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June 28, 2010

FASB and IASB modify convergence plan

Convergence: The modified planThe International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have reworked their convergence plan to allow for greater public consultation, while ensuring the most urgent projects are completed by June 2011.

The two boards signed a memorandum of understanding that committed to substantially converging IFRS and US GAAP in 2006.

But the project did not attract widespread public attention until the financial crisis, when banks from both the US and Europe claimed differences between the standards caused a competitive disadvantage.

The G20 responded in September 2009 by calling on the IASB and FASB to redouble their efforts to complete convergence by June 2011.

The deadline is particularly important because a number of major economies plan to adopt IFRS in 2011 and 2012, and it would be ideal for them to have a stable base of standards to start on. It is also significant because the world’s two largest economies, the US and Japan, are considering the improvement and convergence of the standards as important factors when deciding whether to adopt IFRS.


Growing concerns

In recent months financial reporting stakeholders have become increasingly concerned they would not have enough time to comment on the unprecedented number of exposure drafts the IASB and FASB would need to release during the next year to meet the June 2011 deadline. 

The boards have responded by modifying their work plan so no more than four significant exposure drafts are issued in any quarter.

In a letter to global leaders ahead of the G20 meeting in Canada this month, the boards said they have retained targeted completion dates of June 2011 or earlier for the most urgent projects (see box). The convergence projects whose completion dates have been pushed to the end of 2011 or beyond include financial statement presentation and financial instruments with characteristics of equity.

One notable feature of the progress report provided to the G20 is the absence of a commitment to achieve a converged financial instruments standard. The two boards are currently considering very different financial instruments proposals and if they cannot reach the same conclusion, they may have to develop reconciliation requirements.

US Securities and Exchange Commission (SEC) chair Mary Schapiro said the delay will not affect the SEC’s plans to decide in 2011 whether the US will adopt IFRS.

Speaking after the IASB and FASB’s announcement, Schapiro said additional time for stakeholders to provide quality feedback is “time well invested”.


Related articles

FASB and IASB delay convergence

Convergence delay won’t impact US: Schapiro

IASB and FASB told exposure draft ‘tsunami’ could damage standards


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