Accounting & Tax

Convergence in Five Years: IASB Chairman

Even now, said Tweedie, 100 countries require or allow companies to use global accounting standards.
Helen ShawJune 14, 2006

Within five years, differences in accounting standards worldwide will be small, according to Sir David Tweedie, chairman of the International Accounting Standards Board. In another three to five years after that, U.S. and global standards will be virtually interchangeable, says Financial Accounting Standards Board Chairman Robert Herz.

Tweedie and Herz offered those forecasts on Wednesday during testimony before the Senate Banking Committee. The hearing focused on progress toward global accounting standards and on a project by the Financial Accounting Standards Board on accounting for defined-benefit pension plans.

Even now, said Tweedie, 100 countries require or allow companies to use global accounting standards. His FASB counterpart, Robert Herz, noted that Canada will shift from national standards to international accounting standards in about five years and that Japan is also working on converging accounting standards.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Herz also testified that in working toward a single set of FASB-IASB accounting standards, the U.S. is in the process of proposing changes to the accounting for defined-benefit pension plans and for postretirement benefits. The project entails two phases, he explained.

Phase one requires employers to recognize, on the balance sheet, the amounts that their retiree-benefit plans are underfunded or overfunded, as of the date of their financial statements. FASB issued its exposure draft in March; according to Herz, the board plans to begin redeliberations during the summer and complete this phase by the third quarter.

Phase two will address a broad range of accounting issues in post-retirement benefits, said Herz — particularly the practice of “smoothing” fluctuations in pension values. Tweedie observed that under U.S. GAAP, a pension fund with a $10 million deficit could, by employing a smoothing mechanism, show a deficit of only $600,000. “As I’ve often said, explain that one to your grandmother,” commented Tweedie.