The IASB (International Accounting Standards Board) appears to have abandoned its previously stated goal of having the U.S. on board the convergence effort. This week, the IASB said that it was no longer interested in accounting convergence with the US as “an objective in itself.”
The IASB has had athat goal of a “single high-quality accounting standard”; the G20 has recently supported this goal.
Adoption of IFRS by the US and the international convergence goal has become increasingly mired in politics. As well, governance issues have come to the fore recently, with the U.S. having doubts about joining a structure that potentially gives control of accounting standards over to what could be a “United Nations-like” structure whereby anti-U.S. forces could join together to adapt IFRS to meet European or Asian political whims.
The IASB’s oversight board has stated following a review of its constitution that it would “emphasize that convergence is a strategy aimed at promoting and facilitating the adoption of IFRS, but it is not an objective by itself”.
The Securities and Exchange Commission, which oversees the US standard setter, is due this year to give its view on convergence, having delayed making a statement twice last year. The loss of US sovereignty that would come with a move to IFRS is a crucial concern, say experts.
Politicians in the EU put heavy pressure on the IASB last year to accelerate reform of its fair value or mark-to-market rule to ease pressure on banks that have to price assets at depressed going rates. The IASB has also been criticized for being aloof and not listening enough to policymaker concerns about financial stability when it comes to drafting rules.
It’s possible that the IASB has adopted this stance to reassure critics who fear convergence with the U.S. at any cost will result in bad standards—a race to the bottom. However in many cases, for example Business Combinations and Financial Instruments, the U.S. has been seen to have more highly principled positions than IFRS.
The IASB also stated that their rules will be based on "clearly articulated principles”—a notice to politicians that principles cannot be messed with.
The IASB also changed its constitution so that:
- All rule changes must undergo due process and a new emergency procedure is introduced for accelerating reforms.
- Reform can only be accelerated in exceptional circumstances with approval of at least 75 percent of the IASB's trustees.
- There will be three-yearly public consultations on the board's technical work as part of efforts to become more accountable.
- The board will also listen to a broader range of stakeholders before changing rules.