As the world moves inexorably to IFRS as the global accounting standard, the FASB and IASB have updated their 2006 agreement to converge US GAAP and IFRS. The Norwalk Agreement committed the Boards to develop high quality compatible accounting standards for use in both domestic and cross border financial statements. Based on the progress achieved by the Boards through 2007, the SEC removed the requirement for foreign private issuers to reconcile their IFRS-driven financial statements to US GAAP. Noting that a number of jurisdictions, including Canada and Japan, will adopt IFRS from 2011 on, IASB Chair David Tweedie emphasized the need to complete the project beforehand so as to avoid the necessity for them to make major changes shortly after the project is completed.
A number of short-term projects on the road to convergence have been completed. For example, bringing U.S. GAAP into line with IFRSs, FASB issued new or amended standards that introduced a fair value option (SFAS 159) and adopted the IFRS approach to accounting for research and development assets acquired in a business combination (SFAS 141R). In addition, converging IFRSs with U.S. GAAP, the IASB published new standards on borrowing costs (IAS 23 revised) and segment reporting (IFRS 8).
In the near term, the IASB plans to publish a proposed standard on income taxes that would improve IAS 12 and eliminate certain differences between IFRSs and U.S. GAAP. For its part, the FASB plans to publish proposed standards on accounting and reporting for
subsequent events in the second half of 2008.
Also, in the second half of 2008, the FASB will review its strategy for short-term convergence projects in light of the possibility that some or all U.S. public companies might be permitted or required to adopt IFRS at some future date. As part of that review, the Board will solicit input from U.S. constituents by issuing an Invitation to Comment containing the IASB’s proposed replacement of IAS 12. At the conclusion of that review, it will decide whether to undertake projects that would eliminate differences in the accounting for taxes, investment properties, and research and development by adopting the relevant IFRS.
The Boards also issued a status report on long-term projects. The convergence on business combinations was completed with the issuance of FAS 141R and revisions to IFRS 3. Regarding financial instrument presentation, the IASB revised IAS 1 and joint Board deliberations are ongoing, with a discussion paper to be issued in 3Q 2008. On the issue of revenue recognition, joint Board deliberations are ongoing, with a discussion paper to be issued in 4Q 2008. Finally, on the important and controversial issue of fair value accounting, FASB issued FAS 157 and the IASB issued a discussion paper. The IASB plans to issue a proposal draft in 2009, after which FASB will review FAS 157 in light of the draft.