The convergence of accounting standards refers to the goal of
establishing a single set of accounting standards that will be used
internationally. Convergence in some form has been taking place for
several decades, and efforts today include projects that aim to
reduce the differences between accounting standards.
Convergence is driven by several factors, including the belief that
having a single set of accounting requirements would increase the
comparability of different entities' accounting numbers, which will
contribute to the flow of international investment and benefit a
variety of stakeholders. Criticisms of convergence include its
cost and pace, and the idea that the link between convergence and
comparability may not be strong.
1.1 European Union
1.2 United Kingdom
1.3 United States
3.1 Nature of standards
4.1 1950s and 1960s
4.2 1970s and 1990s
The international convergence of accounting standards refers to the
goal of establishing a single set of high-quality accounting standards
to be used internationally, and the efforts of standard-setters
towards achieving that goal. Convergence is taking place in various
countries, with over 100 countries having made public commitments
supporting convergence towards the International Financial Reporting
Standards (IFRS). Efforts towards convergence include projects that
aim to improve the respective accounting standards, and those that aim
to reduce the differences between them.
European Union (EU), the
European parliament passed a
regulation in July 2002 requiring companies listed in EU based stock
exchanges to prepare their consolidated financial statements in
accordance with the IFRS from 2005. Countries within the EU were
allowed to make IFRS adoption optional for unlisted companies and for
unconsolidated holding company financial statements, and were allowed
to make several exceptions to IFRS adoption in 2005, for example for
companies whose only listed securities were debt securities.
In the United Kingdom, the IFRS was adopted beginning 2005, and, as of
2011, public companies are required to use the IFRS for their
consolidated accounts. Other companies are also allowed to use the
IFRS, but most have chosen not to do so, and continue to use the UK
accounting standards largely developed prior to 2005. Companies deemed
small under the UK Companies Act are allowed to use the Financial
Reporting Standard for Smaller Entities (FRSSE).
For medium-sized entities that are not public companies, the
Accounting Standards Board has proposed replacing the UK's generally
accepted accounting principles (UK GAAP) with the Financial Reporting
Standard for Medium-sized Entities (FRSME), which is based on the IFRS
for Small and Medium-sized Entities.
In the United States, the Financial
Accounting Standards Board (FASB)
is working with the International
Accounting Standards Board (IASB) to
reduce or eliminate the differences between
United States Generally
Accounting Principles (US GAAP) and the IFRS, in
particular according to the convergence programme laid out by a 2006
memorandum of understanding, which was updated in 2008.
Short-term projects towards convergence between
US GAAP and the IFRS
involve the amendment of one of the boards' standards to better align
them with the other board's, jointly issuing new standards. Some
short-term projects and the corresponding actions taken are listed
Segment reporting: a new standard, IFRS 8 Segment Reporting, was
issued in 2006.
Fair value option:
US GAAP was amended to include the fair value
option in 2007.
Joint ventures: IFRS 11 Joint Arrangements was issued in 2011.
Income tax: A joint exposure draft was published in 2009.
An update to the memorandum of understanding in 2008 introduced
long-term convergence projects, including the following.
Derecognition: both boards issued amendments to their accounting
Fair value measurement: FASB Statement No. 257 and
IFRS 13 were issued
Financial instruments with the characteristics of equity: a joint
discussion paper was released.
Revenue recognition: the boards issued joint proposals in 2010.
In a joint report published in 2012, the IASB and FASB stated that
most of the short-term projects outlined in the memorandum of
understanding had been completed, and that greater priority was now
being placed on long-term projects.
Motivations for convergence include the belief that it will result in
increased comparability between financial statements, which will
benefit a variety of stakeholders. For example, the FASB believes that
"investors, companies, auditors, and other participants in the U.S.
financial reporting system" will benefit from converged standards
because it will result in increased comparability between the
financial statements of different firms.
A 2008 report by
PricewaterhouseCoopers (PwC) stated that convergence
of accounting standards would contribute to the flow of international
investment and benefit "all capital markets stakeholders" because it:
renders international investments more comparable to investors;
reduces the cost of complying with accounting requirements for global
potentially establishes a more transparent accounting system with
reduces "operational challenges" for accounting firms; and
gives standard-setters the opportunity to "improve the reporting
Additionally, a survey conducted by the International Federation of
Accountants found that 89% of accounting profession leaders who
responded expressed that convergence was either very important or
important for economic growth for their respective countries.
The goal of and various proposed steps to achieve convergence of
accounting standards has been criticised by various individuals and
organizations. For example, in 2006 senior partners at
PricewaterhouseCoopers (PwC) called for convergence to be "shelved
indefinitely" in a draft paper, calling for the IASB to focus instead
on improving its own set of standards.
In particular, Shyam Sunder of the
Yale School of Management
Yale School of Management has
called the link between convergence and comparability "overblown",
while the cost and pace of adoption have been cited as the most common
criticism of the SEC's 2008 convergence roadmap, which set
milestones that potentially lead to mandatory adoption of IFRS in
Nature of standards
Other criticisms center around the nature of the converged standards.
For example, some critics are concerned that convergence will increase
the use of fair value accounting.
Other critics have also respectively cited shortcomings with
rules-based and principles-based standards as reasons.
Principles-based standards allow for "different interpretations for
similar transactions", and have also been described as "less
precise", while rules-based standards contain more exceptions
and use bright-line rules and specific details to deal with "as many
potential contingencies as possible". The above-mentioned PwC
senior partners expressed that convergence will lead to an accounting
system that is too rules-based for non-US listed companies, while
other critics conversely criticize the principles-based nature of the
IFRS as making it difficult for preparers of financial statements to
defend against litigation.
1950s and 1960s
The idea of convergence has roots in the 1950s, and was a response to
greater economic integration and international capital flows after
World War II
World War II . Before the 1990s, convergence took the form of
harmonization, the reduction of differences between the various
accounting standards used internationally.
At the 8th International Congress of Accountants hosted by the
American Institute of Certified Public Accountants
American Institute of Certified Public Accountants in 1962, many
participants expressed the need for the development of accounting
standards on an international basis; in the same year the AICPA
reactivated the Committee on International Relations, that aimed to
improve cooperation among accountants globally.
1970s and 1990s
Accounting Standards Committee (IASC), the
predecessor to the International
Accounting Standards Board (IASB) was
established in 1973 with the goal of developing accounting standards
and promoting them internationally; by 1987 the IASC had issued 25
standards, and by the late 1980s there was "worldwide interest" in the
need for convergence.
In 1991 the FASB formally set out the goal of developing an
internationally used set of accounting standards, and in subsequent
years the FASB and IASC undertook various projects to lay the
groundwork for convergence. In 1996, the National Securities Markets
Improvement Act became law; the act expressed support for convergence
efforts and required the SEC to report to congress on progress towards
The IASC was reconstituted into the IASB in 2001, and the FASB and
IASB began working towards convergence in 2002, expressing their
commitment to convergence in the Norwalk agreement and pledging to
make their respective standards "compatible as soon as is practicable"
and to maintain compatibility by coordinating future programs. In
European Union (EU), the
European parliament passed a regulation
in July 2002 requiring companies listed in the EU to prepare their
consolidated financial statements in accordance with the IFRS from
The IASB and FASB signed a memorandum of understanding in 2006 which
laid guidelines on their convergence projects and set short-term goals
such as to issue converged standards on business combinations by
2008. Work towards the goals were reviewed in 2008, and a progress
report published that also set out subsequent steps for each
convergence topic. The FASB and IASB met again in 2009 and agreed
to "intensify their efforts" in working towards the goals of the
memorandum of understanding, while laying down future plans and
Convergence between the IFRS and
US GAAP appeared to stall in 2012,
with the IASB suggesting that it would no longer seek to converge with
the US GAAP. In 2013, fifteen of the largest banks in the United
States, including Bank of America Corporation, Capital One Financial
Corporation, Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley
and Wells Fargo & Company, wrote a letter to the chairmen of FASB
and the IASB encouraging the boards to resolve their differences over
the accounting standards for credit losses.
By 2013, over 100 jurisdictions required the use of IFRS for all or
most publicly accountable entities in their capital markets, and 115
jurisdictions had made public commitments supporting the convergence
of accounting standards.
^ a b c d e f g FASB, 2012. International Convergence of Accounting
Standards—Overview. Retrieved on April 27, 2012.
^ a b c d e f FASB. International Convergence of Accounting
Standards—A Brief History. Retrieved on April 30, 2012.
^ a b c d AICPA, 2008. Convergence with International Accounting
Standards. Retrieved on April 27, 2012.
^ a b PricewaterhouseCoopers, 2007. ViewPoint – April 2007.
Retrieved May 1, 2012.
^ a b American Institute of Certified Public Accountants, 2009. Where
Will the SEC Take the IFRS Roadmap? An AICPA Analysis of Comment
Letters on the SEC's Proposal. Retrieved on April 30, 2012.
^ a b Sunder S, 2011. IFRS Monopoly: The Pied Piper of Financial
Reporting. Retrieved on April 30, 2012.
^ a b "Analysis of the IFRS jurisdictional profiles". IFRS Foundation.
2013. Retrieved 13 January 2014.
^ a b "Worldwide adoption of IFRS". ICAEW. 2014. Retrieved 12 January
^ a b c "United Kingdom". ISAPlus. Deloitte Global Services Limited.
2014. Retrieved 12 January 2014.
^ "Future of financial reporting in the UK and Ireland" (PDF). ACCA.
April 2011. Retrieved 12 January 2014.
^ "How will moving from UK GAAP to the FRSME from July 2013 impact on
my company's accounts?" (PDF). Grant Thornton UK LLP. 2010. Retrieved
12 January 2014.
^ a b c d IASB & FASB, 2012. IASB-FASB Update Report to the FSB
Accounting Convergence. Retrieved on May 2, 2012.
^ a b c Jopson B, 2006. PwC calls for convergence to be shelved.
Retrieved on April 30, 2012.
^ Securities and Exchange Commission, 2008. Roadmap for the potential
use of financial statements prepared in according with international
financial reporting standards by U.S. issuers. Retrieved on April 30,
^ a b Forgeas R, 2008. Is IFRS That Different From U.S. GAAP?
Retrieved on April 30, 2012.
^ Agoglia C, Doupnik T, Tsakumis G, 2010. Principles-Based Versus
Accounting Standards: The Influence of Standard Precision
and Audit Committee Strength on Financial Reporting Decisions.
Retrieved on April 30, 2012.
^ Shortridge R, Myring M, 2009. Defining Principles-Based Accounting
Standards. Retrieved on April 30, 2012.
^ Forgeas R, 2010. Are Critics Against the Adoption of IFRS So
Compelling?. Retrieved on April 30, 2012.
^ FASB, 2006. A Roadmap for Convergence between IFRSs and US
GAAP—2006-2008 Memorandum of Understanding between the FASB and the
IASB. Retrieved on April 27, 2012.
^ FASB, 2008. Completing the February 2006 Memorandum of
Understanding: A progress report and timetable for completion.
Retrieved on April 27, 2012.
^ "Convergence of IFRS and
US GAAP Is Not Dead, Just Dormant". CFO
Insight. 2012-12-13. Retrieved 2012-12-18.
^ Cohn, Michael (14 May 2013). "Banks Urge FASB and IASB to Agree on
Credit Loss Standards". AccountingToday. SourceMedia. Retrieved 13
^ "Comment Letter No. 51". FASB. 10 May 2013. Retrieved 12 January
International Financial Reporting Standards
International Financial Reporting Standards and Related Accounting
Accounting Standards Board
Accounting Standards Committee
List of standards