US GAAP IFRS Convergence

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According to the research findings over the past 15 years, many accounting controversies and scandals have caused financial turmoil and resulted in the bankruptcy of several major firms. In response to these events, the IASB (International Accounting Standards Board) began developing the IFRS (International Financial Reporting Standards) to provide transparency and comparability for investors across the world. Today, more than 113 countries have adopted the IFRS or are in the process of converging to the standard. While countries such as Canada adopted the IFRS as early as 2011, the United States has maintained that transition from the US GAAP (Generally Accepted Accounting Principles) to the globally accepted IFRS will require more time. The US GAAP is the accounting standard followed by all companies registered in the United States. Doherty estimates that the US will not be able to adopt the IFRS completely before 2015. As a result, both the FASB (Federal Accounting Standards Board of the US) and the IASB have been working to achieve convergence between the two standards. However, this convergence exercise has been ongoing for several years as related agencies including the FASB, IASB, SEC and the general industry debate on the pros and cons of specific rules and regulations. The first step towards achieving convergence between the US GAAP and IFRS was initiated by the Norwalk Agreement in 2002, under which both governing bodies pledged their commitment towards the goal of convergence and agreed to realize it by the year 2008. The boards met once again in 2008 to discuss outstanding milestones and agreed to fulfill them by 2011. Both organizations planned to achieve this through joint projects that would help define and establish a set of principle-based standards (Nobes and Parker, 2010). Achieving these objectives, within the stipulated time period, has however not been possible, owing to a number of bottlenecks and shortcomings on the part of both the IASB and the FASB. For example, both parties realized during 2010 that they would be unable to resolve all outstanding issues by 2011 (Brands, 2011). In response, they decided to prioritize all such projects based on their relative importance. Despite ensuring quicker resolution of these urgent issues, many prioritized projects such as ‘Financial Instruments’ and ‘Revenue Recognition’ are yet to be resolved. As a result, other ‘low-priority’ projects like ‘Income Taxes’, ‘Financial Statement Presentation’ and ‘Liabilities’ are unlikely to be resolved in the near future (Bruce, 2010). Much of the delay can be attributed to the overwhelming and diverse nature of public feedback, received in the form of exposure drafts, which need to be thoroughly examined and analyzed to determine the most appropriate standard. The delay is further exacerbated, as the boards then have to prepare subsequent drafts after taking all public feedback into consideration and re-expose them for further public scrutiny. Most recently, the FASB and IASB announced that they would re-expose their latest drafts on revenue and leases. Based on their expected date of publication and comments from interested parties, the effective date for both standards is unlikely to be set any earlier than 2015 (Jamal, 2010). Thus, it is evident that despite considerable planning it has been impossible to prevent unavoidable delays in the early adoption of a common accounting standard. Hail, Leuz and Wysocki (2010a) blame the IASB and the FASB for ignoring due diligence and instead focusing their efforts towards meeting the deadline. He criticizes both rule-setting bodies for setting highly optimistic targets instead of