GAAP and IFRS Convergence Uncovered - Big 4 Exploration Series

“The FASB believes that seeking more comparable global accounting standards ­– improving the quality of accounting standards used around the world while reducing differences among those standards – is consistent with its core mission.” – Financial Accounting Standards Board (FASB)

As of 2017, there are 195 independent sovereign nations in the world. Approximately 126 of them require the use of International Financial Reporting Standards (IFRS), with another 12 permitting its use. Consider this, there are far more countries in the world where the majority of its population does not have access to the internet than countries that do not use some version of IFRS.

Global Move Towards IFRS


IFRS governs virtually all of the developed world (and quite frankly a majority of the undeveloped). Seemingly only in the United States does its momentum appear to have found resistance, whether due to the pure volume of U.S. based companies or some other contributing factor.

Navigate any “Big 4” accounting platform and you’ll find a separate section of review for both U.S. Generally Accepted Accounting Principles (GAAP) and IFRS. PwC releases a monthly statement dedicated entirely to IFRS content. Yet, a decade and a half after the passage of the Norwalk Agreement, signed in 2002 by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to merge standards, the agreement’s most ardent supporters acknowledge the convergence’s stalled inertia.

So what exactly happened? Are cost-sensitive companies reluctant to change? Are budget constrained regulatory agencies unable to draft legislation that would give the process new wheels? Ironically, on the precipice of revenue recognition adoption, a standard at the heart of GAAP and IFRS convergence, we commence our search for answers.

In the Beginning (the Norwalk Agreement or thereabouts)

Norwalk Agreement


“At their joint meeting in Norwalk, Connecticut, USA on September 18, 2002, the FASB and the IASB each acknowledged their commitment to the development of high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting.”

Opening Statement of the Norwalk Agreement

The Norwalk Agreement was created to address a few overarching priorities:

  1. In the short-term (pre-2005), reduce “individual differences” between U.S. GAAP and IFRS for standards that would require less time to complete.

  2. Remove all other differences beginning on January 1, 2005 through the “coordination of future work programs.”

  3. Continue progress on joint projects that are already in the works.

  4. “Encourage their respective interpretative bodies to coordinate their activities”

The non-committal form of the principles, drafted on a two-page memorandum, left both parties with a way out at signs of resistance, symbolic of things to come.

Practical Challenges

On July 13, 2012, the Securities and Exchange Commission (SEC) issued a Final Staff Report on the work plan for incorporating IFRS into the financial reporting system for U.S. public business entities.

In it, there were three primary challenges given as reason for the Staff’s decision to “expand beyond the idea of a potential designation of the standards as authoritative”:

  1. The majority of jurisdictions that adopt IFRS use measures to “ensure suitability of those standards.” In a sense, because there isn’t a standardized approach for incorporating international standards, the “potential rejection of a proposed standard” can serve as influence over the IASB in decisions regarding scope, method, and timing of implementation of the new standard.

  2. Public business entities in the United States expressed a “burden of conversion,” with potential time and monetary restrictions playing substantial roles.

  3. Private contracts reliance on reference to U.S. GAAP principles and U.S. GAAP in name. A convergence to IFRS would require rewording and potentially rewriting an untold number of private contracts by U.S. companies.

The IASB’s online platform has no reference to events after the April 2012 joint progress report.


The speculative environment that has shadowed the IFRS and GAAP convergence from almost day one will continue to follow it, potentially long after any official guidance has been released. There has been suggestion that the “professional liability” atmosphere of the United States, where practitioners and others are held to a higher standard in a litigious setting, requires the more industry specific, rules-based guidance of U.S. GAAP. Several other reasons exist in a hypothetical world. The reality of the current landscape perpetuates the notion that a convergence in the near-future is unlikely. There are differences in new standards such as the leasing standard (ASC 842 or IFRS 16) and the financial instrument standard (ASC 825 or IFRS 9) that are not even effective yet, shedding light on the skepticism of complete convergence anywhere in the near future

At Bloomberg BNA we will continue to monitor any IFRS and GAAP convergence sightings, but like bipartisan governance in the U.S., such viewings are increasingly rare.