FSN: IFRS and US-GAAP on convergence course at last?

IFRS and US-GAAP on convergence course at last?

18th July 2005
Earlier this week at the United States-European Union summit meeting in Washington , the US and the EU jointly announced a series of undertakings designed to implement the Declaration on Enhancing Transatlantic Economic Integration and Growth. One of the undertakings is "promoting convergence of accounting standards as soon as possible".

Sadly, this is unlikely to spell the end of tortuous translations between US GAAP and IFRS in the near future. "As soon as possible" it seems is politician speak for some time in the next decade or maybe later than that!

Speaking to FSN Newswire, Ken Wild, National Audit and Technical Partner at Deloitte, gave his personal view on the announcement.

"Complete convergence is the Holy Grail," said Wild, "but I don't see us ever getting to complete convergence. You have to recognise that the US accounting profession is huge and they have had 60 years of working to a rules based system. I can't see them chucking all those books away and moving over to a principles based system. The problem is that by taking the rules away after so many years they fear that they will be worse off."

However, Wild does see the prospect of some progress over the next few years. "I expect we will see US and, say, European accounts looking quite similar within the next 10 years. There will be common ground and the results will mean the same thing even if they use different language."

It seems that there are big cultural and philosophical barriers to complete convergence of US standards with the rest of the world despite the need. For example, Charles Lee, chairman of Hong Kong Exchanges and Clearing Ltd., said this week, "The great challenge facing us today is the convergence of US GAAP and IAS."

Lee gave a strong support to the global use of International Financial Reporting Standards noting that 36% of the turnover of the Hong Kong exchange is generated by international investors who are best served by a uniform global accounting language. He said, " Hong Kong has been a firm supporter of a universal accounting regime, and has participated fully in the work of the IASB. Hong Kong financial reporting standards issued by the Hong Kong Institute of Certified Public Accountants have been fully converged with the International Accounting Standards now known as International Financial Reporting Standards since 1 January 2005. This convergence in many instances requires a change in the accounting policy of listed companies, and has led in some cases to unexpected results."

"The financial results of Hong Kong listed companies and the accounting language they use must be easily understood by investors and analysts around the globe, as well as those based in Hong Kong . A uniform accounting platform allows for the comparison of companies and their results in different jurisdictions and leads to greater confidence in the quality and value of our stocks."

But there are no fixed dates for convergence, just policy statements and political rhetoric. FSN suggests you don't throw away your thousands of spreadsheets just yet. You may need them for some time to come.

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