US not ready for convergence

The head of the US Financial Accounting Standards Board has signalled that
continued convergence with international standards could stall, as the US is
still some way from accepting principles-based standards.

According to FASB chairman Bob Herz, the current legal and regulatory systems
in the US are not set up to cope with a big change in financial reporting, and
any alteration could spook those working with accounts.

‘I’m a believer in a principles-based system, but right now the environment
is not conducive to it,’ said Herz. ‘Principles-based accounting is hard when
you don’t have principles-based enforcement or principles-based litigation
around the system.

‘Auditors come to us clamouring for rules, largely because they fear being
second guessed,’ he added.

The SEC is planning to remove the requirements for foreign filers using IFRS
to reconcile their accounts to US GAAP, as long as sufficient progress is made
towards removing differences between the two frameworks.

But problems in the convergence process have already started to appear. A
joint project that aims to update accounting on business combinations is facing
fierce resistance from the business community and accountants.

Herz describes the project as ‘controversial’ and of proposing ‘fairly
dramatic changes’.

Last week, the ICAEW attacked the International Accounting Standards Board
over the route forward, arguing that it had ‘put forward some far-reaching
proposals without presenting any evidence of shortcomings in what we do now’.
Internal market commissioner Charlie McCreevy warned the IASB that the European
Commission would not take on board any ‘revolutionary new standards’.

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