International convergence of the accounting standards isn’t really a new idea. Convergence idea first arose in late 1950s in reaction to the post WWII economic integration as well as the related increases in the cross border capital flows. For almost 40 years, IASB and its predecessor, IASC have essentially been working so as to develop a set of understandable, enforceable, and high quality IFRS to serve lenders, creditors, equity investors, among the others in the globalized capital markets.
In 2000, the IOSCO endorsed IFRS for the cross border security offerings in capital markets throughout the world. In 2002, EU adopted a legislation requiring all the listed companies to make their financial statements using the IFRS starting from 2005. The European Union consequently made a decision to “carve out” an international standard for the financial instruments portion hence this produced a European version of the IFRS (Pacter 2013).
In this same year, under the Norwalk Agreement, IASB and FASB agreed to collaborate so as to both improve and converge the United States GAAP and IFRS. This agreement essentially set out shared aim of developing high quality and compatible accounting standards, which could basically be used for cross-border and domestic financial reporting. In 2007, SEC issued concept release on the possible optional utilization of IFRS by the U.S issuers. FASB responded to SEC’s concept release. In addition, the IASB and FASB issued the converged standards on the business combinations.
Convergence is the objective of establishing a set of single accounting standards, which will actually be used internationally, and particularly effort to decrease difference between IFRS and US GAAP (Pacter 2013). On the other hand, outright adoption is actually the best approach and ultimate goal to achieve a set of single worldwide financial standards. US GAAP can be improved because of the collaboration agreement between IASB and FASB aimed to converge and improve it.
I think that Insurance that is still in process will with time be converged since it is an important area when it comes to accounting standards across the nations. In addition, when the subsequent events will be converged, it will improve the presentation of the financial statements globally.
The notion of a single set of the global accounting standards, bearing in mind prevalence of the cross border transactions and our global economy, makes great sense. Nevertheless, the implementation cost and burden in our current economy is in fact difficult for a number of companies (MacKenzie 2012). I believe achievement of this will be possible in the long run, albeit it is not possible to exactly pinpoint by which year.
Pacter, Paul. (2013, February 1). What have IASB and FASB convergence efforts achieved? The Free Library. (2013). Retrieved June 14, 2013 from http://www.thefreelibrary.com/What have IASB and FASB convergence efforts achieved?-a0318492014.
MacKenzie, B. (2012). Wiley IFRS 2012: Interpretation and application of international financial reporting standards. Hoboken, N.J?: Wiley.