The challenge of global accounting convergence.
Recently, the London Stock Exchange is experiencing growth and prominence once again, in a period when emerging economies and their new capital markets are taking their share of worldwide capital expansion.
Along with the rise of the United Kingdom's capital market, the British developed their own accounting standards, which were based on U.K. law and permit national corporations. In the U.S., corporations are chartered at the state level. Consequently, there are significant differences between the U.S. and the U.K., both legally and from a regulatory standpoint. As the U.S. economy grew, the strength of our capital markets grew in tandem. In addition, U.S. accounting standards achieved a significant leadership position worldwide.
During the past decade, with the expansion of capital markets around the world, there has been a rise in prominence of International Financial Reporting Standards (IFRS). These standards are promulgated by the International Accounting Standards Board (IASB). Based in the U.K., the IASB is an independent body with the goal of providing one worldwide set of uniform accounting standards.
Recognizing these trends, the U.S. Financial Accounting Standards Board (FASB) agreed in September 2002, in a landmark agreement referred to as the "Norwalk Agreement," to cooperate with the IASB with the common goal of converging U.S. accounting standards with the international standards. Currently, FASB and IASB are working on a series of convergence projects; they have already completed several others. Indeed, as FASB Chairman Robert Herz says, virtually all significant accounting issues before the two boards are now being addressed jointly (for more on Herz's thoughts, see Financial Reporting, page 12.)
Wide Acceptance Around the World
The international standards have achieved wide acceptance: more than 100 countries have agreed to adopt them. In addition to the U.K. and U.S., standard-setting bodies have been established in many countries around the world. Convergence of international accounting standards is applicable to public entities that trade on the world's various stock exchanges. However, there is still going to be a need for domestic standard-setters for private companies, as well as domestic government agencies. In addition, the national standard-setting bodies will continue to interface on national issues with IASB.
The speed with which we achieve convergence of U.S. and international standards will largely depend on compromise. While the goal of harmonizing international standards is a good one, there are many issues that must be resolved. For instance, the issues raised by the presence of different legal systems are very large.
Recently, FASB Chairman Herz raised the issue of industry-specific standards. The U.S. and, to a considerably lesser extent, other countries have developed standards specifically for specialized industries such as oil and gas, mining, banking, insurance and others. At a minimum, this will add additional time to the convergence process, in my opinion.
After attending my first meeting of the IASB-Strategic Advisory Committee, I recognized that there would be a need for significant additional information for our members on this convergence project. Consequently, we are planning our first Global Financial Reporting Convergence conference on September 28 at the New York Marriott Marquis. This conference will bring together leaders from IASB, FASB and the financial regulators to provide updates on the status of the international convergence projects.
One of the most positive developments in this area is the cooperation between FASB and IASB on the updating of the conceptual framework. The conceptual framework forms the basis for specific accounting standards by defining the underlining terms, such as what is an asset and what is a liability. These fundamental building blocks, developed on a joint basis, will smooth the process of convergence, as well as new standards development.
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|Title Annotation:||president's page|
|Author:||Cangemi, Michael P.|
|Date:||Jul 1, 2007|
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