The U.S. Generally Accepted Accounting Principles (GAAP) has talked about converging with the International Financial Reporting Standards (IFRS) for quite some time. However, the formal convergence project lost steam around ten years ago. Still the Chair of the Financial Accounting Standards Board (FASB), Richard Jones, assured stakeholders that convergence discussions are still regularly talked abouts. Jones spoke about this matter at a recent Financial Accounting Foundation meeting.
Working Together
Multinational companies have routinely asked for converged solutions for U.S. and international accounting rules. They often complain that it’s expensive to implement two sets of rules. Additionally, it’s difficult to compare companies that follow different accounting standards, and convergence would improve comparability globally. The FASB’s website says, “More comparable standards have the potential to reduce costs for both users and preparers of financial statements and make worldwide capital markets more efficient.”
Most countries around the world, including member states of the European Union, have adopted IFRS. And they’ve been increasingly pressuring U.S. accounting regulators to use global accounting standards.
In 2007, the Securities and Exchange Commission (SEC) allowed foreign companies to report under IFRS without reconciliation to U.S. GAAP. A year later, the SEC floated the idea of adopting IFRS as the primary financial reporting regime for U.S. companies. Then the financial crisis hit, and U.S. interest in IFRS waned.
In 2012, the SEC released a much-awaited report on IFRS in the United States. However, the report described the challenges of adopting IFRS, rather than making recommendations on whether international accounting standards should be used for domestic companies.
Current Projects
A decade later, informal meetings continue between U.S. and international accounting rulemaking bodies. FASB Chair Jones and his counterpart on the International Accounting Standards Board (IASB) meet quarterly to discuss ways to improve the quality of accounting standards used around the world and reduce differences among those standards.
Jones provided two specific examples of convergence projects currently in the works: rate regulation and government grants. The IASB proposed Exposure Draft No. 2021-1, Regulatory Assets and Regulatory Liabilities, last year to replace International Financial Reporting Standard (IFRS) 14, Regulatory Deferral Accounts. Meanwhile, the FASB published Invitation-to-Comment (ITC) No. 2022-002, Accounting for Government Grants by Business Entities: Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles, in June 2022. The FASB is currently considering comment letters it received on the ITC.
Minimizing Differences, Maximizing Value
While there might never be a one-size-fits-all global financial reporting solution, many businesses operate in more than one country. So, it’s beneficial for the standard-setting bodies to align the rules as much as possible. Doing so improves comparability and lowers compliance costs. Contact us for help implementing the appropriate standards based on where you do business.