The shares of several foreign companies are listed on the various stock exchange markets in the United States. Such companies often use sets of accounting standards that are different from the US Generally Accepted Accounting Principles (GAAP). Before the year 2007, Securities and Exchange Commission (SEC) mandated such companies to include a reconciliation of their results to GAAP. This reconciliation was included on Form 20-F. This rule, when combined with other additional regulations, was quite expensive for foreign companies. This contributed to the increased number of delisting of such companies. In order to reduce this number, SEC relented on this requirement. The SEC allowed foreign entities to prepare and submit their financial statements without the reconciliation to the US GAAP. This new rule was widely accepted because it granted foreign companies freedom to choose between the US GAAP and the English version of International Financial Reporting Standards (IFRS). The new rules did not apply to the US companies that were trading on the US exchange markets. The companies based in the US argued that they should also be granted the freedom to choose between the US GAAP and IFRS just like in the case of foreign companies. This argument created the need to converge the US GAAP and IFRS. In 2008, SEC came up with a proposal of convergence that would allow US companies to use either of the two accounting standards. This proposal envisioned that the US based companies will be able to use IFRS in the year 2015.
The attempt to adopt IFRS in the US was not without detractors. The first criticism was that the US GAAP and IFRS were not comparable. The critics pointed out that the guidance provided by the two sets of standards for some industries such as insurance were not matching. The second objection was based on the cost of changing from one set of standards to another. The cost of shifting from the US GAAP to IFRS was estimated to be thirty-two million dollars. This cost is substantial and has a potential of reducing the bottom line of such companies. The third criticism was that the board setting IFRS, that is, the IASB was not independent. The critics argued that the lack of independence led to the creation of standards that had lower quality than the US GAAP. Various critics are of the opinion that IFRS is of lower quality than the US GAAP. Therefore, the convergence of the two standards will lower the quality of US GAAP. The fourth criticism was that the two sets of accounting standards were not similar enough to permit the required reconciliation. There was a concern that numerous differences existed in the two accounting standards, especially with regard to auditing and implementation processes. Finally, some critics pointed out that IFRS is not widely accepted across the world. These critics argue that even in some countries that have adopted this standard, IFRS is used in name only. For instance, France has adopted IFRS yet companies in that region have continued to use the accounting standards of their nations when preparing the financial statements.
The international community was displeased with the indecisive state of the US SEC. The institution indicated that it had not made a policy decision on whether to integrate IFRS into the financial reporting system of the US. Before the release of the staff report, some stakeholders were becoming intolerant of the long wait. After the release of the report, organizations such as IFRS Foundation regretted the feedback given by the US SEC. The Foundation indicated that the period of convergence was almost ending and there was a need for all entities that are setting standards to come together to facilitate the convergence. Countries such as Europe provided messages that sounded like a threat. A representative of EU indicated that the indecisive state of the US created uncertainty and impeded IFRS from becoming a worldwide set of accounting standards. The remarks issued by both the SEC and Financial Accounting and Standards Board (FASB) showed that the possibility of convergence collapsed. Thus, based on the comments provided by the representative of various bodies, it can be noted that the international community was disappointed by the position taken by SEC considering the fact that time for convergence was running out.
At the moment, the United States is in between working with the international community towards the goal of achieving a common accounting standards and retaining its own set of standard. FASB acknowledges the fact that it is important to develop a common high-quality standard that can be used across the globe. Further, the two standard setting bodies have been working together to facilitate the process of convergence. Currently, the two boards are working on joint projects that aim at merging the two sets of standards. Despite all the joint efforts, the US has a distinct program that seeks to handle issues that are of concern to the various players in the economy. The program is based on the feedback received from the stakeholders. Thus, the US is committed to creating a joint universal set of accounting standards. However, before this is satisfactorily achieved, the country is still using its own set of the accounting standard.
The convergence efforts that were undertaken by FASB and IASB have generated a number of benefits. First, there have been several research studies and analysis that have been carried out since the process started. The findings have contributed to improving the quality of the process. Secondly, from an academic point of view, the joint efforts have indicated that there is no winner in the debate of the rule-based versus principles-based set of accounting standards. However, the convergence reveals that a more precise financial system is required in the US than what IFRS can offer. The third benefit is that a more productive interaction was experienced between FASB and IASB than before. Further, the joint convergence project has attracted several productive criticisms than what had been experienced before. This has also contributed to improving the quality of the standards. Further, it eliminated the expected automatic adoption of IFRS in the US. This could have been quite costly for the US based companies. Also, there is evidence that indicates that training on IFRS has been introduced in various learning institutions in the US. The training is vital because it shows that the US is preparing to eventually adopt IFRS. Even though some groups are disappointed with the speed of convergence, the benefits that have been achieved are quite substantial and there is hope that the ultimate goal of having one set of accounting standard across the globe will be achieved.