22nd July 2014
The chances of full adoption of International Financial Reporting Standards (IFRS) by the US are becoming less likely, according to a new report from Fitch Ratings. It claims the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), which administers IFRS, are moving away from full convergence of their standards.
Some progress has been made, as the two standards setting bodies recently issued a converged standard on the recognition of revenue from contracts with customers.
However, Fitch notes that three joint, or formerly joint, FASB/IASB projects on financial instruments, insurance, and lease contracts remain outstanding.
In its report, Scrutinizing Topical Accounting Issues (Fifth Annual Edition - IASB, FASB: Quietly Throwing in the Towel), the agency points out that a one-size-fits-all accounting approach for financial instruments creates many problems. There are differences in financial products between US institutions and those following IFRS, as well as differences in application.
Speaking in May, IASB chairman Hans Hoogervorst was hopeful that the two boards could agree a converged leases standard this year.
“While we have reached agreement with the FASB that most leases need to be put on the balance sheet, we have less agreement about how the lease liability should be run off in the income statement,” he said. “I will not bore you with the details, but more work needs to be done. In the next couple of months we should be able to finalise our work.”
With regards to insurance convergence, Fitch noted a number of concerns that the proposals would see insurers and non-insuring issuers caught in the net.
In respect of the successful completion of the FASB/IASB joint project on revenue recognition, FASB chairman Russell Golden hailed it at the time as a “milestone” for the two regulatory bodies.
“It will eliminate a major source of inconsistency in GAAP, which currently consists of numerous disparate, industry-specific pieces of revenue recognition guidance,” he explained
US public companies using GAAP will have to apply the standard for annual reporting periods beginning after December 15th, 2016. For private companies the changeover happens a year later.