Converging Standards: What's Ahead for Global Accounting?

A quick update on the march toward accounting standards globalization: where we’re at today, and the challenges to come as we move toward convergence.

December 6, 2007
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You have probably noticed that the topic of international accounting standards convergence has been frequently appearing in the financial headlines over the last few years. The reason for this heightened interest is obvious — as the capital markets become increasingly global in nature, more and more investors see the need for a common set of international accounting standards.

The march toward accounting standards globalization is real. Recently, the Securities and Exchange Commission (SEC) raised a few eyebrows by issuing a proposed rule that would allow foreign private issuers to prepare their financial statement in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) without the reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) that is required under current rules. What’s more, in August, the SEC added to the controversy by issuing a concept release that hopes to gauge the public’s interest in allowing U.S. issuers to use IFRS when preparing their financial statement for SEC filing.

One thing is for sure: the movement toward global accounting is here to stay. However, significant challenges exist along the road to convergence:

  • Cultural differences exist between the models for developing U.S. accounting standards and those of the International Accounting Standards Board (IASB). In the United States, standard setting is largely accomplished through the private sector. In many situations, however, the IASB must contend with approval by regulatory authorities in various adopting countries.
  • The needs and priorities of users often dictate that the boards take differing paths.
  • The difference in starting points between existing FASB and IASB standards may create difficulties. In many instances, IASB standards are more principles-oriented. Since existing FASB standards are often rules-based, issues may arise as to inconsistencies or allowing exceptions to exist in legacy guidance.

Will convergence and the considerations by the SEC ultimately lead to the global use of a single set of accounting standards issued by the IASB? Based on a recent survey of U.S. companies by Duke University and CFO Magazine, only 9% were inclined to adopt IASB standards. Only time will tell.

  • From the CPE & Training Solutions Monthly e-newsletter from Thomson Tax & Accounting, October 2007. To subscribe to this free, informative newsletter, visit trainingcpe.thomson.com or click here.