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Golden Says Comparability Is Replacing Convergence

The FASB is increasing its outreach to foreign standard-setters and hopes to help set up an informal network of accounting bodies to take up some of the international work that had once been part of the effort to converge U.S. GAAP and IFRS. The FASB hopes the new model of multilateral cooperation will help companies from different markets arrive at similar answers to accounting questions in spite of the local differences.

FASB Chairman Russell Golden said the accounting board is increasing its efforts to reach out to foreign standard-setters and is helping to set up an informal network of accounting bodies as part of the outreach.

Golden would like the group, which doesn’t have a name, to hold its first meeting by the end of the year.

The FASB’s support for the network is the latest in a series of signs that it’s carving out a new role internationally, now that the decade-long effort to converge U.S. GAAP and IFRS is concluding well short of complete convergence.

“We believe that this new model of multilateral cooperation among the national standard-setters in major capital markets would recognize that the ‘one size fits all’ model promoted by the IASB does not work in practice — as we have discovered — and that some differences in accounting standards will continue to exist from jurisdiction to jurisdiction,” Golden said on September 9, 2014, during the AICPA’s National Conference on Banks and Savings Institutions in National Harbor, Maryland. “We also believe that this collaborative network represents the best possible way to promote the development of more comparable accounting standards in nations around the world.”

Golden invited the IASB to join the body, which may operate separately from the Accounting Standards Advisory Forum (ASAF), a group the IASB formed in 2013 and the FASB belongs to. The ASAF also includes representatives from standard-setting organizations in Europe, Asia-Oceania, North and South America, and Africa.

An IASB spokesman said he couldn’t comment on Golden’s statements.

Golden’s speech to the bankers was intended to explain where the FASB is in its projects to revamp financial instruments accounting, particularly in relation to the problems the board had in its effort to write common standards with the IASB. The FASB board expects to release two major amendments to U.S. GAAP in late 2014 or early 2015. One will address the classification and measurement of financial instruments. The second deals with write-downs of loans and securities that have lost value.

The amendments make up the board’s chief response to the 2008 financial crisis and are years behind schedule. From 2009 until mid-2012, the FASB and IASB worked closely together on both standards until it became clear that U.S. banks and regulators couldn’t accept many IASB-led decisions.

The domestic banking industry has been somewhat satisfied that the FASB will produce standards suited for U.S. markets, but at the same time, bankers are disappointed about the failure to produce common standards for U.S. GAAP and IFRS, given the global nature of the crisis and the demands from political leaders, regulators, and bank regulators that the boards work together.

The formation of an international group to foster common approaches to important accounting issues is, at least in part, a substitute for international convergence.

“Had we adopted the IASB approach, it likely would have resulted in decreased loan loss reserves among U.S. financial institutions, which would have been counterintuitive to the lessons learned during the recent financial crisis,” Golden said in reference to the asset impairment standard. “Would the FASB model require capital reserves to be kept higher for longer? Yes, but we believe the FASB model best serves the interests of investors in U.S. capital markets because it better facilitates the understanding of the credit risks of loans by transparently reflecting expected credit losses on an institution’s balance sheet consistently throughout changing economic cycles.”

Golden also said FASB members were reluctant to adopt the IASB’ approach to classification and measurement of financial instruments in part because the IASB standard has yet to be fully tested in a major capital market.

Golden said the international forum should help both boards as they undertake work on other projects, including the overhaul of their conceptual frameworks, the informal guidance the boards use as a guide to standard-standing. Both boards also are in the process of revising the criteria they use to develop disclosure rules.

A source familiar with the FASB effort said the U.S. board doesn’t intend to lead the international forum.

The efforts are largely unknown to nonaccountants, but they’re greatly important to financial professionals given their effect on so many accounting decisions.

“That’s why we believe it is very important to continue to work with other standard-setters around the world to improve financial reporting and minimize differences,” Golden said.

The group will foster a common understanding of financial accounting and reporting issues in which standard-setters in the world’s major capital markets have a critical interest, Golden said. The group will “engender a deeper appreciation of the views of member states” on significant accounting issues. It will identify cultural, legal, political, and other issues in each country that can constrain the creation of more comparable accounting standards.

Network members will produce white papers on important accounting issues and work on developing common answers to standard-setting questions, Golden said. He also wants the group to work with accounting boards that aren’t members to help further international approaches to financial reporting questions.

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