Added Clout
Both FASB and IASB officials agree that international consensus gives them added clout to fix past mistakes — or move into uncharted accounting territory. "There's always safety in numbers," remarks FASB's Bielstein. "There's always going to be debate whether you do it separately or together. But what does help produce high-quality standards is when you have a vigorous debate around the world."

The boards' close working relationship also expands their resources. Staff are often shared between the two boards. And although both boards must still follow an extensive process of exposure drafts and comment periods among their own constituents, they increasingly make use of each other's early work.

Sometimes FASB has been far ahead of the IASB, as it is, for example, on creating a framework for measuring fair values. FASB's final standard will likely be issued as a proposal by the IASB, allowing international constituents an opportunity to comment.

In effect, such an approach may allow some projects to be developed off the radar screen, but observers dismiss any suggestion that FASB would ever use such an approach to hide behind the IASB, even on issues likely to be more controversial in the United States. "FASB certainly wants the IASB to work with it to fight these battles, and perhaps take some of the lead," says Nusbaum. "But FASB also has tremendous self-confidence."

"When it comes to dealing with resistance to change," says Herz, "there is power in working together, because global investors, some large companies, the public, and policy makers can see the big picture. They see the potential benefits to world trade and capital markets."

In fact, any impression that one board acts as a stalking horse for the other may ultimately be the result of the boards' own learning curve. "The boards are developing a variety of techniques," says Bielstein, characterizing the share-based payment and fair-value measurement projects as examples of a "pure lead/lag" approach, in which one board issues a final standard before the other begins deliberations.

Increasingly, however, FASB and the IASB are turning to what they call the "modified joint approach," in which one board develops the initial thinking about a standard, but the resulting discussion paper (as the IASB calls it) or preliminary views (FASB's term) is issued to constituents in the United States and abroad simultaneously, with the ultimate goal of issuing the final standard simultaneously as well.

For example, says Bielstein, the IASB has been working for some time on an insurance-standard project. "When the IASB is ready to issue a discussion paper, we'll issue that to our constituents as well," she says. That's still a very early stage in the process of adopting an accounting standard, but it does underscore why U.S. companies would do well to stay apprised of activities in the IASB's London office. There are, for example, already indications that the IASB views most insurance contracts essentially as a type of financial instrument, a view that could have significant balance-sheet implications for both insurance companies using reinsurance (the cause of the recent AIG scandal) and their customers.

The newly added project on pensions and other postretirement benefits appears to be another example of the modified joint approach — this time with FASB in the lead.

"The boards work very well together," notes Bear, Stearns & Co. senior managing director Patricia A. McConnell. Going forward, she predicts, "it is less likely that they will be playing leapfrog with standards."

Indeed, when it comes to other major projects, even controversial ones, FASB and the IASB are beginning to work essentially as one board. Consider the proposal on business combinations, which would effectively require companies to expense acquisition costs rather than include them in the purchase price. "That's a bitter pill," notes Nusbaum, especially for serial acquirers. But the business-combinations proposal is a truly joint effort. "The exposure drafts that were issued internationally and domestically were actually the same document — drafted by one staff person — but with s's instead of z's and different logos," says Bielstein. A second project, on revenue recognition — one that would potentially eliminate hundreds of pages of U.S. GAAP guidance — also follows this approach.

The New Income Statement
Another sign of FASB and the IASB's preference for joint projects is their decision this past April to join forces on ambitious but slow-moving efforts to redraw the income statement — known as the performance-reporting project. Earlier independent efforts on both sides had stalled.

An early effort by the IASB to develop a matrix-style income statement was stopped some 18 months ago after negative reactions to field tests. "The field test was a failure, really," says Tweedie. Intended to be a complete statement of all changes in equity, with no profit figure presented at all, the proposal was field tested in part because it lacked support among some IASB members. But the test also inadvertently alarmed the business community. Recalls Tweedie: "People saw massive change coming through the performance-reporting project, and that wasn't the intention."

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