The report, issued on Tuesday by the trustees of the not-for-profit organisation tasked with developing and overseeing the so-called International Financial Reporting Standards, the IFRS Foundation – which in turn looked at a “final staff” report on the efforts to converge the global and US accounting standards, issued in July by the US Securities & Exchange Commission (SEC) – notes that hopes that there might soon be a single global accounting standard that incorporated the US are beginning to seem overly optimistic.
The trustees’ analysis, which was posted on the IFRS Foundation’s website on Tuesday, says that there is now "a risk that, in the absence of a US decision on adoption, a decade of convergence may be followed by a new period of divergence".
The report notes that there has been considerable will for a convergence of accounting standards on both sides of the Atlantic, including officials at the head of the SEC as well as leaders of the G20 countries, both of which entities are on record as signalling their commitment to a single standard. Yet, it says, the SEC staff report does not give a time frame for US efforts aimed at moving towards convergence to take place.
The IFRS Foundation report’s authors argue that "as a result of more than ten years of joint work with [the US accounting standards setter] the Financial Accounting Standards Board to improve IFRS and US GAAP [the US standard], and bring about their convergence, the differences that the US will have to bridge are significantly smaller in scope than the differences faced by other major countries that have already adopted IFRS".
They explain their concern about a potential divergence shaping up, rather than convergence, between the US GAAP and IFRS by noting that, in addition to the SEC staff report’s failure to indicate a time frame for further moves towards convergence, "both the International Accounting Standards Board [IASB, the London-based organisation behind the IFRS] and the FASB are independently considering their respective post-MoU work programmes".
Single accounting standard dream
The idea of having a single accounting standard used by companies around the world has much in common with ideas about a single language for business, or a single regulatory standard covering providers of financial services – that is, it is far easier to imagine than to actually bring about.
Nevertheless, the advantages of a single accounting standard are obvious to any company finance director who has ever had to reconcile the finances of a foreign company being considered for acquisition with the parent company’s home accounting standards.
That said, the attraction of America’s rich capital markets long made reconciling to US GAAP a necessary cost of doing business for many foreign companies, which has enabled the US to call the shots as far as whose standard is used.
In part for this reason, it wasn’t until 1973 that a number of countries, including the US, finally joined together with the goal of creating a single global standard, with the creation of the International Accounting Standards Committee, the predecessor organisation to the IASB.
Even then, it wasn’t until the Berlin Wall fell in 1989 – with the resultant need on Germany’s part to raise capital for rebuilding the former East Germany – that there was a sufficiently compelling motive for convergence to begin to get things moving, according to accounting industry sources.
After Germany scrapped the West German GAAP and replaced it with an international standard that potential international investors would prefer to the German standard, they say, a move towards a global standard began.
Thus it was that by 2005, some 96 countries, including all 25 countries then members of the European Union, were able to to agree on a single accounting rulebook, the IFRS.
Since then the convergence movement has slowed, though, as a number of major countries, including Japan, Singapore and India, are said to be waiting for the US to move towards convergence before doing so themselves.
The financial crisis has not helped the convergence movement, as it has highlighted disagreements about such matters as when bad loans and other losses should be recognised.
