LONDON, United Kingdom: The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have issued a memorandum of understanding, marking a significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards. The FASB and IASB presented the agreement to the chairs of leading national standard setters at a two-day meeting being held in London. The agreement between the FASB and IASB represents their latest commitment, following their September joint meeting, to adopt compatible, high-quality solutions to existing and future accounting issues. A copy of the memorandum is attached.
The agreement follows the decisions recently reached by both Boards to add a joint short-term convergence project to their active agendas. The joint short-term convergence project will require both Boards to use their best efforts to propose changes to U.S. and international accounting standards that reflect common solutions to certain specifically identified differences. Working within each Board’s due process procedures, the FASB and IASB expect to issue an Exposure Draft to address some, and perhaps all, of those identified differences by the latter part of 2003. The elimination of those differences, together with the commitment by both Boards to eliminate or reduce remaining differences through continued progress on joint projects and coordination of future work programs, will improve comparability of financial statements across national jurisdictions.
Robert H. Herz, Chairman of the FASB, commented, “The FASB is committed to working toward the goal of producing high-quality reporting standards worldwide to support healthy global capital markets. By working with the IASB on the short-term convergence project – as well as on longer-term issues – the chances of success are greatly improved. Our agreement provides a clear path forward for working together to achieve our common goal.”
Hailing the agreement, Sir David Tweedie, Chairman of the IASB, remarked, “This underscores another significant step in our partnership with national standard setters to reach a truly global set of accounting standards. While we recognize that there are many challenges ahead, I am extremely confident now that we can eliminate major differences between national and international standards, and by drawing on the best of U.S. GAAP, IFRSs and other national standards, the world’s capital markets will have a set of global accounting standards that investors can trust.”
About the Financial Accounting Standards Board
Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting in the United States. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information.
About the International Accounting Standards Board
The International Accounting Standards Board, based in London, began operations in 2001 taking over from the former part-time IASC founded in 1973. It is funded by contributions from the major accounting firms, private financial institutions and industrial companies throughout the world, central and development banks and other international and professional organizations. The 14 Board members (12 of whom are full-time) reside in nine countries and have a variety of functional backgrounds. The IASB is committed to developing, in the public interest, a single set of high-quality, global accounting standards that require transparent and comparable information in general purpose financial statements. In pursuit of this objective, the IASB cooperates with national accounting standard setters to achieve convergence in accounting standards around the world.
Memorandum of Understanding
The Norwalk Agreement
At their joint meeting in Norwalk, Connecticut, USA on September 18, 2002, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) each acknowledged their commitment to the development of high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting. At that meeting, both the FASB and IASB pledged to use their best efforts to (a) make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained.
To achieve compatibility, the FASB and IASB (together, the “Boards”) agree, as a matter of high priority, to:
a) undertake a short-term project aimed at removing a variety of individual differences between U.S. GAAP and International Financial Reporting Standards (IFRSs, which include International Accounting Standards, IASs);
b) remove other differences between IFRSs and U.S. GAAP that will remain at January 1, 2005, through coordination of their future work programs; that is, through the mutual undertaking of discrete, substantial projects which both Boards would address concurrently;
c) continue progress on the joint projects that they are currently undertaking; and,
d) encourage their respective interpretative bodies to coordinate their activities.
The Boards agree to commit the necessary resources to complete such a major undertaking.
The Boards agree to quickly commence deliberating differences identified for resolution in the short-term project with the objective of achieving compatibility by identifying common, high-quality solutions. Both Boards also agree to use their best efforts to issue an exposure draft of proposed changes to U.S. GAAP or IFRSs that reflect common solutions to some, and perhaps all, of the differences identified for inclusion in the short-term project during 2003.
As part of the process, the IASB will actively consult with and seek the support of other national standard setters and will present proposals to standard setters with an official liaison relationship with the IASB, as soon as is practical.
The Boards note that the intended implementation of IASB’s IFRSs in several jurisdictions on or before January 1, 2005 require that attention be paid to the timing of the effective dates of new or amended reporting requirements. The Boards’ proposed strategies will be implemented with that timing in mind.