What Is The Focus Of The Norwalk Agreement Between Iasb And The Fasb
Advice also differs on other important leasing issues, particularly when it comes to the recognition of expenses in the income statement. The FASB voted to maintain the current expense accounting model, but the IASB reverted to the previously discarded approach of preloading the tenant`s expenses for all leases, with all leases treated primarily as financing transactions. If boards fail to reach consensus on areas where there are disagreements, a fully convergent standard – or even the adoption of the joint proposal for long-term leases – is unlikely. Call it the new realism. Like Hoogervorst, FASB President Russell Golden was quick to cite the many successes of the convergence efforts that began with the 2002 Norwalk Agreement (named after the FASB headquarters in Norwalk, Connecticut). Under this agreement, the FASB and the IASB signed a Memorandum of Understanding on the convergence of accounting standards. After Cox`s departure, the outlook for IFRS utilization in the U.S. changed “significantly” to divergence, says Carr, now director of the Berkeley Research Group. “Because the SEC has the ultimate authority over the accounting we use, the sec chairman who prefers it or not has a big impact.
I think that`s one of the most important things that changed the course,” Carr says. At its core, Condorsement was a final sting to address what Carr sees as a fatal flaw on the U.S. side of the convergence plan: the price that domestic companies and auditors would have to pay to change their reporting language from GAAP to IFRS. And while the focus here was ultimately diluted to adopt a finite number of converging standards, in the early days of Cox`s advocacy, the tacit goal was “to adopt IFRS in the U.S. somehow,” he says. Convergence has proved more difficult than expected. The respective standard-setters struggled to agree on what is best for stakeholders, and the approval process took much longer than expected. Finally, the Boards of Directors focused mainly on four specific joint projects: revenue recognition, insurance, financial instruments and leasing. Insurance and financial asset projects have not produced common guidelines and boards of directors have resigned themselves to creating different standards. The FASB plans to release two significant changes on these topics by early 2015.
A FASB spokesperson explained the allocation of joint insurance and financial asset projects, saying, “If convergence standards do not represent an improvement over U.S. GAAP, we must do what we believe is in the best interest of the investors who use them.” Golden`s predecessor, Leslie Seidman, released a draft insurance accounting standard in an N DRAFT last June, just before the end of her term, about a week after the IASB released its own proposals. Both drafts showed the marked differences between the boards` approaches to insurance accounting. The objective of this project is to eliminate various differences between International Financial Reporting Standards and U.S. GAAP […].