CFO.com did a report to give an update regarding the state of the FASB convergence to an across the board, no pun intended, set of accounting standards with the IASB.
“The Financial Accounting Standards Board is advocating an approach to international accounting that has been a “miserable failure” for 25 years, Ian Mackintosh, the vice chairman of the International Accounting Standards Board, said earlier this week.”
The FASB seems to be having trouble in regards to the convergence of accounting standards for three key topics: converged leasing, financial instruments, and insurance. The FASB would like the IASB to be the world benchmark for accounting standards. However, the FASB would also like to have the ability to use their own standards regarding certain accounting issues, such as the ones mentioned earlier. The old adage applies – have your cake and eat it too.
While there are a number of differences between international accounting standards (IAS) and US generally accepted accounting principles (GAAP), the accounting community generally views the international standards to be less complex, and therefore having less “wiggle room”, than GAAP.
It’s not difficult to understand why the FASB has been hesitant to move forward with the convergence. For one thing, many companies rely heavily on certain aspects of GAAP that are not included in IAS, such as LIFO inventory valuation. Companies could potentially have to completely rearrange their business models to be in line with the IAS. The FASB would most likely face the backlash from multiple US companies for that alone.
Another reason for the FASB’s hesitation in moving forward with the convergence is out of the fear in repeating history. The two of the biggest accounting scandals (in terms of dollars) in history occurred right here in the US: Enron and Worldcom. The results of the Enron and Worldcom scandals included increase of government regulation, weakening of the US dollar, and, most importantly, damaging investors’ confidence and any faith they had in corporate honesty.
The FASB and IASB have been working on the convergence for over two decades. The differences between the two set of standards are still extensive. Right now, it looks as though the convergence is a long way off.