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ICAEW focuses on the longer term, although inevitably this means assessing the impact of some important near-term issues, notably the current impasse on convergence and US adoption of IFRS. This paper is designed to raise awareness of the key issues among those concerned with preparing or using financial statements and to stimulate discussion among standard-setters, regulators and other interested parties across the globe.
In such a short paper, there are inevitably important issues and developments that are not addressed at all, or are addressed only in passing. One is the growing awareness of the need for more integrated corporate reporting.
In the midst of the global financial crisis that began in mid-2007 with the bursting of the bubble in the United States housing market, the G20 group of countries publicly endorsed the aim of establishing a single set of high-quality global accounting standards. Much has been achieved since then, with use of IFRS – the standards published by the IASB – continuing to spread across the globe. There is a growing body of evidence that as the use of IFRS has grown, financial information has become more transparent and more comparable.
Nonetheless, as 2012 draws to a close, not everything in the IFRS garden is rosy. Major convergence projects on key topics such as financial instruments and leases have begun to falter, with globally acceptable solutions still out of reach, despite concerted efforts by the standard setters.
IASB chairman Hans Hoogervorst has in recent months expressed frustration at the lack of progress being made, complaining in the context of convergence efforts of ‘dysfunctional working processes and dysfunctional decision making’ and conceding that as the IASB has ‘broken deadlines so often … nobody believes them anymore.’ He has commented that completing the leasing project will be an ‘uphill battle’ and has described as ‘deeply embarrassing’ the failure to find a workable model that would require financial assets to be impaired on an expected loss basis.
What’s more, the much-anticipated firm commitment by the SEC on the adoption of IFRS, or their incorporation into US GAAP, seems more elusive than ever. The July 2012 SEC staff paper gave no clues as to when the US would make the move to IFRS, and while the United States may be ‘well-prepared for a successful transition’ according to Mr Hoogervorst, others – such as AICPA chairman Gregory Anton – have recently warned that the ‘absolute soonest’ IFRS will be applied in the US will be in five to six years’ time.
So while some continue to argue that the momentum behind IFRS becoming a truly global set of accounting standards is irreversible, others claim that there is a danger that the coalition of countries supporting IFRS could break apart, and that, rather than moving inexorably towards a single set of accounting standards, countries could return to a world of highly fragmented national standards and national standard-setting.
It is important, however, to step back and put things into perspective. The idea of a set of global standards isn’t a new one. Indeed, the genesis of the project can be traced back to at least the 1970s, when ICAEW played a key part in the establishment of the IASB's predecessor, the IASC. Put simply, supporters of a single language of accounting should not be unduly dismayed by recent setbacks – such an ambitious international project will inevitably encounter delays and disappointments along the way.