This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
The SEC has promised a decision on how the IASB should be converged with the United States financial reporting system in 2011. The SEC has reported that they need more time to come to a decision, now we can expect a decision sometime in 2012. The SEC staff issued a paper on the condorsement approach which states that the FASB and the SEC should create an environment for the FASB to endorse any new standards coming from the IASB, in the meantime the FASB will continue to work with the IASB on the current convergence agenda. The FASB and the IASB indicated that they will cease their formal convergence activity once the following projects are completed: revenue recognition, leasing, financial instruments and insurance (Hoogervorst & Seidman). Neither board has been able to come to a converged consensus on many of the issues in the financial instruments project. As a result, we may see more of the "converged" solution being different accounting, with additional disclosures to get to a converged result (Hoogervorst & Seidman). It can also be expected that the final standards will dramatically affect the way we account for and report revenues, leases, and insurance.
As a reaction to the SEC statements industry leaders have started campaigning for an alternative to the convergence process. In a May 2011 staff paper, the SEC noted that different countries were taking different approaches to IFRS, some adopting IFRS without any modifications, and others endorsing most but not all of IFRS (SEC & The Office of the Chief Accountant). The staff paper suggests that the U.S. adopt aÂ condorsementÂ model that would share some characteristics of the endorsement approaches of other countries. Through condorsement, the U.S. would continue to retain a U.S. standard setter that would facilitate the transition process over a period of time. The objective would be that, at the end of this period, an American issuer compliant with US GAAP should also be able to represent that it is compliant with IFRS as issued by IASB (SEC & The Office of the Chief Accountant).
The FASB and the IASB are working on about 14 joint projects that will improve both US GAAP and IFRS, and make standards fully compatible. These projects affect major areas of financial statements. The projects will improve financial reporting information for investors while also aligning United States and international accounting standards. The projects are a very important move toward achieving a common accounting framework, a necessary step in the globalization of business and investment (US GAAP & IFRS Convergence). Below is a list of the projects that will have an effect on convergence.
Statement of comprehensive income
Fair value measurement
Balance sheet (Netting)
Financial statement presentation
Financial instruments involving equity
Emissions trading schemes
The first three projects (in bold) are considered to be the most important projects. This is due to the existing divergence of US GAAP and IFRS and the need for improvements in the standards they are meant to replace (US GAAP & IFRS Convergence). Other important projects are the consolidations and financial statement presentation. This is due to the significant implications they may have on how financial reports are interpreted and used by investors.
It has been difficult to come to a consensus on convergence because of the implications involved. The scope of these projects will affect more than accounting. Many of the standards may have significant business and operational implications. Companies will need significant lead time to analyze and implement the resulting changes in accounting standards. These standards will have the most significant effect on large companies; therefore requiring even more lead time. When tentative decisions become final, they will influence shareholder communications about the business, affect contractual agreements, and prompt a reassessment of the adequacy of systems and operations, including human and other capital resources (US GAAP & IFRS Convergence). The SEC understands these implications and is taking into consideration all factors that will be affected.
The US accounting bodies and the IASB have been taking small steps for years toward a single set of globally recognized regulations and standards. Many US companies with primarily domestic operations have seen these convergence attempts as background noise and not directly relevant to their business. That will change in 2012 as we approach the adoption of several major accounting changes, accounting bodies will face several decisions regarding how far to go in adapting U.S. GAAP to IFRS. The effect of IFRS convergence and other regulations is having a dramatic effect on the accounting profession. The changes will not only affect companies with international operations but with domestic operations as well.
It is important that convergence happens in a timely manner. The uncertainty regarding accounting standards will have an effect on future accountants. It is up to the SEC to determine an appropriate time line for IFRS implementation, and also realize that any further delay of adoption could make the SEC look uncertain and cause the agency to lose support. This is perhaps the most important accounting issue of our time because the effects will be felt by everyone and not just accountants. If there is any further delay, the results will be negative. The SEC has identified the necessary projects that must be undertaken to determine how much time is needed for adoption. A timeline needs to be presented so that companies both big and small can begin to make the changes that are necessary in order to have a successful adoption of IFRS.