Government officials at the April G20 summit agreed that some degree of harmonisation is needed in order to achieve a globally accepted set of accounting standards. However, this year has instead witnessed further divergence on these standards, as the each jurisdiction has sought to tackle the fallout from the downturn in the markets. The US in particular is pursuing a different track than the other 100 countries using International Financial Reporting Standards (IFRS). Many are therefore pinning their hopes on next month’s G20 meeting in Pittsburgh as a forum for getting convergence back on track.
Regulators and governments have called for increased transparency and greater consistency of global accounting standards in order to level the playing field for firms and investors alike. This has proved easier said than done, however, and the US in particular is aggressively pushing for more forward looking provisioning in accounts to reflect future risks to balance sheets, rather than limiting this to regulatory purposes like Europe.
The mark to market furore is a prime example of how the US has gone a different direction from the rest of the world, as the Financial Accounting Standards Board (FASB) was forced into revising these rules due to lobbying and political pressure. It therefore seems the US’s overhaul of financial regulation has derailed its plans to converge with the standards of other countries.
The US has also thus far failed to give a firm date as to when it will be adopting IFRS in the future. Other jurisdictions are soon to come on board, however, including Japan, Korea, India and Canada, who have all committed to using the standards by 2011.
Although switching to IFRS will pose many technical challenges and prove costly for the market, convergence is necessary, according to the logic of the global regulatory community. Last week, Helen Brand, chief executive of the Association of Chartered Certified Accountants in London, commented: “G20 leadership is essential for maintaining commitment to a global solution, and in seeking to avoid national or regional versions of IASB-issued IFRS.”
It will therefore lie in the hands of the attendees at the Pittsburgh summit to thrash out the solution…