FMN Online this month spoke with leaders at the forefront of the effort to globalize standards, focusing on the International Accounting Standards Board, the rule-making body dedicated to global representation of accounting standards.

 

According to D.J. Gannon, a partner in Deloitte & Touche's global offerings services and the firm's leader of international financial accounting services, global convergence of accounting standards will lessen the burden on companies who have to deal with multiple regulatory regimes.

 

"I think over the last few years the work of the International Accounting Standards Committee and the world's regulators has been such where they've tried to foster increased cross-border activity," explained Gannon. "Reducing barriers to cross-border capital raising would result in a common standard, whether it be for accounting, auditing, independence. The change in the global reporting environment is driving this notion of convergence."

 

Gannon said more companies are considering the international standards -- which differ from U.S. GAAP in that they are principle- or concept-based -- because they have no choice. "Regulatory bodies, even private lenders, and other regulatory bodies are requiring the use of these standards," he said.

 

Addressing the IASB's agenda, recently-selected IASB member Robert Herz said an important project includes the European Commission. The Commission said it wants all its listed companies to adopt international accounting standards no later than 2005 (excluding all listed companies in Europe by 2002).

 

"By current count, that would amount to some 7,000 listed companies. So you will have a whole group, a whole region, coming on to international standards," said Herz. "It's going to become increasingly important for the two sets of standards (U.S. GAAP and international standards) to converge. It may not be necessary in the absolute level of detail, but at least around the major principles and in the major types of areas. That's what's actually happening through the IASB."

 

Gannon added a few other items for the IASB agenda. These include some ambitious projects, such as business combinations, share-based payments or stock options, and accounting for insurance contracts, the latter of which

 

Gannon confirmed that U.S. companies may very well be able to take "two bites at the apple" by working with the IASB, then, depending on what the international standard looks like, influence the FASB to adopt or rewrite the standard.

 

In summary, Gannon said the IASB's agenda indicates that U.S. standards will be highly influenced by global standards, resulting in more principle-based standards.

 

"At some point you're going to see the national standard setters, including the FASB, revisit a lot of the current literature since they will have to deal with some of these issues. I do think we're moving towards an environment where you're going to see less rules," Gannon said.

 

Shortly after FMN Online's interview with Mr. Herz and Mr. Gannon, the IASB announced the release of an exposure draft that outlines proposals to revise 12 of the 34 standards set by its predecessor, the International Accounting Standards Committee. For more on this story, click here.

 

Learn more about the global accounting standards efforts. Take the FMN Online CPE course, Achieving Convergence: International Financial Reporting, for 1 credit, $44.99.