Investors could lose information about U.S. insurance operations if the United States moves too quickly to adopt international accounting standards, a U.S. accounting official says.
Robert Herz, chairman of the Financial Accounting Standards Board, Norwalk, Conn., and John Brennan, chairman of the Financial Accounting Financial, Norwalk, a nonprofit corporation that oversees FASB, give that assessment in a letter to the U.S. Securities and Exchange Commission.
Herz and Brennan wrote the letter in response to a request by the U.S. Securities and Exchange Commission for comments on the SEC’s “roadmap for potential use” of financial statements prepared using International Financial Reporting Standards.
FASB and FAF want to work with the International Accounting Standards Board, London, to improve both the U.S. Generally Accepted Accounting Principles standard and the IFRS, and to eliminate differences between U.S. GAAP and IFRS, Herz and Brennan write.
“We believe these joint efforts will improve the quality of the standards and the comparability of financial information globally and will advance the efforts toward a single set of high-quality global accounting standards,” the officials write.
One challenge is that the FASB-IASB “memorandum of understanding” on working toward convergence of their standards does not address all existing differences between the standards, the officials write.
“Nor does it address certain areas of practice where IFRS provides limited guidance, such as accounting for investment companies, extractive industries, and insurance contracts,” the officials write.
In October 2008, the officials write, FASB decided to work with IASB on a project to develop IFRS guidance for companies in the insurance industry.
James Bothwell, one of two consultants FASB hired to help analyze the idea of using IFRS in the United States, notes in his study that some observers believe that, at this point, U.S. GAAP financial statements are better than IFRS financial statements in some ways, in part because they offer more industry-specific rules.
If the United States shifts to using IFRS too soon, “U.S. investors in particular industries – the insurance and the extractive industries are often cited – could lose significant information that is currently made available by industry-specific standards in U.S. GAAP that have no counterpart in IFRS,” Bothwell writes in his study, which is included as an appendix to the letter that Herz and Brennan sent to the SEC.
Bothwell acknowledges that IASB is in the process of developing standards for the insurance and extractive industries.