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Tuesday, March 20, 2012

Ten Years After: Time Thievery at FASB and IASB

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Oscar Wilde once said, "Punctuality is the thief of time." A decade after U.S. and international rulemakers in accounting made their initial, formal vow to try to converge on standards, those standard-setters have struggled mightily to stay on schedules they have set for themselves. They have seen time get stolen away.

Hans Hoogervorst, chairman of the International Accounting Standards Board, spoke in Mexico City March 7 about the long-running convergence effort with the Financial Accounting Standards Board.

"It is 10 years since the boards set out on this path, and a great deal has been achieved," said the chairman of the panel that began its life in 2001. Hoogervorst voiced hopes of finishing the quartet of major IASB-FASB projects "in relatively short order."

In recent years, the variously shifting end-points for alignment by FASB and IASB on a progressively pared-down list of projects have come and gone. First, June 30, 2008 was set as the point of completion for a host of joint rulemaking efforts. Then the end-all date with a focus on four top projects was moved to June 30, 2011. That reflected what standards-setters acknowledged was an ambitious undertaking.

The Work Goes On.

The work goes on, with a "tech plan" schedule that is marked by a lack of published end-dates for the key projects—especially while "re-exposure" of revised proposals is conducted or, in the case of financial instruments, refloating of draft rules is considered.

The topics of much of the high-priority rule-making--such as on instruments and leases--pose significant, even, it seems at times, Sisyphean challenges. Still, the increasingly drawn out timetables for efforts on instruments and on the few major issues on which the boards have generally agreed throughout their work together (notably revenue recognition) have led to some frustration and dismay among those who follow closely the work of FASB and IASB closely. That population includes some steadfast supporters of the boards' independence, as well as rulemakers and regulators who were present at the creation of the international board in 1999-2001.

On Feb. 29, a FASB staff accountant suggested that new, final FASB-IASB standards on revenue recognition would be out in either 4Q12 or 1Q13. Presumably, new jointly-written standards on leases would be on a similar timetable.

Last year, FASB's chairman, Leslie Seidman sought to offer what sounds like a measure of reassurance to companies concerned about big changes. She has said that "in no case" would planned rules on leases and revenue be effective any earlier than 2015. The effective dates for that new GAAP might be “potentially later than that,” depending on how the remainder of the projects go, Seidman said in a March 12 webcast.

The Transatlantic Challenge.

Such are the difficulties of making high-quality rules in tandem, transatlantic style –especially when pressures to finish projects --especially financial instruments--and political and institutional pressures come to bear in the United States and Europe. Seidman points out the boards’ crucial opportunity and responsibility to set high-quality, lasting standards on each topic before them. Tony Cope, a British-born and –raised rulemaker who served on FASB and on IASB, used to say that having a standard-setting project carried out by both boards added time geometrically, and not simply arithmetically, to the task.

And it's safe to say that accounting mavens in Norwalk and London hope that their various high-priority projects avoid the fate of FASB's effort on consolidations. Circa 2001, a plain-spoken member of FASB, Mike Crooch, described the consolidations project as "old enough to vote." It began in 1982.

That general FASB effort on consolidations policy remains unfinished. Meanwhile, smaller scope efforts on special purpose entities along the way have been completed. Another carved-out portion is slated to be done in the second half of this year.

Back in 2008, Robert Pozen, chairman of a special panel set up by the Securities and Exchange Commission on improving financial reporting, noted that convergence of U.S. and international accounting standards was taking longer than expected. He predicted it would take probably 10 years to settle most key issues.

*With a nod to rocker Alvin Lee and band.

By Steve Burkholder, Staff Correspondent, Bloomberg BNA
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