FASB Tries to Align with IFRS when Possible, Golden Says
According to Chairman Russell Golden, FASB has endeavored—when possible—to align U.S. GAAP with International Financial Reporting Standards (IFRS). “We are in constant contact with IASB members and staff about projects on their research agenda, and we each share our research activities to see if we can continue progress toward improved, aligned solutions,” Golden said on May 2 at the 18th Annual Financial Reporting Conference at Baruch College in New York. Golden’s comments shadow a long-held debate within accounting circles about whether GAAP and IFRS should be converged to one global standard, spurred in part when FASB and the IASB signed a joint Memorandum of Understanding in 2006 to align a set of major accounting rules. The boards, which used to jointly redeliberate accounting standards setting topics, stopped the project after it became apparent that the United States had no intention of dropping GAAP for IFRS. Golden’s comments may, however, signal that the work of converging financial reporting globally never really stopped. FASB’s constituents said such a move would leave U.S. companies at a disadvantage because of knock-on implications, such as education, textbook, and systems changes.
Smaller Public Companies Say New Accounting Rules Pose Challenges to Automated Systems
When new accounting rules are issued, they pose problems for automated processes at smaller public companies if the necessary data has not been anticipated and built into the system, members of FASB’s Small Business Advisory Committee said on May 2. “It was said that half the world’s data was invented in the last four years–that’s probably still true,” Frank Cesario, CFO at CTI Industries Corp., said. “What it says is, ‘We’ve all come up with technologies to capture that tremendous volume of data.’ … So when we look at new accounting standards, the challenge is there are pieces of transactions that usually have to be captured differently.” The discussion has come front-and-center as FASB has raised the topic of technology in financial reporting with its advisory committees as part of the Sarbanes-Oxley Act requirement that FASB stay current within the changing environment when setting new standards. Board members have been “listening and learning” to get a grasp of the issues companies face, FASB member Harold Schroeder indicated. “The world is changing,” Schroeder said. “We want to make sure the board is on top of the technological implications of those changes.”
Proposal to Amend Financial Instruments Standards in Response to IBOR Reform Issued
In light of the reform of interest rate benchmarks, such as interbank offer rates (IBOR), multinational banks and other financial institutions can now submit comments on a proposal that would amend old and new financial instruments standards. The IASB issued the changes to eliminate uncertainty around the use of hedge accounting. Without the proposed amendments, the standard would create a level of uncertainty that “could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments,” according to an IASB summary. “This, in turn, could result in reduced usefulness of the information in the financial statements for investors.” International Financial Reporting Standards (IFRS), for example, require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform remains ongoing, uncertainty exists about when the current interest rate benchmarks will be replaced and with what interest rate. Companies have until June 17 to comment on the document, which will be finalized later this year, the board said.