IASB FASB MOU: Alphabet Soup? No, a Roadmap of Priorities.

By Julie McNeal, CPA, CSCPA Technical Activities Director

In July, the International Accounting Standards and the Financial Accounting Standards Boards, (hereafter referred to as “the Boards”), updated their Memorandum of Understanding (MOU). The MOU is a roadmap of priorities between the two boards as they move toward standards convergence. Proposals in the updated MOU were developed by a limited task force. The task force recommendations begin with a broad objective:

“To outline the improvements to existing IFRS that are needed to facilitate mandatory adoption of IFRS in all major capital markets.”

Along with the stated objective recommendations were developed based upon two assumptions:

  1. “For capital markets not yet adopting IFRS, the target date of mandatory adoption is no later than 2013. “
  2. “A ‘quiet period’ of a least a year before that date (2013) will be provided.”

Doing the chronological math means that the Boards have tremendous work to do to fulfill their intended mission before mid-2011. The Boards divided projects into three classes:

  1. Projects that need immediate attention due to fundamental deficiencies in IFRS or US GAAP. Included in this class are revenue recognition, fair value measurement, consolidation policy and derecognition.
  2. Projects that potentially have a significant need for improvement in both IFRS and US GAAP. Deliberated in this class were financial statement presentation, post-retirement benefits, leasing, financial instruments, liabilities and equity, earnings per share, joint ventures, and income taxes. While not conclusive, some of the listed projects were not deemed to have a significant need for improvement by the task force.
  3. Projects were IFRS does not provide current guidance. Given the time and staffing constraints discussed in the MOU, it appears unlikely that these projects, including insurance accounting and accounting for extractive industries, will be accomplished before the mid-2011.

Highlights of the project discussions provide a glimpse into the financial reporting changes we may anticipate.

The objective in the revenue recognition project is to “develop a single model of revenue recognition that can be applied to a variety of transactions and can resolve current revenue recognition issues consistently.” Toward that end the “customer consideration” approach to measurement is the model endorsed by the working group.

The fair value measurement project is considered critical to the adoption of IFRS. The Boards are limiting the fair value discussion to inserting entry price and exit price into existing IFRS and providing disclosure requirements for measurement of entry and exit price.

Consolidation policy is being contemplated on both sides of the Atlantic. The IASB’s Statement 27 and the FASB’s FIN 46R and Statement 140 are all being reviewed. The FASB may retain staff who worked on FIN 46R to help “accelerate progress.”

The recommended project scope for the financial statement project is to “focus on presentation on the face of the financial statements and a limited number of disclosures directly related to presentation issues.”

Accounting for income taxes is a project that appears to have full support from the task force. The current thinking set out by the task force is, as the IASB works toward a principles-based replacement to the existing standard, the FASB may propose adopting the IFRS statement. Based on the emphasis on necessary guidance for uncertain tax positions, it appears that some version of FIN 48 will be here to stay.