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There's Movement, But It's Not Quite Convergence Yet

As U.S. and European accounting regulators rush to reconcile practices, they are being thwarted by two thorny issues that threaten convergence

By Staff Writer | Updated on March 01, 2004

There are few promised outcomes that produce more skepticism than the prospect of two international bodies finding common turf for regulation. And when one looks at the realities facing the U.S.’s Financial Accounting Standards Board (FASB) and Europe’s International Accounting Standards Board (IASB), one can readily see why.

On Jan. 1, 2005–a mere 10 months and counting away–the IASB is scheduled to become the European Union’s accounting standard-setting body, with the adoption of the board’s International Financial Reporting Standards (IFRS) as the principles governing all companies accessing EU capital markets. Unfortunately, the convergence between the U.S. Generally Accepted Accounting Principles (GAAP) and these European standards seems essentially out of reach for the moment. While meaningful steps in this direction have been made, there remain two thorny issues–accounting treatment of derivatives and stock option expensing–that threaten not only convergence between the two continents on either side of the Atlantic, but also the ascendance of the IASB to the head of the regulatory pack in Europe.

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