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Premature Obituaries and Other Mixed Signals

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Asked to define “ambivalence,” one wag reportedly replied, “I suppose it’s a bit like watching your mother-in-law drive your brand new Porsche off a cliff – you’re just not sure how to feel.” Accounting observers following the long and winding road to convergence of FASB and IASB accounting standards will be forgiven for experiencing a similar degree of cognitive dissonance in recent weeks.

First came the obituary. As reported in a Singapore-based business publication, IASB Chairman Hans Hoogervorst seemed to pronounce convergence efforts, which have been ongoing for over a decade, dead during the question and answer session following a speech in late July: “The FASB decided to stick to current American practices and leave the converged position. It’s a pity. Convergence would have allowed the U.S. to make the ultimate jump to IFRS. But nobody can force it to do so; if it wants to stick with U.S. GAAP, that’s its choice. But IFRS moves on – we have a large part of the world to take care of.”

Given the glacial pace of accounting standards setting, inaction on the part of the SEC with regard to accepting IFRS-based financials from U.S. filers, and the struggles to find common ground on key accounting issues such as impairment of financial instruments, it had become clear to most that convergence would be neither easy nor quick. But until Chairman Hoogervorst’s comments, no one in a position of authority had sounded the death knell for the project.

A week or so later came the confirming evidence, as the two boards announced that the long-awaited lease accounting standards – one of the most significant of the “convergence” projects – is nearing completion, but will not be “converged.” While the FASB has elected to retain a dual model in which some leases will continue to effectively receive traditional operating lease treatment, the IASB has opted for a single model in which all lease agreements are treated as financing transactions.

But this week came word that the obituary was, after all, premature. In a speech in Johannesburg, South Africa, the vice-chair of the IASB, Ian Mackintosh, pronounced a single set of global accounting standards “desirable, achievable, and … inevitable.”

So, which is it? Is convergence dead, or is it inevitable? We don’t know. However, we note that one of the most noteworthy convergence success stories relates to valuation. In 2011, the IASB and FASB issued standards harmonizing the measurement and disclosure of fair value. IFRS 13 and ASC 820 provide a single comprehensive base of guidance for fair value measurements. As a result, while the two accounting standards do not always use fair value in the same way, they do define it in the same way. At Mercer Capital, we regularly assist clients in fair value measurements used in both IFRS and U.S. GAAP. Call one of our professionals today to see how we can help you.

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Mercer Capital monitors the latest financial reporting news relevant to CFOs and financial managers. The Financial Reporting Blog is updated weekly. Follow us on Twitter at @MercerFairValue.