American and international accounting rulemakers have proposed a timeline to make the necessary changes in standards to drop reconciliation reporting requirements for non-U.S. companies listed on U.S. exchanges.
The Financial Accounting Standards Board and the International Accounting Standards Board issued a joint statement last week elaborating on their plans to fulfill the “Norwalk Agreement” of 2002, when they first pledged to converge accounting rules. The two boards outlined short-term and longer-term projects that they say should be sufficient to fulfill regulators’ wishes for rules aligned enough to eliminate the need for reconciliation.
Last spring, the Securities and Exchange Commission published its “roadmap” toward eliminating reconciliation requirements for non-U.S. companies listed in the United States by 2009. The plans includes a condition that the 2009 target date depends on continued progress toward eliminating difference between U.S. Generally Accepted Accounting Principles and rules followed abroad, especially International Financial Reporting Standards, now mandatory in the European Union.
FASB and IASB said in last week’s memo that they recognize their role in achieving the timeline, and have established a timeline of their own to eliminate such differences. By 2008, the boards hope to eliminate differences in certain uses of fair value, borrowing costs, impairment, income tax, investment properties, government grants, research and development, joint ventures, subsequent events and segment reporting. Longer term, the boards will continue to work on business combinations, consolidations, fair value measurements, distinctions between liabilities and equity, performance reporting, pensions and post-retirement benefits, and revenue recognition.
The boards noted that they’ll need help to achieve their goals. “The ability to meet the objective set out by the roadmap depends upon the efforts and actions of many parties, including companies, auditors, investors, standard-setters and regulators,” the memo says.
“People wanted a sense of the timeline and how it relates to the SEC roadmap,” says Tom Seidenstein, a spokesman for the IASB. “The boards wanted to put their work into the context of the roadmap. They wanted to address the question of what’s an achievable timeline.”
The effort is also an acknowledgment of the current environment, Seidenstein says. “The removal of the reconciliation requirement is important to a lot of people out there.” In Europe in particular, “there’s a desire for some stability.” European Union countries just made the mandatory switch to International Financial Reporting Standards in 2005. “It’s a pragmatic balance of immediate stability with progress toward convergence,” he says.
FASB did not respond to a request for comment on the memo.
Dennis Beresford, an accounting professor at the University of Georgia and former chairman of FASB, says the memo demonstrates standard-setters’ support of the drive to eliminate the need for reconciliation.
Beresford
It also contains a “subliminal message,” Beresford says, meant to assure that U.S. players appreciate the pressure on IASB to minimize further rule changes in Europe following the switch to IFRS. The joint memo notes that longer-term projects “should be consistent with one of the IASB’s objectives of providing stability of its standards for users and preparers in the near term.”
Beresford says it’s an indication that IASB wants to make things as easy as possible for its European constituents.
The projects and timelines outlined in the memo don’t represent a significant acceleration of the convergence process that’s already under way, according to Seidenstein. “All of this is based on the current work programs for the two boards,” he says. “There’s no change in policy.”
The memo reiterates that the boards aren’t working simply to eliminate differences, but to improve standards in both accounting systems at the same time. “Trying to eliminate differences between two standards that are in need of significant improvement is not the best use of the FASB’s and the IASB’s resources,” the memo says. “Instead, a new common standard should be developed that improves the financial information reported to investors.”
The SEC and European Commission both published statements praising the boards’ efforts.
AICPA Mirrors PCAOB in Risk-Based Audit Approach
The American Institute of Certified Public Accountants has published eight new auditing standards that advocate a risk-based approach to planning, conducting and reviewing an audit.
Landes
The eight statements are intended to help auditors focus on where material misstatements are most likely to occur, says Chuck Landes, vice president for AICPA’s Professional Standards and Services Group. “Given the alleged audit failures of the past few years, we’re trying to take lessons learned from those tragedies,” he says. “The focus is to get back to the basics blocking and tackling procedures and processes that for various reasons have not been part of the audit procedures of late.”
The concepts are in tandem with the guidance issued by the Public Company Accounting Oversight Board in the past year, advocating a focus on risk as firms have implemented Auditing Standard No. 2, which governs audits over internal controls, Landes says. Details differ, however, as the AICPA’s rules apply to private companies.
A summary is available in the box at right.
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