FASB says IFRS is for less developed financial reporting systems

The FASB’s criticism is buried inside a couple of hundreds of pages of dense accounting proposals, but it is unusually direct and clear:

What may be considered an improvement in jurisdictions with less developed financial reporting systems applying International Financial Reporting Standards (IFRS) may not be considered an improvement in the United States.

This is part of its description of why the FASB is putting aside its convergence project with IASB and is pushing ahead on its own on a new accounting standard for financial instruments. The IASB’s description of the divergence is more muted:

However, the ... efforts [of the FASB and IASB] to achieve a common and improved financial instruments standard have been complicated by the establishment of different project timetables to respond to their respective stakeholder groups in the light of the financial crisis.

The stumbling block in improving the accounting for financial instruments is not technical but political. The key ideas for reform were put forth in a report ten years ago by a Joint Working Group consisting of representatives from the FASB and IASB as well as standard setters from twelve other countries (Joint Working Group of Standard Setters, “Recommendations on Accounting for Financial Instruments and Similar Items”, FASB, Financial Accounting Series, No. 215-A December 22, 2000).

From there we have progressed to the pot calling the kettle black. The global financial crisis has not been good for the reputation of either the FASB or the IASB. Both have appeared vulnerable to pressure from the politicians and lobbying by the big banks.

Posted at 8:10 pm IST on Wed, 2 Jun 2010         permanent link

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