As the decade-long focus on convergence winds down, the Financial Accounting Standards Board is recommitting itself to making U.S. accounting standards work for U.S. capital market needs.
In a recent speech to the National Association of State Boards of Accountancy, recently appointed Chairman Russ Golden said the 11-year convergence process should be regarded as an achievement. “Developing and preserving more comparable and converged global accounting standards will remain a critically important goal,” he said in prepared remarks. Still, the focus is turning inward. “With the impending end of the era of bi-lateral convergence, it is important that we ensure that GAAP standards remain relevant to investors and creditors in U.S. capital markets.”
Over the next year, FASB's top priority will be to wind down the major convergence projects that have consumed the board's attention for a few years -- revenue recognition, leasing, financial instruments, and insurance. Revenue recognition is expected to be complete in early 2014, Golden said, and two standards on financial instruments are expected at some point in 2014 as well. Leasing should be complete in late 2014, he said, and insurance sometime after that.
As the Securities and Exchange Commission shows no interest in moving U.S. capital markets into International Financial Reporting Standards, Golden reflected on why GAAP can and should endure. “Financial statements prepared in accordance with GAAP are clear, comparable and reliable,” he said. “They can be easily compared with the GAAP financial statements of other companies. They can be audited and verified by a third party in accordance with established standards. They ease the transition of companies from private to public status. They are universally understood by lenders and investors.”
Golden reflected on the competing pressures on FASB to promote financial reporting that enables investors and creditors to evaluate financial information consistently over time, yet promote reporting that keeps up with changes in the economic environment over time. The push for consistency “implies consistency and argues against too much change,” he said.
Yet the demand for relevance through change doesn't allow the board to stand down. “It means reducing complexity and promoting simplification. And it means evaluating the potential benefits of a new standard to determine whether they justify the standard's potential costs. Finding the right balance between maintaining comparability and increasing relevance strengthens GAAP.”