International Accounting Standards: Are They Coming to America?
Carmichael, Douglas, Craig, James, The CPA Journal
International accounting standards are beginning to become visible in U.S. accounting circles. The FASB and the SEC are talking about them. Exposure drafts are circulating for comment at the FASB, in state society committees, and at other interested organizations. Words and phrases such as harmonization, creating a level playing field, and down with LIFO and poolings-of-interests are being heard from sea to shining sea. What does this all mean to the accounting profession in the U.S.? Editors Douglas Carmichael and James Craig spoke with Arthur Wyatt, Chairman of the International Accounting Standards Committee (IASC) and former member of FASB to find out.
CPAJ: A recent issue of the FASB update had a lengthy commentary by Chairman Dennis Beresford about international financial reporting and accounting standard setting. It is clear that international accounting standards are very much on FASB's mind. But before we explore why that is so, please give us some background about the International Accounting Standards Committee (IASC) of which you are presently the Chairman.
Arthur Wyatt: The IASC was formed in 1973, coincidentally, the same year that FASB came into being. It was formed by and as the result of concerns of accounting professionals in the U.S., Canada, and the U.K. who felt more had to be done to further uniformity in international financial reporting. Presently, IASC has representatives from about 105 professional bodies from 78 different countries. A professional body in this context is an organization representing a group of accounting professionals. For example, the two U.S. bodies represented are the AICPA and the Institute of Management Accountants (IMA, formerly the NAA). IASC meets three times a year: March, June, and October or November. The board of IASC is composed of 14 voting members from 13 countries and a representative from the International Association of Financial Analysts. The constitution provides for three additional seats that are not countries. The International Financial Executives Institute was invited to join but did not accept because it feels it has no way to get agreement on international accounting issues and thereby represent its constituency. Similarly we have tried to get an international bankers association into the ranks, but to no avail.
Countries are appointed to provide representation on the board for three year terms. The countries designate the individuals who will serve. In 1988 I was appointed as the U.S. representative to the board for a five year term. I gave up that role when appointed chairman, because the chairman has no vote. He acts more like a cheerleader or tour director. Ronald Murray of Coopers & Lybrand now serves on behalf of the ACPA. All the positions are non-paying by the IASC. However, there is a secretariat and small paid staff to undertake technical research and take care of administrative matters.
CPAJ: What is the IASC's primary mission?
Wyatt: The purpose of the IASC is to reduce the diversity of practice in financial reporting among the countries or, stated more positively, to achieve some level of harmonization of principles. Since 1973, it has issued 31 standards. Each of the participating countries agrees to use its best efforts to move toward the acceptance of international standards in its country. The AICPA is a signatory to this agreement.
Each of the 31 standards is characterized by acceptable alternatives. Standards are usually different among countries because the laws and customs are different. For example, in Germany the tax law governs the accounting principles to be applied and what is to be recorded in the accounts. As a result in Germany there are no temporary, or for that matter permanent, differences between tax and accounting income. In the U.S., our financial reporting scheme is very much directed toward investors and creditors. That has led to a system of open and complete disclosure and fairly detailed standards. …