Every Good Boy Deserves Fudge

In virtually every other country in the world, financial statements are prepared according to the International Financial Reporting Standards (IFRS) set by the London-based International Accounting Standards Board (IASB). The IFRS is, if you will, the metric system of accounting.

In mid-July, the IASB proposed a simple new way of apportioning financial instrument valuation methods. The new standard establishes only two security catergories: loans, and instruments that act like loans (valued at cost), and everything else (marked to the market) The Economist called the compromise “a superior sort of fudge.”

We should probably be paying attention to what IASB does because, at least pre-crisis, everyone agreed that their system should replace GAAP. Canada shed GAAP last year and in February the SEC announced a framework (which they called a “road map” – release no. 33-8982) for full IFRS adoption in the United States by 2014.

FASB and the IASB have been working on joint projects since at least 2002 and in October they created a joint Financial Crisis Advisory Group.

If you’d like to get a jump on the IFRS-ification of US accounting (never too early!) this AICPA website has a guide to IFRS and the creepily-named “convergence” of GAAP and IFRS. If you’d like a head-to-head comparison, Warren Gorham & Lamont’s treatise International Accounting, Financial Reporting, and Analysis is available on Westlaw (WGL-INTLACCT).