US adoption of IFRS remains “highly uncertain”, trustee warns

US adoption of global accounting rules is “highly uncertain” and could threaten the survival of the International Accounting Standards Board, a leading board member has warned.

Tommaso Padoa-Schioppa, newly appointed chairman of the IASB trustee group, has signaled his intention to review the organisation, due in part to uncertainty surrounding US adoption of international accounting standards.

Speaking at the boards’ trustee meeting in Washington DC earlier this month, Padoa-Schioppa said the IASB’s US convergence program may end in disappointment.

“The aspiration of having global standards depends very much on the adoption of global standards by the United States and this is highly uncertain and may still give us a big disappointment in a year or so from now,” he said.

The US accounting standard setter, the Financial Accounting Standards Board (FASB), is in the midst of harmonising its accounting rules with international standards set by the IASB. The two boards have been working feverishly to converge their divergent financial instruments rules by an imposed June 2011 deadline, but have so far failed to find common ground on key concepts.

Meanwhile, the US Securities and Exchanges Commission (SEC) is also reviewing the impact of adopting international standards. Some domestic US corporations have opposed the switch, citing high convergence costs.

Padoa-Schioppa also cited European meddling as another threat, and expressed fears EU ministers might refuse to endorse standards or withhold funding.

“The EU has a number of ways which it may make its point…they may adopt or not adopt the standards. The validation process is in their hands and we know of four standards still before the EU,” he said.

“They have largely centralised the financing of the organisation so there are means of pressure that are real.”

The EU continues to postpone the adoption of accounting standard IFRS 9. The rule, borne out of the financial crisis, was overhauled by the IASB under pressure from Europe last year. Since its release, however, while nations like Australia, Brazil, Japan, New Zealand and South Africa have adopted the standard, in Europe, it has stalled.

The IASB’s funding also remains an ongoing issue. Revenues dropped last year due in part to poor foreign exchange rates but also because some US private contributors themselves faced financial difficulties.

“In a worst case scenario [these challenges] could be a real threat to the survival of the organisation as it was originally conceived,” Padoa-Schioppa said.

His review will centre around the scope, process, governance and financing of the IASB.

He said the organisation had enjoyed great success since its creation however it needed to change to survive the next ten years.

“It is indeed the time to have a broad ranging and deep review of the fundamental challenges and issues and potential changes that may be needed,” he said.

The review will run parallel to a review by the Monitoring Board – the IASB’s supreme oversight body whose members include US Securities and Exchanges Commission chairman Mary Schapiro and EU Internal Markets Commissioner Michel Barnier.

He has been a vocal critic of the IASB’s governance. In April, Barnier told the board that concerns “remain in Europe about the IASB's governance".

"There is still weak accountability…and the IASB still [displays] reluctance to acknowledge the effects of its standards on financial stability," he said at the time.

Padoa-Schioppa said there remained “nostalgics” in Europe who believe accounting rules should still be made by public bodies.

Europe handed over its accounting standard setting powers to the IASB in 2005.

Further reading:

Europe's IASB concerns voiced at global meeting

Barnier reaffirms support for convergence