While the concept of unified global accounting standards enjoys broad appeal, the efforts of the
Indeed, as the two boards have held joint meetings this year the disagreements over which accounting principles to embrace have proven to be profound. Last week Reuters published an account quoting CEOS and CFOs questioning the feasibility and desirability of moving the Generally Accepted Accounting Principles (GAAP) used in the U.S. toward the International Financial Reporting Standard (IFRS) championed by IASB.
Deloitte Touche Tohmatsu Ltd., (Deloitte) which issues monthly newsletter tracking the progress of the negotiations, titled its latest “Progress continues, divergence remains.” One of the primary sticking points is the methods used for accounting for the uncertainty of cash flows expected from short-term contracts.
As the boards work on the miniature of convergence, insurers and companies across all industries are awaiting a decision by the Securities and Exchange Commission whether or not it will approve the use of IFRS. Although the decision is expected sometime later this year, the SEC has published a
Against this backdrop, Hans Hoogervorst newly minted Chairman of the IASB, spoke in China last week about the importance of converged financial reporting standards. “An important piece of the IFRS jigsaw is encouraging the United States to come on board,” Hoogervorst said, noting that IFRSs are already permitted for use by non-US companies listed on U.S. markets.
Hoogervorst said the SEC decision regarding incorporating IFRS into the U.S. financial reporting regime for US companies is of the utmost importance.
“The United States already has high quality, mature financial reporting standards,” he said. In fact, U.S. expertise has been a very positive influence on the development of IFRSs. So objections regarding the cost of transition and perceived loss of sovereignty must be handled in a sensitive manner. Difficult as the decision may be, it is hard to imagine the possibility of the United States not taking a positive decision. U.S. investors invest globally and U.S. companies seek international capital, and it is in the economic interest of the U.S. to adopt IFRSs.”
Hoogervorst noted that as a signatory to G20 communiqués, the U.S. has repeatedly expressed its support for global accounting standards.
“But the main thing is this: if you believe in a global language for financial reporting, then IFRSs are the only possibility,” he said. “I am convinced that the United States will want to maintain its position of leadership in international financial reporting, and therefore it is hard to fathom a negative decision on the part of the SEC.”
