The Norwalk Agreement refers to a Memorandum of Understanding ( MOU ) which was signed in September of 2002 in Norwalk. Connecticut between the United States Financial Accounting Standards Board ( FASB ) and the International Accounting Standard Boards ( IASB ) The MOU was an understanding between the two organisation to. “use their best attempts to ( a ) make their existing fiscal coverage criterions to the full compatible every bit shortly as is operable and ( B ) to organize their hereafter work plans to guarantee that one time achieved. compatibility is maintained. ” The original understanding called for all differences between US GAAP ( Generally Accepted Accounting Principles ) and IFRS ( International Financial Reporting System to be eliminated by January 1. 2005. but jobs rapidly surfaced in this attack and harmonizing the US Securities and Exchange Commission ( SEC ) presently has a timeline of 2016 for all US corporations to follow the IFRS. Before discoursing what the consequence of these alterations are on US Corporations. one must foremost understand the history of both the FASB/US GAAP and the IASB/IFRS.

The Financial Accounting Standards Board was established by the SEC in 1973 to take over the function of set uping criterions for fiscal accounting from the American Institute of Certified Public Accountants ( AICPA ) ’s Accounting Principles Board ( APB ) . The US GAAP are accounting regulations used to fix. present. and describe fiscal statements for a broad assortment of entities. including publicly-traded and privately-held companies. non-profit organisations. and authoritiess. The US Government does non straight set accounting criterions. alternatively believing that the private sector has a better ability to put these regulations. The US GAAP is non officially written into jurisprudence. but is alternatively codified into the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.

The FASB has four major types of publications it uses to do alterations to the US GAAP: 1. Statements of Financial Accounting Standards: the most important US GAAP puting publications. 2. Statements of Financial Accounting Concepts: Part of the FASB’s conceptual model undertaking. these are cardinal nonsubjective and constructs that the FASB will utilize in developing future criterions. They are non a portion of the US GAAP. but alternatively represent future ends of the GAAP. 3. Interpretations: Interpretations modify or extend bing criterions and are a portion of the US GAAP. There are presently 48 readings available 4. Technical Bulletins: These are guidelines on using criterions. readings. and sentiments. They normally solve a really specific accounting issue that does non hold a important. durable consequence.

The International Accounting Standards Board ( IASB ) is an independent. in private funded organisation founded in London. England on April 1. 2001 with the declared aim to: “develop a individual set of high quality. apprehensible. enforceable. and globally accepted fiscal coverage criterions based upon clearly articulated rules. ” To accomplish these aims the IASB has developed the International Financial Reporting Standards ( IFRSs ) and sharply advancing the usage of these criterions. As of today over 120 states either require or allow the usage of IFRSs and all members of the G20 have established clip lines to follow the IFRSs in the close hereafter ( including the United States. ) The IFRSs consist of the criterions. readings. and models issued by the IASB. and include many of the criterions once known as International Accounting Standards ( IAS ) which were issued by the now defunct International Accounting Standards Committee ( IASC ) which existed from 1973 until 2001.

The IFRSs are rule based criterions ( as opposed to the US GAAP which uses rules-based criterions ) that set up wide regulations but by and large leave specific interventions unfastened to some reading. IFRSs consist of: 1. International Financial Reporting Standards ( IFRS ) – All criterions issued after the IASB was founded in 2001. 2. International Accounting Standards ( IAS ) – Standard issues by the IASC prior to 2001. 3. Interpretations from the International Financial Reporting Interpretations Committee ( IFRIC ) – Interpretations issued after 2001. 4. Standing Interpretations Committee ( SIC ) – Interpretations issued before 2001. 5. Model for the Preparations and Presentations of Financial Statements – A statement of the basic rules of the IFRSs.

The model serves as a usher to deciding accounting issues non specifically addressed in a criterion. Having established the backgrounds of the major participants to the Norwalk Agreement it is of import to understand how this convergence undertaking will impact US Corporations in their future fiscal coverage as the FASB / SEC begins their push towards full integrating by the twelvemonth 2016. As converged criterions are introduced. many US Corporations will see major alterations in all countries of their concern activities runing from fiscal statements to renting to employee benefits and although covering all these alterations is beyond the range of this paper. we will show some of the more of import alterations. The largest major difference between the two ordinances is in their range. and degree of “guidance” for companies in the country of gross acknowledgment.

The US GAAP has developed elaborate counsel for many different industries integrating criterions suggested by a battalion of accounting criterions organisations in those specific industries. The IFRS. on the other manus. references two criterions for gross acknowledgment for counsel and allows companies to find which method they will utilize. Another major alteration for US Companies is in the country of stock list bing. Under US GAAP. companies may take between utilizing LIFO ( Last-In-First-Out ) . FIFO ( First-In-First-Out ) . or a assortment of other stock list rating methods. in accounting for cost of goods held in stock list. Once the switch is made to IFRS. the usage of LIFO for stock list rating will be prohibited so that all companies will be similar cost expressions. Several extra alterations include:

1. The option to sort disbursals based on either map or nature under IFRS vs. the demand to sort disbursals based on map merely under US GAAP. 2. The demand to show noncontrolling ( “minority” ) involvement as a constituent of equity on the balance sheet under IFRS vs. the demand under US GAAP to show noncontrolling involvement outside of equity. 3. The ability to utilize either the proportionate consolidation method or the equity method of accounting for joint venture accounting under IFRS vs. the current demand to utilize the equity method of accounting 4. IFRS will let reappraisal of assets for several different categories of assets. even necessitating their reappraisal on a regular footing whereas presently US GAAP does non allow reappraisal under any circumstance.

5. Under IFRS. advertisement and promotional cost will hold to be expensed as incurred vs. the US GAAP which allows for costs to either be expensed as they are incurred. or disbursal when the advertisement takes topographic point for the first clip. go forthing the pick up to the single company. While these alterations are merely a few of the alterations which will impact company’s’ fiscal statements there are many alterations coming which autumn in countries outside fiscal statements. Nowhere is this clearer than in the country of US regulative Torahs. As an article in the Wall Street Journal. “Closing the Information GAAP. ” notes that. “If an accounting and coverage model that relies on professional judgement instead than elaborate regulations is to boom in the U. S. . the legal and regulative environment will necessitate to germinate in ways that remain to be seen. ”

They suggest that Torahs in the US will hold to travel to accept more ambiguity in accounting. and that the alteration to IFRS could perchance supply new defences to executives and comptrollers who try to make the right thing. A concluding alteration noted by both the PriceWaterhouseCoopers and Accenture instance surveies. is the updating. sometimes at a really high cost. of companies Accounting Information Systems to be able to roll up. shop. and analysis fiscal informations in ways that will follow with the new IFRS criterions. These two surveies both believe that this activity will be the most painful and hard for the bulk of US companies to follow with.

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[ 1 ] . FASB. “FASB: Fiscal Accounting Standards Board. ” Norwalk Agreement. Accessed June 29. 2010. . [ 2 ] . SEC. “SEC Proposes Roadmap Toward Global Accounting Standards to Help Investors Compare Financial Information More Easily. ” Accessed June 29. 2010. & lt ; hypertext transfer protocol: //www. sec. gov/news/press/2008/2008-184. htm & gt ; [ 3 ] . FASB. “FASB: Facts about FASB. ” Accessed July 03. 2010. [ 4 ] . IFRS Foundation. “Who we are and what we do. ” Published July 2010 [ 5 ] . IASB. “About the IFRS Foundation and the IASB. ” Accessed July 02 2010. [ 6 ] . IAS Plus. “Summaries of International Financial Reporting Standards. ” Accessed July 03 2010. [ 7 ] . PriceWaterhouseCoopers. “IFRS and US GAAP similarities and differences. ” September 2009. From the “IFRS Readiness Series. ” [ 8 ] . Accenture. “Preparing for International Financial Reporting Standards: An Opportunity for Finance Transformation. ” [ 9 ] . Ernst & A ; Young. “US GAAP vs. IFRS: The Basics. ” January 2009. [ 10 ] . The Wall Street Journal. “Closing the Information GAAP. ” Accessed July 20 2010.