Accounting ‘condorsement’

It’s been over a decade now that governments worldwide set out what was, in retrospect, an ambitious project: convergence of international accounting standards. By harmonising the patchwork of national standards, investors, fund managers and chief financial officers could then share company financial statements seamlessly across borders.

Ten years on, much progress has been made, but the more prickly differences between sovereigns are proving difficult to overcome. The International Accounting Standards Board (IASB), representing much of the world community, is currently undergoing a multiyear “convergence project”  with its US counterpart, the Financial Accounting Standards Board (FASB), to iron out those differences. It is hoped that if the US fully concedes its standards to an international body that other, less powerful economies, will fall in line. 

Unfortunately that wholehearted adoption seems unlikely. The US for its part has been paying lip-service to the convergence goal but is in actuality signaling an “endorsement” approach of international standards. So instead of a wholesale adoption, sources say, the US envisions its Securities & Exchange Commission working alongside the IASB in finding common ground, all the while reserving the right to tweak the rules as they see fit. Accountants have cleverly described the US position as a “condorsement”. 

In the coming weeks the SEC is expected to publish a long awaited report on what the US “condorsement” approach will look like in practice, but some say an election year will cause distraction. If the US continues to prolong its decision on the matter (policy guidance from the SEC was expected by the end of last year), then it increases the risk of other countries feeling entitled to do the same with respect to their own national standards. 

The SEC was not able to respond to a request for comment by press time, but its officials have said publicly they expect disagreements with IASB to be rare. That will hopefully be the case, but if not, much of the benefit in a single set of standards seems lost. For fund managers and CFOs hoping to easily review target company financial numbers on a like for like basis across borders, that would be a shame.