From the Chairman's Desk
By Russell G. Golden, FASB Chairman

In the past six months, it has become increasingly clear that the United States is unlikely to adopt International Financial Reporting Standards, or offer U.S. public companies the option to use IFRS when they file their financial statements with the Securities and Exchange Commission.

In May, SEC Chief Accountant James Schnurr told an audience at an accounting conference at Baruch College that “there is virtually no support to have the SEC mandate IFRS for all registrants.” He added, “There is little support for the SEC to provide an option allowing domestic companies to prepare their financial statements under IFRS.” Based on what I hear from stakeholders, I agree with that assessment.

Perhaps the most important driver of this development is the increased recognition among U.S. stakeholders that legal, regulatory, and cultural differences among and between jurisdictions are likely to result in at least some variation in the way that accounting standards are written, applied in practice and enforced. In short, it has become clear that one size does not fit all.
We remain fully committed to the long-term, aspirational goal of developing global accounting standards that have the fewest possible differences.

That said, we at the FASB continue to believe that global accounting standards should be as comparable as possible—and we remain fully committed to the long-term, aspirational goal of developing global accounting standards that have the fewest possible differences. Making standards more comparable will:
  • Provide important benefits to financial statement users, preparers, and auditors
  • Make it easier for investors, lenders and others to most efficiently and rationally allocate their capital
  • Reduce costs for those who prepare and audit financial statements.
The future of global standard setting—and how the FASB and other standard setters can continue to work together to make global standards more comparable—was the focus of a recent conference, sponsored by the European Commission, in which I had the opportunity to participate.

Held in Riga, Latvia in late June, the thought-provoking gathering included representatives of the International Financial Reporting Standards Foundation (IFRSF), the parent of the International Accounting Standards Board (IASB); the Accounting Standards Board of Japan (ASBJ); the European Financial Reporting Advisory Group (EFRAG); the European Accounting Association (EAA); the European Commission (EC); and many other organizations.

As most of you know, the FASB and the IASB began an effort to make global accounting standards more comparable back in 2002, with the signing of the Norwalk Agreement. In that agreement, the Boards pledged their “commitment to the development of high-quality, compatible” accounting standards, and to develop “common solutions” to accounting issues.

We believe that the work that the two Boards have accomplished since they began collaborating represents major progress toward that goal.

To date, the FASB and the IASB have converged their views on two foundational chapters of the Conceptual Framework for standard-setting and on major standards covering revenue recognition, business combinations, non-controlling interests, stock compensation, and fair value measurements.
The Boards have also have produced standards that converge views on borrowing costs, segment reporting, nonmonetary exchanges, inventory accounting, joint ventures, and accounting changes.

Even in areas where we continue to have some differences – leasing and credit impairment, for example—it is important to note that we have agreed on key principles:
  • Most lease obligations should be reflected on the balance sheet.
  • Impairments should be based on expected losses rather than incurred losses.
I think that those significant accomplishments often are overlooked.

As we move toward the conclusion of our final joint projects, on leases and impairment, I think that it is important for the FASB’s stakeholders to understand how we plan to continue to work with the IASB —and other standard setters—to increase the comparability of global accounting standards.

The best way to develop more comparable global standards is through a broad-based, inclusive, collaborative effort.
In our view, the best way to develop more comparable global standards is through a broad-based, inclusive, collaborative effort in which national standard setters from jurisdictions comprising the world’s major capital markets play an important role—along with the IASB.

To that end, the FASB has developed a three-pronged strategy for continuing to improve global accounting standards and make them more comparable:
  • Continue to develop high quality GAAP standards
  • Actively participate in the development of International Financial Reporting Standards (IFRS)
  • Enhance relationships and communications with other national standards setters.
Some have raised the question of why the FASB believes it important to work with standard setters other than the IASB. As you know, we have been meeting occasionally with national standard setters including those in the United Kingdom, Germany, Canada, and Japan—in addition to the IASB—to discuss areas in which we might work together to develop more comparable standards. We also are building relationships with national standard setters in Australia, China, France, Italy, and Korea with the same objective.
We want to work toward the goal of developing more comparable standards that are truly global—and not simply international.

We have done this because we want to work toward the goal of developing more comparable standards that are truly global—and not simply international.

Many jurisdictions around the world have adopted the international standards developed by the IASB—known appropriately as International Financial Reporting Standards.

But some countries that are home to major capital markets—Japan is one example—continue to permit businesses to choose among a variety of approaches to accounting, including distinct national versions of generally accepted accounting principles. In Japan, companies may file financial reports using IFRS, U.S. GAAP, Japanese GAAP, or Japanese Modified International Standards. For that reason, we believe it is important for the FASB to continue a dialogue on important accounting issues with other national standard setters, in addition to the IASB.

As the FASB continues to update its agenda, and as the IASB initiates its agenda consultation later this year, it is important for both Boards (as well as other national standards setters) to continue to evaluate existing differences between GAAP (and the standards of other national standards setters) and IFRS. The challenge will be to identify potential ways of bringing them closer together, while maintaining and improving the high quality of our own national accounting standards.

At the same time, we will continue to work with other standard setters with the goal of reducing differences among accounting standards around the world, all the while making sure that we first consider the best interest of those who participate in U.S. capital markets or who rely on the use of GAAP as established by the FASB outside the United States.

I welcome your thoughts on how we can best accomplish that objective.