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Full US Adoption of IASB Becoming Less Likely: Fitch

by Leroy Baker,, New York

16 July 2014

Full adoption by the United States of International Financial Reporting Standards (IFRS) appears unlikely to occur in the intermediate term as the major accounting standard setters continue to move away from full convergence of their standards, according to a Fitch Ratings report.

While the International Accounting Standards Board (IASB), responsible for IFRS, and the Financial Accounting Standards Board (FASB), responsible for United States Generally Accepted Accounting Principles (US GAAP), recently issued a converged standard on the recognition of revenue from contracts with customers, it was noted that three joint, or formerly joint, FASB/IASB projects remain outstanding: financial instruments, insurance, and lease contracts.

Fitch pointed out that differences in financial products between US institutions and those following IFRS, as well as differences in application, meant that a one-size-fits-all accounting approach for financial instruments was problematic. Furthermore, on the insurance front, there were a number of concerns raised by US constituents, including that the proposal would ensnare both insurers and non-insuring issuers.

In addition, while discussions remain on track over a joint FASB/IASB standard for lease contracts, some detailed issues remain to resolve and there may be some minor differences in application between the final IFRS and US GAAP standards.

With regard to the successful completion of the FASB/IASB joint project on revenue recognition, which was issued in May 2014 and is nearly identical to a new IFRS standard issued on the same date, US public companies using GAAP will be required to apply the standard for annual reporting periods beginning after December 15, 2016, with private companies after December 15, 2017.

The revenue standard should not affect overall contract profitability, but, for many companies, the new rules will affect the timing of revenue, and Fitch expressed the belief that this has the potential of making margins less consistent over time due to sales deleverage. It added that transition to the new rules could provide an opportunity for companies to scrutinize the terms and conditions of their contracts.

TAGS: tax | business | law | accounting | banking | financial services | insurance | International Accounting Standards Board (IASB) | United States | financial reporting | Financial Accounting Standards Board (FASB) | standards | services

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