The Introduction of International Accounting Standards in Europe: Implications for International Convergence
Posted: 16 Mar 2005
At a joint meeting in September 2002, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) agreed to work together to develop high quality, fully compatible financial reporting standards that could be used for domestic and cross-border reporting; this co-operative effort is sometimes described as international convergence of US GAAP and IFRS financial reporting standards. The IASB-FASB convergence effort involves two kinds of projects. The first type includes short-term projects that are intended to remove many of the numerous individual differences between International Financial Reporting Standards (IFRS, which include International Accounting Standards (IAS) issued by the predecessor body to the IASB) and US GAAP. Examples of current and proposed short-term convergence efforts involve the accounting treatments of nonmonetary exchanges, discontinued operations, income taxes and interim reporting. The second type of convergence project involves longer term joint IASB-FASB projects and co-ordinated projects that are intended to provide major pieces of improved accounting guidance. Examples of the latter include the joint projects on revenue recognition and purchase method procedures and the co-ordinated project on share-based payments. The goal of the IASB-FASB convergence efforts is to make US GAAP and IFRS financial reporting standards as nearly as possible the same across jurisdictions while also improving the overall quality of those standards.
The convergence activities of the IASB and the FASB will of necessity be directly and indirectly affected by regulatory changes and shifts in economic conditions throughout the world. The purpose of this paper is to identify some possible implications for international convergence of a particularly significant regulatory change, namely, the mandated adoption of IFRS by listed enterprises in the European Union beginning in 2005. This change will increase the number of enterprises that apply IFRS to prepare their consolidated reports from several hundred to several thousand, and will require the use of IFRS by enterprises that vary considerably in size, ownership structure, capital structure, political jurisdiction and financial reporting sophistication. The purpose of this discussion paper is to explore several implications of this major shift in financial reporting requirements for the overall international convergence of financial reporting standards and practices.
Keywords: IAS, Europe, International Convergence
JEL Classification: M41, M44, M47
Suggested Citation: Suggested Citation