If eventually adopted, the new standard will bring Generally Accepted Accounting Practices in the United States more closely into alignment with accounting practices in the rest of the world.
The change will be similar to that proposed by FASB in Sept. 1999. The original drew a lot of fire, largely because it raised complicated issues about the proper method of accounting for the intangible assets of the two merging firms, especially their “good will.” The new exposure draft, to be issued by the middle of February, modifies the treatment of good will, but adheres to the elimination of the pooling method.
The world’s largest accounting firms cooperated in a survey, released on Jan. 17, that shows the continuing difficulty of cross-border interpretation of company and fund financial data, resulting from different national accounting systems which have failed to converge in recent years.
The survey’s authors generally concede that a limited trend toward the convergence of accounting standards is underway, but they emphasize the amount of work that still needs to be done. The survey report, edited by Christopher Nobes, professor of accounting at the University of Reading in the United Kingdom, takes account of 53 countries and 62 distinct accountancy issues.
Spokeswoman Mary Tokar of KPMG said this week that the survey grew out of the work of the International Forum for Accountancy Development, which was set up by the International Federation of Accountants and the World Bank, in 1999. The IFAD’s aim was to raise standards of reporting and market regulation around the world. It is the view of IFAD that the International Accounting Standards have the potential to serve as the world’s single reporting language.
The authors of this study particularly regret U.S. accounting divergences. In a statement accompanying its release, John M. Riley, of Arthur Andersen said, “While U.S. GAAP provides an excellent level of disclosure, convergence of national accounting standards around high-quality international standards is an urgent issue because of our worldwide Internet information systems and increasingly global capital markets.”
On many issues, U.S. GAAP is in accord with international practice. For example, GAAP requires that entities with publicly traded shares disclose an earnings-per-share amount. This requirement is known as FAS 128 in the United States, and as IAS 33 in the rest of the world. On some matters, such as accounting for mergers, U.S. GAAP diverges from international practice.
“Basically, international standards limit the pooling method to a much greater degree than the GAAP does,” said Ms Tokar.
– Christopher Faille, Reporter CFaille@HedgeWorld.com