FASB, IASB Delay Target Date for Global Accounting Standards

Two accounting standards boards pushed back for a “few months” their June target date for reaching international accounting standards on revenue recognition, leases, financial instruments and insurance contracts.

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“We jointly concluded that, without extending the work out indefinitely, we all could benefit from a few more months to develop these standards, some of which really go to the core issues of many companies,” Leslie Seidman, chairwoman of the Financial Accounting Standards Board, said in a podcast.

“We’ve always emphasized … that we would never release a standard before it’s ready, and ultimately, it just has to be high quality or you just can’t issue,” said David Tweedie, chairman of the International Accounting Standards Board.

A.M. Best Assistant Vice President Steven M. Chirico said he wasn’t surprised by the delay.

“FASB prides itself on effective due process,” Chirico said, adding that the board tries to factor comments from stakeholders into its decision-making process, striving to ensure changes aren’t too burdensome. In this case, the boards are prioritizing quality over timeliness.

“These issues are complex and affect different businesses in different ways,” said Chirico, a certified public accountant who has been following the boards’ negotiations.

The goal of the convergence projects is to establish a single set of standards that international investors can rely on to make comparisons among global companies. There were two main reasons the standards boards were striving for the June target date, Chirico said. One was pressure from the Group of 20 nations, which advocates convergence, and the second reason is Tweedie, who has served as IASB chairman since 2001, is stepping down at the end of June. He will be succeeded by Hans Hoogervorst.

Insurance trade groups have expressed concerns about the accounting-standards convergence effort. In a January letter to Seidman, the American Council of Life Insurers and the Group of North American Insurance Enterprises Inc. said implementation costs, including process changes, systems changes, internal controls, and other expenses, will cost U.S. life insurers more than $1 billion. The groups asked the standards boards to agree on a single date to implement standards for insurance contracts, revenue recognition and financial instruments, and that date of implementation be a minimum of three to five years after the final guidance for all three standards is issued (BestWire, April 4, 2011).

Seidman said during the podcast that while the boards have yet to decide on effective dates for the standards, “we do want to reassure people that we plan to allow ample time for them to understand the requirements and plan an effective transition to the new standards once we do make those decisions.”

The National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America have concerns about the standard for the insurance contracts, as currently proposed by IASB. They have said that IASB’s standard ignores differences in practices between life and property/casualty insurers, especially regarding contracts of a year or less, such as an auto-insurance policy.

Complicating the discussions concerning the insurance-contract standard, the two boards are working on different time tables. London-based IASB, which is further along in the process, is gathering comment on its so-called exposure draft, which is, essentially, what the final standard is expected to be. Norwalk, Conn.-based FASB has yet to release its own exposure draft. In September, it issued a “discussion paper” that various parties can comment on.

Both IASB and FASB have exposure drafts on revenue recognition and leasing. FASB is taking another look at its exposure draft on financial instruments.

Seidman said the boards should issue a progress report on the convergence effort in a few days.

“These issues are complex enough, and the feedback from the exposure drafts is concerning enough,” that the boards “need to take their time and get this right,” Chirico said.

(By Diana Rosenberg, senior associate editor, BestWeek)