We operate in a global economy. Virtually every company deals with suppliers, customers, investors or lenders in another country. But standard-setters haven’t been able to agree on a universal set of global accounting rules that would make it easier for stakeholders to compare companies’ financial results globally.

While over 100 countries have adopted International Financial Reporting Standards (IFRS), the United States clings to Generally Accepted Accounting Principles (GAAP), making it the biggest holdout market in the world. Ironically, we’re also the largest market to accept financial statements prepared under IFRS, with about 450 foreign companies listed on our public stock exchanges.

Mixed Results to Date

The movement to converge U.S. GAAP and IFRS launched in 2002 with the Norwalk Agreement. But so far, convergence results have been mixed.

Notable successes include business combinations and fair value measurement. Most recently in July, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) finally agreed on how and when companies should recognize revenue from customer contracts.

But other projects — including attempts to converge accounting for insurance contracts and financial asset write-offs — have flopped. FASB and the IASB currently remain at odds over how to recognize lease costs. The first two joint exposure drafts generated significant controversy, so joint redeliberations continue. It remains to be seen whether the IASB will meet its published expectation of issuing a new lease standard in 2015.

What Lies Ahead

In a recent speech, IASB Vice-Chairman Ian Mackintosh admitted that the convergence projects were fundamentally flawed from the onset and full adoption of IFRS by each nation is the only “viable” means for achieving global standards. Some financial professionals speculate that Securities and Exchange Commission Chair Mary Jo White, a vocal IFRS proponent, may give U.S. companies the option to use IFRS as an alternative to — but not a replacement for — GAAP.

However, critics argue that a dual reporting approach might confuse investors and internal accounting personnel who are accustomed to prescriptive GAAP rules. IFRS requires greater use of estimates and professional judgment, which could also open the door for errors and financial misstatement.

No new convergence efforts are on FASB’s or the IASB’s agenda. As the convergence process winds down, only time will tell what the future of financial reporting will be in our global marketplace. We will be monitoring FASB and IASB pronouncements and will keep you informed regarding new developments.