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G20 Finance Ministers Urge FASB, IASB Converge Key Standards by Mid-2013 At the Latest

In the Final Communique issued today at the close of the G20 Finance Ministers and Central Bank Governors meeting which took place at the IMF in Washington, DC, the group called upon the IASB and FASB to complete their major convergence standards by the boards' stated goal of mid-2013 'at the latest' - to achieve a single set of high quality accounting standards. We have highlighted the discussion of accounting standards in the excerpt from communique, below:   

We assessed progress on the implementation of our financial regulatory reform agenda as outlined in our February 2012 Communiqué in order to deliver on our commitments looking ahead to the Los Cabos Leaders’ Summit, and reaffirmed our commitment to common global standards by pursuing the financial regulatory reform agenda according to our agreed timetable in an internationally consistent and non-discriminatory manner. We take note of the work to date by the FSB and BCBS on the modalities for extending the SIFI framework to domestic systemically important banks (D-SIBs), and look forward to the completion of this work by November 2012 and welcome the FSB progress report on strengthening the oversight and regulation of the shadow banking system to mitigate potential systemic risk and look forward to its final recommendations by end-2012. We support the work of the Working Group on FSB Capacity, Resources and Governance to put the FSB on an enduring organizational footing while preserving the strong links with the BIS and look forward to Leaders receiving the Group’s recommendations in June 2012; the work coordinated by the FSB to provide safeguards supportive of a global framework for central counterparties (CCPs) as an important element in achieving the agreed OTC derivatives reforms, so that authorities can make informed decisions on the standards and requirements of CCPs to meet by end-2012 their commitment that all standardized OTC derivatives be centrally cleared in CCPs with the appropriate safeguards; and the efforts of the IASB and FASB to achieve convergence to a globally accepted set of high quality accounting standards and urge them to meet their target of issuing standards on key convergence projects by mid-2013, at the latest, in order to achieve a single set of high quality international accounting standards. We look forward for the completion of the study, coordinated by the FSB with the IMF and the World Bank, to identify the extent to which the agreed regulatory reforms may have unintended consequences for Emerging Markets and Developing Economies. We support the work of the FSB on the global governance framework for the legal entity identifier and look forward to its recommendations in June on establishing a global LEI system. We support work on developing for consultation, internationally consistent standards on margining for non-centrally cleared OTC derivatives by June 2012. 

This week's meeting of the G20 Finance Ministers and Central Bank Governors is part of the lead-up to the  G20 Leaders Summit is set to take place in Mexico on June 18-19, 2012.
 
What Might This Mean for the SEC, FASB and IASB?
My two cents (please see the disclaimer posted on the right side of this blog): Cent one: The G20 Finance Minister's support of the FASB-IASB's extended deadline of mid-2013 for completion of their major convergence projects  - extended, in part, to provide more time for constituent study of, and feedback on, revisions to major proposals on topics ranging from revenue recognition to leasing, financial instruments, and more - could essentially buy the U.S. SEC more time in reaching a final decision on how and when to permit U.S. based public companies to use International Financial Reporting Standards published by the IASB, rather than the traditional U.S. Generally Accepted Accounting Principles published by the Financial Accounting Standards Board, at least for purposes of their SEC filings. Or, this statement of the G20 Finance Ministers could potentially be relied upon as showing geopolitical support for an extended implementation timetable by the SEC.

In related news, we find Cent Two: is the goal of 'global accounting standards' a 'single set of standards' per se, or 'equivalent standards'? Readers may recall that the European Union, based on the recommendation of an advisory group then-called the Committee of European Securities Regulators (CESR), reached a finding that of 'equivalency' with IFRS for U.S. GAAP, and a number of other 'third country' GAAPs; an important finding for non-EU based companies that list shares on exchanges in the EU, which would otherwise have to report their financial statements in IFRS for purposes of listings in those countries. The findings of 'equivalency' were based on, among other things, the status of then-equivalence between the particular third country standards with IFRS, and the commitment of the third countries to continuing their convergence programs. 

In a press release issued by the EU last week (April 12), the following was noted regarding accounting standards: 

Accounting: European Commission prolongs the equivalence mechanism in relation to third-country Generally Accepted Accounting Principles

The EU supports, along with other key trading partners (e.g., China, Japan, South Korea, etc.), the principle of a common set of worldwide accounting standards for listed companies. Thus, the Prospectus and Transparency Directives require third country issuers to prepare financial reports in accordance with International Financial Reporting Standards (IFRS) or any other standard which has been declared equivalent to IFRS. The Commission has adopted two delegated Regulations and one implementing Decision to revise and update the equivalence mechanism. These acts will be published in the Official Journal of the EU tomorrow and the Regulations shall enter into force three days later, applying retroactively from 1 January 2012. This prolongation gives more time to countries which had committed to converge or replace their Generally Accepted Accounting Principles (GAAPs) to IFRS (e.g. India) and have made important progress towards that goal. It also enables the Commission to pursue discussions with other third countries in order to encourage the use of IFRS throughout the global financial markets. In 2007 and 2008, the Commission established a mechanism to determine the equivalence of GAAPs from third countries and adopted legal measures which identified as equivalent to IFRS the US GAAPs, the Japanese GAAPs, and accepted financial statements using the GAAPs of China, Canada, India, and South Korea within the EU on a temporary basis, until 31 December 2011. The GAAPs of China, Canada, and South Korea are declared equivalent and the transitional period is prolonged as regards Indian GAAPs until 31 December 2014. The measures mean that foreign companies listed on EU markets will continue to be able to file their financial statements prepared in accordance with those GAAPs. More information: http://ec.europa.eu/internal_market/accounting/third_countries/index_en.htm
 

The EU's 'equivalency' determinations mean that non-EU-based (aka 'third countries') companies that are listed on EU exchanges can continue to report using their own countries' GAAP. As noted in the equivalency decision reached regarding U.S. GAAP, a certain level of achievement of convergence and a commitment to continue to work toward further convergence was a key consideration in the EU's reaching its 'equivalency' decision. Whether a 'single' set of standards (IFRS) - using the wording still used by the G20 (i.e., 'single') or a world of standards that are 'equivalent' to IFRS (using the EU's 'equivalency' wording, which I personally interpret as generally meaning wherein IFRS have been directly adopted or local standards have 'converged' with IFRS) and how those two ways of interpreting what a 'global' set of accounting standards are - in terms of the SEC's upcoming decision on use of IFRS by U.S. co's, and the related ongoing work of the FASB and IASB, will be interesting to watch.  

Are You Renminbi Ready?
REMINDER:
Also on the international scene, see Friday's post: Western Union! Update on China's Policy for Cross-Border Payments

Posted: 4/20/2012 7:12:34 PM by Edith Orenstein | with 0 comments
Filed under: central banks,European Commission,European Union,FEI blog,finance ministers,single set of accounting standards,single set of standards,U.S. GAAP,Western Union,CESR,convergence,equivalency,EU,FASB,G20,G-20,IASB,IFRS,IMF,renminbi,SEC,central bankers


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Edith Orenstein