Completing the February 2006 Memorandum of Understanding:

A progress report and timetable for completion.

After their joint meeting in September 2002, the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued the Norwalk Agreement, in which they “each acknowledged their commitment to the development of high quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting. At that meeting, the FASB and the IASB pledged to use their best efforts (a) to make their existing financial reporting standards fully compatible as soon as is practicable and (b) to co-ordinate their future work programmes to ensure that once achieved, compatibility is maintained.”

At their meetings in April and October 2005, the FASB and the IASB reaffirmed that development of a common set of high quality global standards remains a strategic priority of both the FASB and the IASB.

In February 2006, the FASB and IASB issued a Memorandum of Understanding (MoU). The MoU set forth the relative priorities within the FASB-IASB joint work programme in the form of specific milestones to be reached by 2008. That MoU was based on three principles:

  • Convergence of accounting standards can best be achieved through the development of high quality, common standards over time.
  • Trying to eliminate differences between two standards that are in need of significant improvement is not the best use of the FASB’s and the IASB’s resources—instead, a new common standard should be developed that improves the financial information reported to investors.
  • Serving the needs of investors means that the Boards should seek convergence by replacing standards in need of improvement with jointly developed new standards.

Based on the progress achieved by the Boards through 2007 and other factors, the SEC removed the reconciliation requirement for non-U.S. companies that are registered in the United States and use IFRSs as issued by the IASB. The European Commission is proposing that the European Union eliminate the possible need for U.S. companies with securities registered in European capital markets and with financial information prepared in accordance with U.S. GAAP to reconcile their accounts to IFRSs or provide other compensating disclosures. Additionally, a number of countries have adopted IFRSs on the basis that companies using IFRSs would be able to access capital more efficiently in the major economies throughout the world, which is now possible.

In developing the MoU published in 2006, the Boards agreed on priorities and established milestones only to 2008, even though they knew that many of the major standards level projects would not be complete by that date. At their joint meeting in April 2008, the Boards again affirmed their commitment to developing common, high quality standards, and agreed on a pathway to completing the MoU projects, including projected completion dates.

The following is a description of the agreed-upon pathway for completing the MoU projects that discusses separately short-term convergence projects and major joint projects. Also described is the relationship between those MoU projects and the joint conceptual framework project, which is not formally part of the MoU work plan.

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