The Past: Bob Herz began the discussion by sharing why the first attempt at convergence was successful: “the forces came together” meaning the markets were in the perfect position to develop a high quality uniform standard post-Enron. He explained “One of the things that came out of the series of scandals was a look at the financial reporting systems - whether it was about corporate governance, the auditors, and in some cases ‘how good are our accounting standards there were questions about the invincibility and fallibility of accounting standards – and it came at a time when the capital markets were continuing to globalize.” He also shared that the convergence was heavily supported by members of Congress and the SEC , “there was a fair amount of support of a systematic way to bring the two standards together and in the process improve accounting and reporting.”
From an international perspective, Tweedie was fueled by the international community’s annoyance of the US GAAP reconciliation that was required by the SEC. He explained however, “The reconciliation gave us the guide to determine what the big differences were.”
Using these reconciliations as their guide, for four years the two Boards worked to “converge” eight standards – but they noticed that the reconciliations were still there. However, in 2007, the SEC lifted the reconciliation and asked the two Boards to continue to converge the standards with a potential 2011 IFRS adoption date for US Filers. Tweedie recalls that they were on a road to convergence and were doing well, he explained “had it not been for the crisis, we would have got through with it.”
They both admitted that the most difficult standards to converge were Financial Instruments and Stock Options, not only because of the technical aspects of them, but from the backlash from stakeholders, and constituents.
The Present:
The relationship between the FASB and IASB isn’t nearly as close as it was pre-crisis 2008. Herz explained, “For good or for bad, the US has moved away from the [convergence] idea” even though the SEC still supports a global set of high quality standards. He continues, “In the US we have become very comfortable with the idea that we will have 2 global accounting standards, US GAAP, and if there are things in IFRS that we like, or the market likes, we will consider adopting those, but no systematic program to converge at this point…A two GAAP world from the US perspective seems to be a comfortable notion.”
Tweedie shared, “We (the convergence process) are at a low point now...the real problem is the three Cs, Cost of adoption, Change that nobody likes, and a key one is the Loss of Controls…but eventually there will be convergence”
Currently, there are three priority projects for which the boards have yet to finalize all of the technical decisions—Financial instruments, Insurance and Leases.
Another major attempt to converge was the Revenue Recognition, or Revenue from Contracts with Customers (Topic 606) and IASB’s IFRS 15. Originally written with very minor difference, this standard was considered converged. However, since its issuance, many tentative decisions seem to be pulling the standard further apart. First and foremost, the IASB may decide not to delay the effective date like the FASB has. (See FEI Daily). Other tentative decisions that are likely to be diverged are: practical expedients for completed contract, presentation of sales taxes collected from customers: gross versus net, non cash consideration, and collectability to name a few. (See Tentative Decisions)
The Future:
Herz explained that one of the only ways the convergence maybe forseeable is if the “US’s were to shrink significantly in terms of share of global GDP and capital markets, geopolitical and geo-economical may force [convergence] on us. But I don’t see it right now”
Tweedie agreed and stated “the politics will be the driving force...”, he continued “we need another Enron to push the standard setters back together. We are still in disagreement on impairment – but we just got to agree on these sorts of things. ”