, finally conceding the point in early June when they announced that the convergence agenda faced delays.

But even the revised agenda is raising concerns among practitioners, who fear that meeting the deadline could prove to be costly.  Several members of a standing advisory group to the Public Company Accounting Oversight Board (PCAOB) said at a July 15 meeting that adhering to the timeline was not reasonable. Attempting to do so would not allow enough time for an accurate assessment of the convergence’s effects on public companies and, therefore, would risk  imposing heavy costs on those companies.  Lynn E. Turner, a former Securities and Exchange Commission chief accountant, told the PCAOB, “[The FASB/IFRS deadline] is not simply a train wreck about to happen, the train wreck is happening right now.” 

Barbara L. Roper, director of investor protection at the Consumer Federation of America, expressed similar sentiments: “Someone needs to step up, be the parent, and point to the fact that the timing is wrong, and the results will be disastrous for companies and ultimately investors.” 

When viewed through a historical perspective, the workload for the boards of the IASB and FASB is quite large relative to their normal activity.  This would explain some of the skepticism of observers.  Many question how the boards, which generally issue three to four standards a year, can issue three to four issues per quarter.  At that rate, are we about to witness that train wreck?

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