Before latest updates of US GAAP and IFRS convergence, let’s have an overview of of its history.
In September 2002, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) signed the an agreement ( Norwalk Agreement) to converge financial reporting standards keeping in view the principles of high quality and compatibility so new developed Accounting Standards are suitable for both domestic and cross-border financial reporting.
In 2006 both IASB and the FASB agreed on a Memorandum of Understanding (MoU) that identified the short-term and longer-term convergence projects to bring improvements to IFRSs and US GAAP.
As a result of MOU milestones were established including the following:
- IAS 23 allowed borrowing costs to be capitalized( on certain criteria) in 2007 to make it consistent with US GAAP
- IFRS 8 was introduced in replacement of IAS 14 , which allows segemtal resporting on based of specific criteria for example 10% of total revenue or 10% of Assets rather than Risk and Return Approach of IAS 14
- Terminologies were changed. Balance sheet was renamed as the ‘statement of financial position and income statement was renamed as the ‘statement of comprehensive income’.
Due to above mentioned achieved goals , US Securities and Exchange Commission (SEC) removed requirement for non-US companies registered in the United States to reconcile their financial reports with US GAAP if their accounts complied with IFRS Standards as issued by the IASB.
In 2008 both IASB and the FASB issued an update to the MoU which was a roadmap of priorities and milestones, emphasising the goal of joint projects to produce common Accounting Standards
However following areas was still under progress to remove differences
- Fair value measurement
- Post-employment benefits
- Revenue recognition
- Conceptual framework