There are now about 100 countries across the world that either require or allow the use of IAS for financial statements. The notable exception is the US and those countries that have adopted US GAAP. To put this in context, out of a worldwide market capitalisation totalling over US$ 36 trillions at the end of 2005:

• US$11 trillions correspond to markets where IFRS are either required or permitted

• US$ 17 trillions to markets where US GAAP is the rule

• the balance is predominantly governed by Japanese GAAP.

The aim of the IASB is to establish a single set of globally-accepted standards. A single global comprehensive set of accounting standards is a conceptual ideal that would:

• help to ensure the comparability of financial statements

• allow companies to enjoy a lower cost of capital as a result of their financial statements being more readily under stood

• simplify audit of international groups

• improve cross-border investment and hence world

economic growth

• lower barriers to the free-movement of accountants in business across jurisdictions.

To achieve this then the Board clearly needs to consider US GAAP convergence. Building upon the Norwalk Agreement, IASB and FASB are moving forward together using a number of joint working parties to consider new / amended accounting standards. The due process of the IASB requires

that new developments are open for consultation with interested parties having the opportunity to air their views. CIMA generally responds to IASB consultations and members can contribute to our responses via our consultation website.

In terms of market capitalisation the EU is one of the major users of IAS and as such the European Commission (EC) is particularly interested in the pace of convergence between US GAAP and IAS. 8,000 public companies in the EU will report their first full year’s trading using IAS during 2006 and the EC is keen to ensure consistent application of IAS.

Consistency will not be helped by significant changes to IAS especially so soon after initial implementation in Europe. As such there is a natural tension between the desire of IASB and FASB to move forward with convergence and the EC who would like to bed down the current suite of standards throughout Europe.

Despite this wish for stability the EC also needs to take into account the approximately 400 EU companies which are listed in both the EU and on a US stock market. The accounts of these companies are prepared using IAS and currently they need to file a reconciliation of their results to US GAAP. It has been estimated that this reconciliation work (including audit assurance) can cost the largest companies up to €10,000,000.

IFRS Position PaperInternational convergence

CIMA supports global standards i.e. IFRS and the development of principle-based

accounting standards. The changeover to IFRS was expected to take a major resource

investment by companies and it has not disappointed in that respect. After all, this is not

just a change in standards, but in business culture; a whole new accounting language, with

different terms and ways of dealing with the same transaction.

CIMA Position Paper | July 2006

US GAAP convergence would benefit those companies that are dual listed. There is no doubt that the US GAAP reconciliation is a time consuming and therefore costly exercise for those that need to do it. However although the benefit of convergence might be significant it will only affect a relatively small number of companies and there may well be other ways to achieve this such as SEC acceptance of IAS.

In addition, many commentators are now voicing concerns over the impact of convergence. US GAAP is regarded as a rule-based system as opposed to the principle-based background of IFRS. IFRS seem to be becoming more complex and the financial statements that they produce more divergent from that used by management to run their own businesses. We believe that convergence is still a laudable goal however it should not be strived for ‘at any cost’.

We strongly support the current IASB / FASB project on Conceptual Frameworks and believe that this project should be completed before new IFRS are introduced that change fundamental accounting principles in a piecemeal fashion. In the absence of a Conceptual Framework for Financial Reporting then there is a risk that final positions will be entrenched long before they are debated in the framework project. We believe that the staff resources of the IASB are more limited than those of the FASB and we are concerned that important projects such as this end up with an imbalance of those working on it. We believe that the IASB’s resources should be utilised to develop current international accounting standards rather than be focussed on convergence with US GAAP.

Contact details:The Chartered Institute of Management Accountants, 26 Chapter Street, London SW1P 4NP, United kingdomT. +44 (0)20 8849 2275 | F. +44 (0)20 8849 2464 | E. technical.services@cimaglobal.com W. www.cimaglobal.com/resources