International Financial Accounting Standards: Now The Hard Work Begins.

The International Accounting Standards Board (IASB) was formed with the dedicated support of a worldwide constituency -- all of whom have allocated resources, people, time and money -- to work towards producing a single set of universally accepted, high quality accounting standards. Now, with the infrastructure and organizational details complete, the group is getting down to work -- an understandably monumental task.

"The big question is what to start with," says Norman Strauss, Ernst & Young's national director of accounting standards and member of the Standards Advisory Council (SAC), an advisory group to the IASB. "Many international standards have several alternatives that are acceptable. We could, as a 'quick fix,' eliminate some and show some immediate signs of progress. Then we could begin to tackle bigger issues. Setting the agenda is important," says Strauss in an interview.

Would it be leasing, stock options, pooling of interests? Thus, when the IASB met in London in late July -- following extensive consultation with the SAC -- to set agenda items, a major decision was: would it tackle something very controversial at the get-go, or would it start with something safer and easier to accomplish, so that some progress would be quickly visible?

The group has opted for a little of both.

"We're on our way," said IASB Chairman Sir David Tweedie, as he announced the group's initial agenda of nine technical projects: "Four projects provide leadership or convergence; two others are designed to make existing standards easier to apply and three more aim to improve the basic standards we inherited from our predecessor Organization."

Projects intended to provide leadership and promote convergence include: Accounting for Insurance Contracts, Business Combinations, Performance Reporting and Accounting for Share-Based Payments (stock options).

Projects intended to provide for easier application of International Financial Reporting Standards (IFRS) include: Guidance on First-Time Application of IFRS and Activities of Financial Institutions: Disclosure and Presentation.

Projects intended to improve existing IFRS include: Preface to IFRS, Improvements to Existing IFRS and Amendments to IAS 39, Financial Instruments: Recognition and Measurement.

Also, 16 other issues are being worked on by one or more national standard-setting partners.

Although there's much talk of convergence and the spirit of cooperation, the real key to accomplishing goals will be the results of the inevitable compromising. For example, Strauss says while SEC buy-in is important, one roadblock could involve SEC filings. For a company to raise capital by selling stock (and being listed in the U.S.), the SEC requires reconciliation according to U.S. generally accepted accounting principles, under U.S. rules. If the U.S. votes to accept another international standard, will the SEC drop its position? Strauss says the SEC says they'll do it -- as long as the standards are high-quality, auditors doing a good job, etc.

Another compromise challenge for the U.S. could be the business combinations issue. The FASB just recently changed the rules, and so the standard now represents this country's latest thinking on the subject. Is the U.S. version the "one" to be adopted internationally? No pooling, no amortization? Will the others see it that way?

It's a process, concedes Strauss. "It's evolutionary." He indicates that while most U.S. companies don't follow international standards -- apart from large multinationals -- eventually, smaller companies will want to raise money outside the U.S. Many other countries use the international standards, as their internal rules are not as efficient as the U.S. Longer-term, with more cross-border transactions used to raise money, U.S. companies may see more of the benefits. "I'm optimistic it's the right thing for the capital markets," Strauss says. "Good accounting standards will reduce the cost of capital."

How conciliatory will the U.S. be? Strauss believes that as long as the standards selected are of high quality, and arrived at after due process, deliberations on comment letters, and such, that if a majority votes for a particular standard, that the U.S. should take the high road and go along. A spirit of compromise is needed for the efforts to succeed. "There are no truths," says Strauss, "and it's not an exact science. It's more like a scientific experiment".