‘Condorsement’: An IFRS Buzzword to Get Used To
The year passes without an SEC decision on replacing GAAP, but the tortured path ahead at least gets a bit clearer.
“Condorsement” is the latest financial accounting buzzword. That means get ready for the tortured pace of IFRS conversion to keep continue for the foreseeable future.
The SEC has finished the year without issuing formal recommendations about the adoption of international financial reporting standards to replace U.S. GAAP. But financial statement preparers now expect the eventual recommendations to strongly resemble a SEC staff proposal released last year.
Under this plan, the U.S. transition to worldwide accounting standards would occur through a continuation of “convergence” projects, and then through gradual Financial Accounting Standards Board endorsement of IFRS in those areas where FASB and IASB still differ. U.S. GAAP would continue to exist under this scenario, and the FASB would still retain its authority. Hence, "condorsement."
“The gradual transition of existing standards to IFRS could increase the opportunities for successful transition by decreasing the severity of the IFRS learning curve,” the work plan issued by the Office of Chief Accountant argues.
But in practice, this means tech companies and others concerned with revenue recognition -– a key item to be converged –- would still be responsible for transitioning to the new standards.
On the other hand, oil companies and others anxious to retain the benefits of LIFO inventory accounting effectively get more time to change to FIFO, a costly bullet they have dodged just about every time the subjects of “tax reform” and/or budget-cutting are broached in Congress.
While nearly everybody who's asked signs on for the ultimate goal of “having a single set of high-quality standards,” applicable to worldwide financial reporting, still “the question is how do we go about doing it?” says Paul Munter, KPMG U.S. IFRS professional practice leader.
“The structures that we have in place either reference, or are rooted in, U.S. GAAP,” he points out during a recent KPMG webcast devoted to the transition. He argues that condorsement allows “for potentially a more staged transition.”
In the meantime, the Financial Accounting Foundation, which oversees FASB, apparently has agreed, directing the standards-setting board to continue working on the convergence projects specified under the memorandum of understanding it signed with FASB. After that, FASB is to “refrain from separately engaging in standard setting on new technical projects added to the IASB’s agenda.”
The chairs of both boards, according to Munter, “have acknowledged that their relationship will have changed once the conversion process is completed.”