Acid test for convergence project

Global accounting convergence is to face an acid test in October with the
release of a proposed new standard on both sides of the Atlantic.

In the first major project of its kind, the International Accounting
Standards Board and the US standards setter FASB have combined to produce a
draft standard on acquisitions. The new rules would replace IFRS3 in Europe and
SFAS141 in the US.

But it will be the responses to the proposals, and the way they are handled,
that will determine whether a common set of global accounting standards is a
real possibility.

‘A key challenge for the IASB and FASB in working on this project is how
conflicting responses from their constituents will be handled during the
re-deliberations,’ said Mark Vaessen, head of KPMG’s IFRS group.

‘Managing the potentially conflicting priorities and views of such a diverse
group will be no mean feat. Success in this first major joint project would be
an important step for their convergence programme.’

But the designers of the proposals hailed it as a great achievement in
co-operation, and a victory for those concerned that converging with the US
would mean a move to rules-based accounting.

Sir David Tweedie, chairman of the IASB, said that the issue of the exposure
draft ‘demonstrates the ability of the IASB and FASB to work together’.

‘By focusing on fundamental principles and avoiding exceptions the proposals
aim to eliminate many of the inconsistencies in the existing guidance,’ he
added.

However, some are more sceptical about the standard.

‘For starters, it is 135 pages of principles,’ said Peter Holgate, senior
technical partner at Pricewaterhouse- Coopers. ‘It is also a bit of a puzzle
where it has come from and what it is trying to achieve. For a convergence
project, a lot of it seems to be new to both boards. You have to ask what
prompted taking it off in a new direction.’

The main changes being proposed in the standard are a requirement to measure
the business acquired at fair value and to recognise the goodwill attributable
to any non-controlling interests, rather than just the portion attributable to
the acquirer.

It is also hoped that the standard will not be the end of work by standard
setters on business combinations.

‘We see a real need for a next phase on mergers and acquisitions-related
topics,’ said Vaessen.