Cooperation between FASB and IASB to achieve convergence of accounting standards.

The International Accounting Standards Board has a mandate to produce a single set of high quality, understandable, and enforceable global accounting standards and to encourage convergence on these standards. To achieve its goals, the Board works closely with national standard setters around

Introduction

Recently, increasing pressure from the international financial markets has led to major restructuring of the International Accounting Standards Committee (IASC), an organization that has been setting International Accounting Standards (IAS) for nearly 30 years. The Committee was restructured in 2001 into the International Accounting Standards Board (IASB), a highly professional organization supported by industry and governments around the world. The IASB was modeled after the Financial Accounting Standards Board (FASB) in the U.S., and created with a mandate to produce a single set of high quality, understandable, and enforceable International Financial Reporting Standards (IFRS) and to encourage convergence on these standards (18). (1)

The demand for high quality global accounting standards increased significantly when the European Commission required all publicly listed companies within the European Union (EU) to prepare their consolidated financial statements in compliance with IFRS, beginning in the year 2005 at the latest. Upon this announcement, the IASB undertook three major sets of projects to meet this demand. The first project set provided leadership for the convergence of accounting standards. It included four projects: business combinations (phase I), insurance contracts, performance reporting, and share-based payments. The second project set included the first time application of the IFRS, and the activities of financial institutions, which were designed to make existing standards easier to apply. The third set of projects aimed to improve the basic standards that the IASB inherited from its predecessor, the IASC.

To achieve its goal of convergence, the IASB works closely with national standard setters around the world. The Financial Accounting Standards Board (FASB) is one of the IASB's most important partners. In face of the recent financial reporting crisis in the U.S., FASB has realized that it does not have all the answers to all of the accounting issues. There are some areas of U.S. standards that could be improved, where international standards seem to be more principles-based and more easily applied. Therefore, the FASB has become a proponent of improved international standards, and of a single set of standards to be used internationally and domestically. In its own report, "IAS Setting: A Vision for the Future," the FASB even suggests that the Board entertains the possibility that it may not be needed in the long run.

In the Memorandum of Understanding called 'The Norwalk Agreement," issued at their joint meeting in Norwalk, Connecticut on September 18, 2002, both the FASB and IASB pledged to use their best efforts to make their existing financial reporting standards fully compatible as soon as possible. The Boards also made a commitment to coordinate their future work programs to ensure that once achieved, compatibility is maintained. Based on this Memorandum, on October 29, 2002, the FASB and IASB jointly announced their commitment to achieving real convergence between their respective accounting standards by 2005, when listed EU companies will be required to apply IFRS. The European Commission enthusiastically welcomed the announcement.

The U.S. Securities and Exchange Commission (SEC) has also supported global standards, although it still does not accept LAS financial statements without reconciliation to U.S. Generally Accepted Accounting Principles (GAAP) From the U.S. perspective, the international standards are not yet adequately comprehensive and remain too ambiguous (17). The SEC also wants LAS to be more rigorously interpreted and applied. That involves more uniform auditing procedures, enforcement mechanisms, and regulatory environments around the world. Currently about 50 foreign issuers registered with the SEC use lAS. It is estimated that this number will increase to 500-600 by 2005 (15). Therefore, the recent IASB/FASB convergence agreement was applauded by the SEC. Convergence should lead to a situation when reconciliation between IAS and U.S. GAAP, as currently required by the SEC in foreign filings, will no longer be required.

Transformation of the IASC into the IASB

The IASC was formed in 1973 by an agreement of the leading professional accounting organizations in Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, Ireland, and the United States (11). These countries constituted the Board of IASC at that time. In 1998 the number of countries with IASC members passed 100. Since its inception, the IASC issued 41 International Accounting Standards (LAS) and a Framework for the Preparation and Presentation of Financial Statements.

In the 1990s the IASC undertook two ambitious projects. The first was The Comparability and Improvements Project aimed at eliminating most of the alternative accounting treatments allowed under LAS. The project was completed in 1993 with approval of 10 revised LAS. In 1995, the IASC entered into an agreement with the International Organization of Securities Commissions (IOSCO) to produce a comprehensive core set of high-quality standards for cross-border listings on securities exchanges. The project was completed with approval of LAS 39, Financial Instruments: Recognition and Measurement; in December 1998 (14). The IOSCO reviewed the core standards during 1999. The endorsement, however, fell short of expectations. At the annual meeting in Sydney in May 2000, the IOSCO recommended that its members allow companies to use core LAS for the purpose of cross-border listings, but at the same time members were still permitted to: 1) require reconciliation of certain items; 2) call for supplementary information; and 3 ) eliminate some of the options that exist in LAS. Furthermore, the IOSCO's Technical Committee published a report summarizing its assessment work and noted numerous outstanding issues that members are expected to address through supplemental treatments (IOSCO, 2000). The LAS, nevertheless, were significantly improved through this process. The project dramatically reduced the number of differences between LAS and U.S. GAAP (2). Thirty-three of the standards issued by IASC are currently effective. The most recent one, LAS 41, Agriculture, became effective January 1, 2003.

After completing its work program in 1998, the IASC formed a Strategy Working Party to consider changes in strategy and structure. This group issued a Discussion Paper entitled "Shaping the IASC for the Future," which set out a proposal for changing the LASC's structure (16). The main reason to restructure the Committee was that it wanted to become more independent of professional accounting bodies and to work more closely with national standard setters (14).

In May 2000, the IASC Board unanimously approved a new Constitution. The governance of IASC was vested in a Board of Trustees, with a new standards Board empowered to make decisions on LAS. The restructured IASC is in large part a result of initiatives taken by the IOSCO, including U.S. SEC, and supported by the leadership of the FASB.

Trustees of the International Accounting Standards Committee Foundation (IASC Foundation), chaired by former U.S. Federal Reserve Chairman Paul A. Volcker, is a 19-member oversight body, representing six continents and 14 different countries. The IASC Trustees were appointed in May 2000 by a Nominating Committee composed of leading policy-makers throughout the world and chaired by Arthur Levitt, U.S. SEC Chairman at that time. Under the IASC Foundation's Constitution, a geographic balance will be maintained among the Trustees. Initially, six appointments were from North America, six from Europe, four from Asia/Pacific, and three from other areas. Five Trustees represent the accounting profession; and international organizations of preparers, users, and academics are each represented by one Trustee. The remaining 11 Trustees were "at-large" appointments.

The Trustees appoint the International Accounting Standards Board (IASB). The Board, announced in January 2001, consists of 14 members (12 of whom are full-time and two are part time). The current Board Members reside in nine countries and have a variety of functional backgrounds. In order to prevent any particular constituency or regional interest from dominating the Board, the Constitution requires that at least five Board Members have a background as practicing auditors, three have a background in the preparation of financial statements, three have a background as users of financial statements, and one has an academic background.

In order to encourage cooperation among the new Board and national accounting standard-setters, the Trustees appointed seven of the Board Members as official liaisons to national bodies. Countries with formal liaisons are: Australia and New Zealand (together), Canada, France, Germany, Japan, the United States, and the United Kingdom. These liaison Board Members will maintain close contacts with their respective national standard-setters and will be responsible for coordinating agendas. Specifically, they are located at the offices of their respective national standard setters and observe their meetings. Hence, they help ensure open and ongoing communication between the national and international Boards about each other's agendas.

The Board, based in London, is funded by contributions from the major accounting firms, private financial institutions and industrial companies throughout the world, central and development banks, and other international and professional organizations. It is chaired by Sir David Tweedie, who served previously as Chairman of the United Kingdom's Accounting Standards Board (ASB). The IASB, which began full-time operations in April 2001, has sole responsibility for setting international accounting standards. The Board's goal is a convergence of global accounting standards to the highest level; that is, to identify the best principles in standards around the world and build a body of accounting standards that constitute the "highest common denominator" of financial reporting [19].

The IASB publishes its standards in a series of pronouncements called International Financial Reporting Standards (IFRS). It has also adopted the body of standards issued by its predecessor, the IASC. Those pronouncements continue to be designated "International Accounting Standards" (IAS). although several are being revised by the IASB.

The Trustees also appoint the Standard Advisory Council (SAC) and International Financial Reporting Interpretation Committee (IFRIC) . The SAC, which functions very much like FASB's Financial Accounting Standards Advisory Council, allows other individuals having diverse geographic and functional backgrounds to provide advice to the IASB and Trustees. It is designed to achieve participation from countries that might not otherwise feel represented on the IASB. The IFRIC, formed in 1997 as Standing Interpretation Committee and reconstituted in December 2001, interprets the application of the IFRS and provides timely guidance on financial reporting issues not specifically addressed in TERS. The capacity of IFRIC to address emerging issues makes it similar to the FASB's Emerging Issues Task Force.

As mentioned above, the IASB cooperates with national standard setters to bring the collective wisdom of each country's financial community to the debates. Also, the IASB cooperates with national standard setters in such areas as research and council, due process, and recognition of particular local problems in various jurisdictions.

On May 23,2002, the IASB issued the Preference to International Financial Reporting Standards. The Preference addresses, among other matters, the Board's due process for developing and issuing IFRS. The international due process is very similar to the FASB's due process and involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities academics and other interested individuals and organizations from around the world.

The restructuring of IASC has changed its approach to international standard setting. in its early years, the IASC selected an accounting treatment that already existed at the national level in some countries, and then sought worldwide acceptance of that treatment, perhaps with some modification. The IASB will work on the development of new international standards for accounting issues not adequately addressed by any national standard. If, for example, neither the FASB nor the IASB standard is superior, eliminating the differences between U.S. GAAP and IAS will result in replacing existing standards with completely new ones. Moreover, the IASB assumes a role of a coordinator of national initiatives and an initiator of new work at the national level.

International accounting standardization may bring benefits resulting from comparability in international financial statements that are better understood globally, and economies of oversight and enforcement. It may also create a cost of non-comparability resulting from inappropriately imposed uniform accounting standards on events and transactions that are inherently noncomparable because of cross-jurisdictional institutional differences [131. The IASB must work hard to strike the right balance between the benefits and costs.

Coordination of standard setting efforts between the IASB and the national standard setting bodies seems to be the key to success. Therefore the cooperation with national standard-setters has become a critical part of the IASB activities. The Board looks to the national standard-setters for research and counseling, for identifying particular local problems, and for help in the international due process. The FASB is one of the most important partners in the international standard setting process.

The FASB backgrounds of many IASB members seem to make the convergence between U.S. GAAP and the IAS realistic. It appears that the goal of convergence can be achieved under the leadership of Robert H. Herz, a former part-time IASB member with extensive international education and experience, who is currently chairing the FASB, and Sir David Tweedie, Chairman of the IASB

The Joint IASB and FASB Agenda

The FASB's interest in the international standard setting process started in 1988, when it joined the IASC's Consultative Group and the IASC's Board as an observer. In 1991 the FASB co-organized the first IASC conference of standard setters. The Earnings Per Share (EPS) project was the first major project on which the FASB worked with the IASC. As a result of this cooperation, both the FASB and the IASC issued similar EPS standards in 1997. (2)

During the 1990s, the FASB was also a very active member of the "Group of 4 plus 1" (G4+1). The Group was a cooperative effort by national accounting standard-setters from Australia and New Zealand, Canada, the United Kingdom and the United States plus the IASC. The Group started its activities in 1994 and was dissolved in January 2001. The FASB participated in development of many Position Papers published by the Group. Conclusions reached by the G4+1 were not recognized as GAAP in any financial reporting jurisdiction, but influenced standard setting in many jurisdictions (10).

Currently, the FASB engages in a variety of activities in pursuit of the goal of high-quality global standards and increased convergence of the accounting standards used in different countries. The most important among the FASB's international activities is its partnership with the IASB in several of the major projects. This partnership enables the IASB to make use of the FASB's resources.

The staff of both Boards developed short and long-term strategies for achieving convergence. In the short term, an attempt will be made to eliminate differences resulting from the Improvements project undertaken by the IASB, and from recent FASB accounting pronouncements discussed later. Certain differences in U.S. GAAP and LAS that have existed a long period of time will also be addressed in the short-term phase of the convergence project. Over the long-term horizon, both Boards have undertaken a number of major projects with convergence between FASB and IASB standards being fully considered as part of the due process. These projects are: Business Combinations (Phase ID, Financial Performance Reporting, and Revenue Recognition. Convergence on these projects over the next several years will require further coordination between the Boards with regards to agenda setting and resource allocation (5). (3)

Short-Term Convergence Between U.S. GAAP and IAS. The staffs of both Boards, together with the staff of the U.S. SEC, have been working on developing the scope of this historic undertaking. Summary of short-term convergence projects is presented in Exhibit 1.

Business Combinations--Phase II: Purchase Method Procedures

Until recently, international practice on accounting for business combinations was diverse, particularly in the allowed methods of accounting and criteria used to identify circumstances in which it is appropriate to apply a particular method. In June 2001, after extensive due process and political struggle, the FASB issued two new standards, Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. The most significant changes introduced by these standards are: 1) elimination of pooling of interest method, and 2) annual test for impairment instead of amortization of goodwill.

Shortly after issuance of these two new pronouncements by the FASB, in July 2001, the IASB decided to add the Business Combination project to its agenda. The project has two phases. Phase I seeks the convergence of existing standards on: the definition of business combinations, the appropriate methods of accounting for business combinations, the accounting for goodwill and intangible assets acquired in a business combination, and the initial measurement of the identifiable net assets acquired in a business combination. The IASB is currently preparing an Exposure Draft (ED) arising from the Phase I of the project The ED is expected to be issued in the fourth quarter of 2002.

The conclusions reached by the IASB are very similar to those reached by the FASB in Statements No. 141 and 142. All business combinations should be accounted for as acquisitions, and goodwill should not be amortized but tested for impairment. However, there are some differences inherited from other standards, which will need to be resolved in the future. These include certain impairment test differences and no write-off of in-process R&D under the IASB proposal.

Phase II of the IASB's Business Combination project covers three groups of issues:

* issues related to the application of the purchase method;

* new basis/fresh start accounting expected to cover business combinatioas involving entities under common control;

* issues excluded from Phase I:

- business combinations involving two or more mutual entities (e.g., mutual insurance companies);

- business combinations in which separate entities are brought together to form a reporting entity by contract only, without obtaining an ownership interest (e.g., dual listed companies).

At its meeting in April 2002, the IASB agreed to move the application of the purchase method from Phase II to its active agenda as a joint project with the FASB [7]. The purpose of the joint Purchase Method Application project is to achieve convergence between FASB and IASB guidance on purchase accounting.

So far in Phase II of the project, the IASB and FASB tentatively agreed on a working principle. It is based on fair value-the fair value of either the consideration paid or the net assets acquired--as the amount that should be recognized by an acquirer for an acquiree (7). Both the FASB and the IASB have tentatively agreed to the following fair value hierarchy to be used in the measurement of identifiable assets and liabilities initially recorded at fair value by the acquirer in a business combination (6).

Level 1: By reference to an observable market transaction.

Level 2: If Level 1 is not available, through valuation methods or techniques (such as present value or option pricing models) that incorporate market-based assumptions consistent with the objective of determining fair value of the item.

Level 3: If neither Level 1 nor Level 2 is available, through valuation methods or techniques that incorporate assumptions not contrary to market assumptions.

During the joint Board discussion on September 18, 2002, the Boards focused on issues for which the FASB and IASB reached previously different tentative conclusions. For example, the IASB reconsidered the measurement date for equity instruments issued as consideration in a business combination. The Board concluded that there are valid arguments for measuring them at the agreement date or the acquisition date, but in the interest of convergence, agreed that the instrument should be measured at its fair value at the acquisition date.

Certain scope issues, however, are still unresolved. The FASB agreed to reconsider whether certain issues, such as: 1) amendments to employee benefit plans that are a condition of business combination, 2) constructive obligations, and 3) in-process R&D of the acquiree, should be included in the scope of this project. The IASB agreed to include the following minority interests issues that were initially excluded from that scope: 1) decrease in the parent's ownership interest after a business combination, and 2) display of minority interests in the consolidated income statement, or statement of changes in equity. These issues will be addressed jointly with the FASB staff currently assigned to the joint Purchase Method Application project.

Financial Performance Reporting. Both organizations are currently pursuing Financial Performance Reporting projects. Recently, they have discussed the basis for making two primary classifications for the display of items in comprehensive income. Those distinctions are tentatively referred to as "financing and operating," and "income flows and valuation adjustments." It is proposed that all components of comprehensive income should be classified as either operating or financing, such that the total operating income plus total financing income is equal to comprehensive income. At the September 18, 2002 joint meeting, members of each Board expressed support for further development of the definitions or descriptions for making those distinctions and the need to learn more about the ability to implement them. The Boards also discussed issues on which they diverged. Each of the Boards encouraged their staff to work on defining key terms and to continue cooperative effort on the project.

Revenue Recognition Project. The Boards have recently added revenue recognition to their agenda. This is an area that continues to be the single largest source of restatements of financial statements in the U.S. and an area of growing international concern. Indeed, about 50% of the U.S. SEC's enforcement proceedings against accountants are a result of improper revenue recognition practices. The Boards continue to explore prospects for launching a joint project on revenue recognition.

The Boards have already discussed shortcomings of the existing conceptual criteria for revenue recognition. They have focused on differences between the "realization and earnings approach" consistent with FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, and the income recognition guidance in the JASB Framework for the Preparation and Presentation of Financial Statements; and the "asset and liability approach" consistent with FASB Concepts Statement No. 6, Elements of Financial Statements, and the definition of income in the IASB Framework. At the September 18,2002 joint meeting, the Boards directed the staff to explore the use of the asset and liability approach.

Major Unresolved Issue: Accounting for Stock-Based Compensation

One of the major issues upon which the FASB and IASB positions have yet to converge is accounting for stock-based compensation. Indeed, the FASB has not even been able to converge which of its two methods of accounting for stock-based compensation (APB No. 25 versus Statement No. 123) should be used in the United States. The Europeans, who do not believe that the U.S. standard setters have properly thought through all of the stock option accounting issues, led the drive to put share-based payments on the IASB agenda. On November 7, 2002, the IASB published for public comment a proposal on how entities should account for share-based payment transactions, including grants of share options to employees. This could become one of the areas where the international standard is superior to the U.S. standard (17). This standard recommends that the fair value of stock options at the date of the grant should be used to measure stock-based compensation, which is consistent with FASB Statement No. 123. It is assumed by ma ny accounting professors in the U.S. that when this superior standard is finalized by the IASB, firms in the U.S. will be forced to use Statement No. 123, a process that is beginning now.

Comparison of the FASB and IASB Positions on Accounting for StockBased Compensation.

Accounting Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees. The business community and FASB have struggled with the question of whether or not the issuance of stock options to employees constituted compensation expense. The standard used by the overwhelming majority of companies in the U.S. is APB No, 25, Accounting for Stock Issued to Employees, established by the Accounting Principles Board in October 1972. In accordance with the provisions of APB No. 25, stock-based compensatory plans can be fixed or variable. The most common are fixed stock option plans, which vest after the employee has worked for the company for a certain period of time. With fixed option plans, both the number of options and the strike price (pre-established price called option price by FASB) are established on the date the options are granted. With variable stock options, the number of options and the strike price are not established on the grant date but are usually contingent on future events, such as meeting target amounts of return on equity or assets or earnings per share. The amount of total compensation associated with a compensatory stock option must be determined, then allocated over the service period as compensation expense. Under APB No. 25, total compensation expense for fixed stock option plans is measured as the difference between the market price of the stock and the strike price on the measurement date. The measurement date is the first date on which both the number of options and the strike price are known. This method is called the intrinsic-value method. For fixed stock options, the measurement date is the grant date, which is the date the options are issued to the employees. Since most companies set the strike price equal to the market price on the grant date, no compensation expense is ever recorded. For variable stock options, the measurement date is usually the exercise date. Compensation expense is recorded over the service period based on the market price of the stock at int ervening dates. Traditionally, businesses have structured their option plans as fixed plans to avoid reporting compensation expense under APB No. 25.

FASB Statement No. 123, Accounting for Stock-Based Compensation. For several years, FASB indicated that it favored the measurement and reporting of compensation expense at the fair value of the options, when options were granted. In the early 1990s, FASB issued an Exposure Draft (ED) that would have required such a reporting. However in 1995, FASB adopted a more modest standard, FASB Statement No. 123, Accounting for Stock-Based Compensation, which requires expanded footnote disclosures which provide pro forma NI and EPS as if compensation were measured using the FMV of stock options in lieu of reporting compensation directly in the income statement The FASB had modified the proposal in the face of strong opposition by many in the business community and in Congress. While Statement, No. 123 provides that expense recognition for the fair value of employee stock options granted is the preferable approach, it permits the continued use of the APB 25 method for employees only, with disclosure in the footnotes of t he pro forma effect on net income and earnings per share as if the preferable expense recognition method had been applied. Thus, FASB Statement No. 123 permits companies to continue to apply APB No. 25, and most companies have done so.

FASB ED, Accounting for Stock-Based Compensation--Transition and Disclosure. In October 2002, the FASB issued an Exposure Draft (ED), Accounting for StockBased Compensation--Transition and Disclosure, that would amend the transition and disclosure provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, but would maintain its recognition and measurement provisions. Specifically, the proposed Statement would provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, the proposed Statement would amend the disclosure requirements of Statement No. 123 to require more prominent disclosures about the method of accounting for stock-based employee compensation, and the effect of the method used on reported results in both annual and interim financial statements.

Among the most recent are: General Electric Company, Coca-Cola Company, Washington Post Company, Bank One Corporation, and AMB Property Corporation. With corporate scandals becoming a major issue, it is believed that the motivations behind these moves are a direct reaction to the fall-out from the collapse of Enron Corp., WorldCom Inc. and others whose executives made millions of dollars from options before their companies collapsed.

Criticisms about the ED have emerged from both investors and accounting professionals. The critics say the majority of the criticisms center around the options provided in the ED. Most critics want a "uniform standard" for the transition. Under the proposal, companies are able to choose one of three methods for expensing options.

IASB ED 2, Share-Based Payment.

There is no existing IAS on share-based payments. This gap in international standards has become a cause for concern, because the use of share-based payments has expanded greatly in recent years. In July 2000, IASC published a Discussion Paper Accounting for Share-Based Payments. In July 2001, the IASB added a project on share-based payment to its agenda, and agreed that the product of this stage of the project should be the development of an ED of a new IFRS. The ED 2, Share-Based Payments was issued on November 7, 2002.

The objective of the proposals in ED 2 is to ensure that entities recognize share-based payment transactions in their financial statements, so as to provide high quality, transparent and comparable information to users of financial statements. In developing its proposals, the IASB concluded that share-based payment transactions involving grants of share options to employees should be accounted for in the same way as other transactions in which an entity receives resources as consideration for its equity instruments. The proposal, therefore, would require that all share-based payment transactions recognizing an expense be recognized in the financial statements, using a fair value measurement basis similar to what is disclosed in the pro forma footnotes under Statement No. 123 (8).

The IASB agreed that the measurement date should be the date that the stock or options are granted and that an option pricing model should be used to determine fair value of the options, where an observable comparable market price does not exist. The ED does not specify which particular model should be used. It contains various proposals on estimating the fair value of employee share options, to allow for differences between employee share options and traded options (8).

The IASB proposals provide somewhat more leeway in valuing options than the current U.S. standard does, and differ in some details, but they are likely to produce similar values. In the case of companies that are not yet public, however, the proposed standard would call for a significantly higher value for the options (12).

The IASB collected comments on the ED 2 till March 7, 2003. The FASB issued an Invitation to Comment summarizing the IASB's proposals and explaining the key differences between their provisions and current U.S. accounting standards. Based on received comments, the FASB will consider whether it should propose any changes to the U.S. standards on accounting for stock-based compensation. It is expected that the high-tech companies will oppose the proposed standard. They will argue, again, that there is no accurate, reliable and meaningful method today to value stock options.

Conclusion

The growth of cross-border investing and capital flows, and a growing endorsement of IAS in many parts of the world, require the FASB to become an active participant in the process of setting high-quality global accounting standards. Under the new leadership, the FASB has been dedicating significant resources at various levels to this effort. The IASB has already started to affect the FASB's agenda including the addition of priority international accounting topics. In more and more cases, the FASB adds a project to its agenda that will enhance convergence.

The current financial reporting crisis in the U.S., the need to develop better accounting standards that will be internationally acceptable, and the new EC Regulation requiring listed companies to comply with the IFRS by 2005, create a unique opportunity to converge on a single set of high-quality global accounting standards. These standards would dramatically improve the efficiency of global capital markets by lowering cost of capital, improving comparability, and enhancing corporate governance.

EXHIBIT 1. SHORT-TERM CONVERGENCE PROJECTS

             Project                U.S. GAPP

Projects to be led by the FASB on
 reduction of differences arising
 from proposals in the IASB
 improvements Project:

* Classification of liabilities on  SFAS 6. Liabilities are classified
  refinancing                       as non-current if the refinancing
                                    is complete by the date of issue
                                    of the financial statements.

* Classification of liabilities in  SFAS 78. Liabilities are classified
  breach of borrowing agreement     as non-current if the lender had
                                    agreed before the issue of the
                                    financial statements not to demand
                                    repayment for more than one year
                                    from the balance sheet date.

* Asset exchanges                   APBO 29 does not recognize a gain
                                    on the exchange of similar
                                    productive assets, unless cash is
                                    received in exchange.

* Voluntary change in accounting    APBO 20 requires a cumulative
  policies                          adjustment in the year of change.


Projects to be led by the IASB on
 reduction of differences arising
 from relatively recently issued
 FASB statements:

* Definition of discontinued        SFAS 144
  activities

* Accounting for costa associated   SFAS 146 requires such costs to be
  with exit or disposal activities  recognized when the liability is
                                    incurred and gives guidance on the
                                    timing of recognition.

* Government grants                 SFAS 116


             Project                IAS

Projects to be led by the FASB on
 reduction of differences arising
 from proposals in the IASB
 improvements Project:

* Classification of liabilities on  IAS 1 would require liabilities to
  refinancing                       be classified as current unless
                                    the refinancing is complete by
                                    the balance sheet date.

* Classification of liabilities in  IAS 1 would require such
  breach of borrowing agreement     liabilities to be classified as
                                    current even if the lender had
                                    agreed not to demand repayment
                                    before the issue of the financial
                                    statements.

* Asset exchanges                   IAS 16 would require a gain or
                                    loss to be recognized on the
                                    exchange of similar assets based
                                    on fair value.

* Voluntary change in accounting    IAS 8 proposes that voluntary
  policies                          changes in accounting policy
                                    should be treated retrospectively.

Projects to be led by the IASB on
 reduction of differences arising
 from relatively recently issued
 FASB statements:

* Definition of discontinued        IAS 35
  activities

* Accounting for costa associated   IAS 37
  with exit or disposal activities



* Government grants                 IAS 20 is out of date and should be
                                    reviewed in the light of SFAS 116.

Endnotes

(1.) International Financial Reporting Standards (IFRS) include International Accounting Standards (IAS) issued by the IASC. The abbreviation IAS is used throughout the text whenever a reference to the existing IAS is made.

(2.) These standards are: FASB Statement No. 128, and IAS 33, issued by IASC. Both standards are entitled Earnings Per Share.

(3.) Two of these projects, Performance Reporting and Revenue Recognition, are concurrently on the agenda of United Kingdom's Accounting Standards Board (ASB) as well.

References

(1.) Accounting Principles Board. "Accounting for Stock Issued to Employees." Opinions of the Accounting Principles Board No. 25, New York: AICPA, 1972.

(2.) Casabona, P. and V. Shoaf. "International Financial Reporting Standards: Significance, Acceptance, and New Developments," Review of Business, 23(1), Winter 2002, 16-20.

(3.) Financial Accounting Standards Board. "Accounting for Stock-Based Compensation," Statement of Financial Accounting Standards No. 123, Stamford, CT: FASB, 1995.

(4.) Financial Accounting Standards Board. "Accounting for Certain Transactions Involving Stock Compensation: An Inter pretation of APB Opinion No. 25," Interpretation No. 44, Stamford, CT: FASB, 2000.

(5.) Financial Accounting Standards Board. "Accounting for Stock-Based Compensation - Transition and Disclosure," Exposure Draft, Norwalk, CT: FASB, 2002.

(6.) Financial Accounting Standards Board. "Board Meeting Handout/Information for Observers," Board Meeting, 18-2 September 2002, Norwalk, CT.

(7.) International Accounting Standards Board. "Project Update: Business Combinations," Insight: The Newsletter of the International Accounting Standards Board, July 2002, 13-15.

(8.) International Accounting Standards Board. Share-Based Payments. London UK IASB, 2002.

(9.) International Organization of Securities Commissions. "IASC Standards," Report of the Technical Committee of the International Organization of Securities Commissions (with Appendixes), May 2000.

(10.) Lipe, R. "Lease Accounting Research and the G4+1 Proposal," Accounting Horizons, 15(3), September 2001, 299-310.

(11.) Mueller, G., H. Gernon and G. Meek. Accounting: An International Perspective, 4th edition. Chicago: Irwin, 1997.

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