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According to a new survey, it appears that most countries are adopting a single accounting standard for publicly traded companies. But that standard happens to be the European model backed by the International Accounting Standards Board (IASB)—and not the U.S. GAAP system espoused by the Financial Accounting Standards Board (FASB).
Indeed, 95 percent of 59 surveyed countries either have adopted, intend to adopt, or intend to converge with International Financial Reporting Standards (IFRS). And 72 percent (39 countries) that intend to move toward IFRS have a formal policy in place to achieve this, in most cases aimed initially at listed companies.
Of the countries with a formal plan, 25 are European Union member states or countries that plan to join the EU.
What's more, two countries—Kenya and Cyprus—already have adopted IFRS as their mandatory standard.
These are the significant findings of the GAAP Convergence 2002 project, put together by the six largest accounting firms: BDO, Deloitte Touche Tohmatsu, Ernst & Young, Grant Thornton, KPMG, and PricewaterhouseCoopers. The results were drawn from research undertaken to gauge the extent and maturity of IFRS preparations around the globe.
"This year's survey reveals that great progress is being made toward achieving the vision of a single worldwide language of financial reporting, especially for listed companies," said D.J. Gannon, leader of the IAS Centre of Excellence for the Americas, Deloitte & Touche. "Our findings indicate that the International Accounting Standards Board is increasingly viewed as the appropriate body to develop a global accounting language that provides high-quality financial information and enhances transparency."
Late last year, the IASB and FASB agreed that convergence of IFRS and U.S. GAAP is a "primary objective of both Boards."
The IASB and FASB also recently added a short-term convergence project to their agendas. In addition, they issued a memorandum of understanding that formalizes the commitment of both boards to converge their standards based on high-quality solutions.
"The fact that a vast majority of countries have an active agenda for IFRS convergence is very encouraging, but there is still much work to be done," added Gannon. "Despite greater moves toward convergence, our survey indicates that obstacles still remain to achieving full and consistent adoption of the standards in the near future."
For example, 51 percent of the respondents cited the complicated nature of particular standards as the biggest impediments to achieving IFRS convergence.
In addition, 47 percent of the respondents cited the tax-driven nature of their national accounting regime as a potential problem. As a result, many countries are currently limiting implementation of IFRS to listed companies, rather than extending it to all companies.
The next three biggest concerns are limited capital markets within their countries, satisfaction with national accounting standards among investors/users, and translation difficulties.
While translations of international standards were available in 70 percent of the countries covered, in many cases the translations were not sanctioned by the IASB.
In addition, in nearly one-third of the countries where IFRS is available in the national language, the translations were not considered to be available quickly enough.
IFRS training was also identified as a potential problem. For example, while IFRS is part of the university curriculum in 80 percent of the countries covered, more than one-third of those countries conceded that coverage was still limited or offered by only a few universities within the country.
Other findings from the study:
- 22 percent of the surveyed countries were adopting accounting treatments on a standard-by-standard basis, and 20 percent said they were eliminating differences between national standards and IFRS as and when practical.
- 57 percent of those planning to adopt IFRS were driven by a government or regulatory requirement and 15 percent were driven by standard setters.
"We urge all capital markets participants—governments, regulators, national standards setters, as well as companies, their investors, and the academic world—to continue to work together with the IASB and the accounting profession to eliminate differences between national and international standards and to each take actions in their field of responsibility to further convergence," said Gannon. "Only with a joint effort will we achieve a common accounting framework that is interpreted and applied consistently."
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Deloitte & Touche LLP agreed to shell out $23 million to settle claims stemming from its audit of collapsed insurer Kentucky Central Life Insurance Co.
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