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The Case for Global Accounting Standards

The Case for Global Accounting Standards. NASBA Annual Meeting October 28, 2008 Leslie F. Seidman, FASB Board Member. Disclaimer. The views expressed in this presentation are my own and do not represent positions of the Financial Accounting Standards Board.

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The Case for Global Accounting Standards

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  1. The Case for Global Accounting Standards NASBA Annual Meeting October 28, 2008 Leslie F. Seidman, FASB Board Member

  2. Disclaimer The views expressed in this presentation are my own and do not represent positions of the Financial Accounting Standards Board. Positions of the FASB are arrived at only after extensive due process and deliberations.

  3. International Convergence: Why? A single set of high-quality accounting standards is key to a global reporting system The rest of the world has spoken (not U.S. GAAP) Facilitates world-wide investment Reduces the cost of capital Reduces operational costs

  4. International Convergence:Major Milestones • April 2001 IASB Formed (replaced IASC) • September 2002 Norwalk Agreement • January 2005 European Union/other countries adopt IFRS • February 2006 FASB/IASB MOU • December 2007 SEC eliminates reconciliation for foreign filers • August 2007 SEC Concepts Release re: voluntary IFRS adoption • May 2008 AICPA amends rule 203 to recognize IFRS • Fall 2008 Potential SEC release on IFRS adoption • September 2008 FASB/IASB update to MOU • 2011 Other major economies (Japan, China, Korea, Canada) plan to adopt IFRS

  5. Which Standards: IFRS or U.S. GAAP? Countries adopting IFRS or a variant Countries converging toward IFRS

  6. Common IFRS vs. U.S. GAAP Differences • Optional balance sheet recognition for pension assets/liabilities • Capitalization of research and development costs • LIFO prohibited • No guidance on uncertain tax positions; other tax differences • Option to value property at FV • No leveraged lease accounting exception • Standards on securitizations are based on different principles • No netting under master netting agreements

  7. Progress to Date • Share-based Payments • Business Combinations • Non-controlling Interests • Segment Reporting • Fair Value Option • Other narrow changes

  8. September Update of MOU Joint Projects: • Conceptual Framework • Revenue Recognition* • Financial Statement Presentation* • Lease Accounting* • Liabilities and Equity* • Consolidations** • De-recognition** “Short term” projects • Income Taxes*** • Earnings per Share * Target completion dates of 2011** Initially, separate efforts but hope to converge down the road*** FASB will likely issue an ITC of proposed revision of IAS 12

  9. Other Related Projects • FASB-Only Projects: • FAS 140/FIN 46(R) • FAS 133, Hedging • FAS 5, Contingency Disclosures IASB-Only Projects: • Fair Value Measurements • Postretirement Benefits • SME Project • Nonfinancial Liabilities • Joint Ventures

  10. Not Just an Accounting Issue • Single independent accounting standard setter and interpretative body with adequate staffing and funding • No endorsement processes for accounting standards by individual governments or countries • Cooperative international regulatory, enforcement, corporate governance regimes focused on investors • High-quality auditing standards and auditor independence requirements • Training, educating and accrediting of all capital market participants

  11. FASB Recommendations Prepare a blueprint for moving U.S. to IFRS • Get relevant parties together • FASB, IASB, SEC, PCAOB, audit firms, preparers, users, academia, regulators, AICPA, NASBA, IRS, etc. • Identify financial reporting infrastructure that needs to change • Set a date for completion, with milestones • Consider implications for small, private and nonprofit organizations • FASB pursue “improve and adopt” approach • Work with IASB on areas that need improvements • FASB adopts IFRS in other areas “as is”

  12. SEC Releases on Convergence • In 2007 the SEC eliminated the requirement for Private Foreign Issuers to reconcile to U.S. GAAP if entity uses IFRS • The SEC proposing release*: • Would permit use of IFRS for some U.S. registrants, upon year ending 12/31/09 • Establishes milestones to consider requiringuse of IFRS in U.S.; decision will be made by SEC in 2011 • If milestones are met and they decide to require, earliest date is 2014, with later dates for those with smaller market caps • Proposal may suggest possible reconciliations to U.S. GAAP, at least for a period of time *Based on press release. Check www.sec.gov for more information.

  13. What Happens to FASB? • Good question! • Multi-year strategy • Very path dependent (Mandate for public companies? Gradual transition for all?) • Most countries maintain a national standard setter for local needs • IASB might want “regional” offices for large capital markets

  14. Staying Current • Best ways to stay current • www.fasb.org, www.iasb.org • Sign up for electronic Action Alert • New FASB Web cast series • Key tabs on left of home page • Project Activities • Exposure Documents • Effective Dates • Pronouncements and EITF Abstracts

  15. Questions ?

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