The Financial Accounting Standards Board decided not to take up a project requested by first-time adopters of new accounting rules in Europe to relieve some reporting or reconciliation requirements.
FASB said it was asked to eliminate certain differences between net income and equity as reported under U.S. Generally Accepted Accounting Principles for companies that are just transitioning to International Financial Reporting Standards, now required in the European Union. The request for relief focused on four specific issues related to financial assets, functional currency, differences in currencies, and post-employment benefits.
Board members almost unanimously agreed that FASB is not the right body to address transition issues between different accounting systems and that the scope of the request is too narrow to take priority over other FASB projects.
Herz
Chairman Robert Herz said he sympathized with some of the reporting challenges IFRS adopters face, but also contended preparers can make choices about what methods to use that would avoid some of their reconciliation concerns.
The Securities and Exchange Commission outlined a “roadmap” earlier this year to eventually eliminate reconciliation requirements for non-U.S. companies. The European Union, meanwhile, is considering a proposal to require U.S. GAAP reporters in Europe to provide some additional disclosures to make their reporting more consistent with the new IFRS system.
Commissioner Paul Atkins of the SEC recently delivered a speech to the European Parliamentary Financial Services Forum in which he criticized the EU’s consideration of new reporting requirements for U.S. companies. “We in the U.S. are keenly aware that unnecessary reconciliation only imposes costs on investors on both sides of the Atlantic,” Atkins said. “For this reason, I am baffled at the suggestion by some that Europeans should begin to require U.S. companies to reconcile their U.S. GAAP financial statements to IFRS. This runs against the direction that we are taking in the United States and undermines our efforts toward mutual recognition” (see box above, right for Atkins' speech and related documents).
Van Dorn
Walter Van Dorn, an attorney with Thacher Proffitt and a former senior member of the SEC’s Division of Corporation Finance, said the U.S. market is still a long way from accepting IFRS without reconciliation. He questions whether the U.S. can accept it without reconciliation as quickly as the SEC is proposing in its roadmap to convergence. “It could be done mechanically, but not politically,” he said.
“Comparability is the big issue,” added Van Dorn. “If you’re an investor considering General Motors and Volvo, you can’t compare them without reconciling.” According to Van Dorn, convergence of accounting systems is a more likely, realistic approach than elimination of reconciliation.
Ian Ball, chief executive of the International Federation of Accountants, said he wouldn’t view any recent events at FASB or the SEC as derailing or delaying the convergence effort that the U.S. bodies and the International Accounting Standards Board have agreed to follow.
Ball
“This is not a two-horse race,” said Ball. “And if it were, it would be a marathon, not a sprint. At the heart of it, there are strong capital market reasons to achieve convergence—the pressure to create a single set of global standards is quite strong.”
April Mackenzie, director of international financial reporting for Grant Thornton, said the convergence experience is tenuous for professionals in both continents. In the U.S., the markets worry that U.S. GAAP is bending too much to IFRS, and in Europe the view is the opposite, she said. Based in New York, Mackenzie is also a chartered accountant in New Zealand and Scotland and has served on standard-setting bodies abroad.
“There’s plenty of clear evidence that it is not convergence in one direction or the other at all,” she said. “Convergence is important to bring together high quality accounting standards that are used by companies and understood by investors, no matter where you are.”
No comments yet