emphasized different aspects of the path on global accounting standards, and different views on what can constitute a 'multi-lateral approach,' with Golden calling for a "new, decentralized multi-lateral approach," and Prada praising the IASB's "inclusive, multilateral approach" and the need to maintain the IASB's gains and discourage exceptions to IFRS, in separate speeches this week in Japan and Germany, respectively.
called for "a new, decentralized multi-lateral approach" in which national standard-setters support the improvement of, and convergence with IFRS, even as they (the U.S. and potentially Japan, in particular) continue to develop and improve their own national GAAP, while Prada emphasized the IFRS Foundation's strong efforts toward inclusiveness in its own increasingly multilateral apporoach, branching out from its focus on bilateral convergence with the FASB during its first ten years.
at a gathering with stakeholders in Frankfurt, Germany on October 16 , jointly sponsored by the IFRS Foundation and the DRSC (Accounting Standards Committee of Germany), warned of the dangers of drifting from IFRS as drafted by the IASB, such as when individual nations grant "exceptions" from IFRS as part of their national endorsement process of particular standards. He alluded that permitting such exceptions could create a slippery slope which could end up inadvertently "crossing the Rubicon," resulting in a return to European accounting standards becoming many sets of standards, instead of one set of standards (IFRS), warning those who believe the European standards were preferable prior to IFRS, "nostalgia isn't what it used to be."
In contrast, Golden's references to a "multi-lateral" model for accounting standard setting from the FASB's point of view, referred to the fact that,
Some may still see some fine points (or significant points) arising from wording differences between Prada's references to IFRS as a
of global accounting standards - more specifically, Prada notes in his speech that "
Prada's emphasizes, similar to his discussion in the IFRS Foundation's 2012 annual report, that the IFRS Foundation and the IASB enter the "next chapter" in their life, "that the gains of IFRS in Europe needed to be protected." He continues, "processes can be improved, and endorsement systems can be streamlined, but the premise of Europe’s commitment to IFRS as global standards has to remain intact and undiluted ."
Among the consultative efforts the IFRS Foundation welcomes, Prada notes, is that of the draft report prepared by Phiippe Maystadt, which addresses how the European Union can provide more input to the IASB, and Prada notes the IASB supports and welcomes efforts to provide the board with more input. See EU press release dated March 19, 2013 on Mr. Maystadt's appointment. Maystadt published a Draft Report on Sept. 5, 2013, entitled, "Should IFRS Standards Be More European?" [NOTE: I have seen a version of Maystadt's raft report, but am uncertain of its authenticity or permission to post publicly, so I will refrain from linking to it at this time until I receive permission to do so. Feel free to check back to this page for any update.] Various responses to Maystadt's report, including that of ISDA, are publicly available.
At the same time, Prada cautions against allowing IFRS to devolve from a single global language to many languages, which would happen if the rules for endorsement were to become too lax or individual nations were too seek too many exceptions from IFRS as issued by the IASB.
Speaking frankly in Frankfurt, Prada said, "[S]peaking as a proud European, we must be cautious about protecting these hard-fought gains. It might seem minor to tweak the Standards for use in Europe, to better reflect European preferences, or to revise the endorsement criteria so that non-endorsement of a Standard or Interpretation becomes more likely."
Indeed, between the fact that there are many new practitioners entering the profession, both as auditors and as financial professionals in business, some may say that the IASB is not only at a "next chapter" crossroads, but more of a "Next Generation."
FASB's Golden Speaks in Japan on the Path Forward for Global Financial Reporting
Speaking in another part of the Globe last week, also on the topic of Global Accounting Standards, was FASB Chairman Russell Golden. Golden addressed a joint meeting of FEI Japan Chapter and Keidanren, the Japanese Business Federation, in Tokyo on the same day that the IFRS Foundation Chairman made his remarks in Germany highlighted above. Golden's appearance at the FEI Japan Chapter/Keidanren program followed two days of meetings between the FASB and the Accounting Standards Board of Japan (ASBJ), the fifteen such biannual meeting between FASB and the ASBJ.
Although Golden's remarks on the topic of the path forward on Global Accounting Standards took place on the same day as IFRS Foundation Chairman Prada's remarks in Frankfurt, it is fitting that Prada noted the path of being an accounting standard-setter, particularly a global accounting standard-setter, can be a bumpy one, given that Prada emphasized in his own remarks the importance of minimizing exceptions from IFRS as issued by the IASB, to keep global standards as close to one set of standards as possible, while FASB's Golden noted that the FASB, Japan's Business Accounting Council (BAC) and Keidanren hold some common perspectives that - when read side by side vis-a-vis Prada's remarks - appear to differ particularly as to a view by the FASB, Japan's BAC and Keidanren to be more flexible about the need to consider exceptions to IFRS if necessary for national policy reasons.
Referring in his speech to papers on the adoption of global accounting standards in Japan prepared by Keidanren and Japan's BAC, Golden said he saw four basic principles set forth in those papers, and noted they were consistent with the FASB's views, noting:
- It is in the best interests of the world’s major capital markets, including Japan and, I believe, the United States, to work toward a common set of global accounting standards.
- Fully participating in the standard-setting activities of the International Accounting Standards Board is an important way that we can promote this process.
- As we work toward developing more converged global standards, it is critically important that we also maintain and improve the high-quality of our national accounting standards, including JGAAP and U.S. GAAP.
- There are likely to be occasions when preserving the integrity of our national business cultures requires us to maintain some differences in national accounting standards.
These views of the Keidanren and BAC are consistent with discussions we have had at the FASB. I would go further, however, and tell you that I believe it is critically important that Japan and the United States together take a leadership role in advancing these principles throughout the world. By building a stronger relationship among our standard-setting bodies, I believe we can make this vision a reality.
Projected Completion Dates for Rev Rec, Leasing, Financial Instruments and Insurance Projects
"For the remainder of this year and next year," Golden told the group gathered at the FEI Japan Chapter - Keidanren meeting, the FASB’s top priority will be to complete our major convergence projects. We and the IASB hope to release a final standard on revenue recognition in early 2014. We plan to issue final standards on our two financial instruments projects – classification and measurement; and impairment – in 2014. A final standard on leasing should be completed in late 2014 and we will complete decisions on insurance thereafter."
SEC Decision Still to Come
Golden made note of the fact that the SEC is still to determine whether to permit the use of IFRS by U.S. registrants. He goes into a bit more detail as to his view on the future role of FASB in terms of supporting IFRS and working with the IASB and with national accounting standard setters, in particular the ASBJ, as the FASB-IASB's bi-lateral convergence program which began with the Norwalk Agreement in 2002 winds down.
He added, "We are about to enter a new environment in which we are faced with a critical decision. Like Japan, we in the United States must decide whether, and if so, how, to continue to pursue the goal of convergence – while ensuring that we address the pressing concerns of those who invest in U.S. capital markets."
"It is important to stress that the SEC decision is only partly based on the accounting standards themselves," noted Golden, "but also the infrastructure used to develop them, the way they are applied, audited and enforced, and ultimately, whether the information resulting from the entire process will provide global investors with comparable, useful information.
"Said another way," he continued, "having common standards does not necessarily lead to comparable information if the standards are inconsistently applied, audited, or enforced around the world. Over the last few years, the SEC staff has been gathering information about all of those dimensions to help the Commissioners make an informed policy decision."
As to the SEC's ultimate action, Golden noted, "We at the FASB do not know when or how the SEC may ultimately make a decision regarding the use of IFRS by domestic issuers in the United States."
Golden's Rule - Improve National GAAP While Supporting Global Standards
The FASB Chairman then laid out more detail on his view for "a path forward" for supporting the growth of global accounting standards, as FASB awaits the SEC's decision, and as the FASB winds up its bi-lateral convergence projects with the IASB and the IASB moves onto its next phase of working more multilaterally with all national standard setters, such as through the ASAF.
[W]e have been discussing a vision for a long-term, global standard-setting environment," said Golden, "in which the FASB, the IASB, the Accounting Standards Board of Japan, and other major capital market standard setters co-exist and cooperate."
He continued, "The goal would be to issue converged standards, while also addressing the specific needs of the specific capital markets for which these organizations set standards. This vision is very similar to that expressed by both the Keidanren and the BAC.
Golden described a three point plan that FASB would focus on as it moves forward, in terms of "Go
carry[ing] out its mission of improving financial reporting for U.S. capital markets while also seeking to improve and converge financial reporting internationally" :
1. Through the development of U.S. GAAP
2. By actively participating in the development of IFRS
3. By enhancing relationships and communications with the ASBJ and other national standard-setters
My two cents - please refer to the disclaimer on the right side of this blog - accounting standard setting, like securities regulation and legislation, sometimes requires a magnifying glass to read between the lines, but I sense some difference, , perhaps it is a nuance in tone if not in substance, or perhaps it is a difference in substance, between Golden's call for a "new, decentralized standard setting model" and Prada's call for support for the IASB and caution against too many exceptions lest one inadvertently "crosses the Rubicon."
Specifically, here is how Golden described his vision of a "new, decentralized standard-setting model":
To conclude, we share the broad vision outlined by the Keidanren and the BAC regarding how we can move forward together to continue to converge global accounting standards.
The FASB, the ASBJ, the IASB, and other major market standard setters should continue the process of developing the highest-quality standards for the capital markets that they serve. They also should participate, to the degree it is appropriate and feasible, in the development of high-quality standards by other standard setters for their own jurisdictions.
This would result in a new, decentralized, multi-lateral model of international standard setting that is consistent with the goal of promoting greater convergence in global financial accounting standards. In some cases, the need of the FASB, the ASBJ, and other national standard setters to serve the best interests of investors in their own capital markets may override the goal of creating completely converged accounting standards.
How different are the two "multilateral" models that Golden and Prada speak of? It appears more will be heard on this topic in coming days, weeks and months as the IASB enters its next Chapter or its next 10 years, and the FASB enters its next 40 years, both organizations, in a sense, moving onto their "next generation" and stressing the need to, above all, engage with each other while engaging with their most impacted constituents to continually improve their standards and meet their constituents' needs.
Summing up the three major points emphasised by Prada in his remarks (#1. the need to protect the gains of IFRS in Europe, #2. the fact that the work of the IASB - or any "global" standard-setter - will always be controversial, and, #3. "that the IFRS Foundation and with it the IASB are continuing to evolve, and with that evolution you will see a more holistic and inclusive approach where we work even more closely with others to support the development of the standards but also their consistent application and implementation")... the need to engage with other constituents is clearly one of the factors he emphasized and one of the factors that will be key as the IFRS Foundation and the IASB moves onto its "next chapter" as Prada refers to it in his remarks, or its "next generation". Similarly, FASB's Golden speaks of the need for such engagement in his remarks in Tokyo, detailed further below, and has made similar remarks of the need to engage as FASB moves forward into its next 40 years in his speech at the September FASB@40 conference.