Convergence moves a step closer 

Following the elimination of the US GAAP reconciliation requirement for SEC-registered foreign companies that use IFRS, the IASB and FASB have discussed the need to update their 2006 joint Memorandum of Understanding (MoU). With the reconciliation milestone achieved, the Boards have set their sights on adoption of IFRS in all of the world's major capital markets by 2013. The Boards also acknowledge that a stable period will be needed ahead of that date.

The revised MoU is not yet final, but the Boards have discussed its major themes. The most significant outcome is an expected reordering of the IASB's priorities and work plans between now and 2011. That is the target date by which "major deficiencies" in IFRS will need to be addressed if the ambitious 2013 goal is to have a realistic chance of success. The projects falling into the "major deficiencies" category are:

	Revenue recognition - the Boards regard existing guidance in IAS 18 "Revenue" as incomplete, insufficient, and internally inconsistent. Preparers who do not find a ready answer in IAS 18 often resort to the detailed guidance provided in US GAAP. The Boards therefore intend to develop a single model of revenue recognition in time for the 2013 deadline.
	Fair value measurement - IFRS currently lacks a consistent/robust definition of fair value, and this has been identified as a significant issue for US investors. The Boards therefore aim to complete a project on this matter by mid-2011 by limiting the objective of the project to amending existing IFRSs to replace the various measurement terms used with references to either entry or exit prices; and including a definition of exit prices that is identical to the one used in the US standard dealing with fair value measurement.
	Consolidation policy - the Boards have identified the need for improved guidance relating to effective control and special-purpose entities as being critical issues that need to be addressed, particularly in light of the current credit crisis. The intention is to complete a consolidation policy standard that embraces the idea of effective control by 2011.
	Derecognition - the Boards view both IAS 39 "Financial Instruments: Recognition and Measurement" and the US derecognition standard as being flawed and have therefore identified a need for a replacement standard to be developed which will adequately address securitisation issues.

In addition, the Boards have identified projects that address areas for which there is a significant need for improvement in IFRS, which include financial statement presentation, postretirement benefits and lessee accounting. The MoU discussions have provided some clear pointers on the Boards' current views on what should be done in these areas.

Inevitably, this prioritisation exercise means that other projects will be pushed back. Any other projects not specifically mentioned in the MoU can be expected to be relegated to the longer term agenda. The project on insurance is likely to fall into this category.