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FASB & IASB history: First convergence, then divergence

May 15, 2013
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**Please check our most recent blog post regarding the latest changes to the FASB deadlines.**


When the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced the Norwalk Agreement in 2002, it marked a significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards. Since then, joint initiatives have been launched and joint proposals have been issued. Unfortunately, after differences of opinions concerning their jointly-issued impairment model, the two boards started down different paths once again. This post provides a timeline of major events since the initial convergence of the FASB and the IASB.

October 2002 – The FASB and the IASB announced the issuance of a memorandum of understanding, the Norwalk Agreement, marking a significant step toward formalizing their commitment to the convergence of U.S. and international accounting standards.

October 2008 – The FASB and the IASB established the Financial Crisis Advisory Group (FCAG) as part of a joint approach to address the reporting issues arising from the global financial crisis. The group includes recognized leaders from the fields of business and government and was asked to consider how improvements in financial reporting could help enhance investors’ confidence in financial markets.

July 2009 – The FCAG published its report identifying weaknesses in accounting standards and their application. These weaknesses included the delayed recognition of losses associated with loans, structured credit products and other financial instruments by banks, insurance companies and other financial institutions, as well as the complexity of multiple impairment approaches for different types of financial assets. The FCAG recommended exploring alternatives to the incurred loss model that would use more forward-looking information.

2009/2010 – The FASB (2010) and the IASB (2009) proposed different models to address the FCAG’s recommendations and concerns. Stakeholders, however, urged the boards to reach a common solution on impairment.

2011 – The FASB and the IASB published a joint proposal commonly referred to as the three-bucket impairment model, which utilizes two different measurement objectives to determine the credit impairment for the financial asset, depending on the extent of credit deterioration (or recovery) since it was originated or acquired. They continued to develop a common impairment model through July 2012.

July 2012 – Divergence of the FASB and the IASB begins. The FASB expressed concerns that the proposed three-bucket approach to loan impairment is too complex and difficult to understand.

August 2012 – The FASB decided, by unanimous vote, to amend the proposed three-bucket model to simplify the measurement objectives and address the concerns that were raised. The IASB chose to continue with and further develop the three-bucket model.

December 2012 – The FASB issued for public comment its proposed Accounting Standards Update (ASU), Financial Instruments—Credit Losses (Subtopic 825-15). The ASU proposes recognition of the full expected credit loss on financial instruments that fall within its scope. The model is known as the current expected credit losses (CECL) model.

March 2013 – The IASB published Exposure Draft ED/2013/3 Financial Instruments—Expected Credit Losses for comment only. The proposed model previously referred to as the three-bucket model became known as the credit deterioration model.

May 2013 – Open comment period for both proposals, wherein stakeholders are encouraged to provide feedback on proposals. Comments are accepted through May 31, 2013, for the FASB and through July 5, 2013, for the IASB.

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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