1 As companies have become increasingly global, consistent reporting requirements are more critical than ever. International Financial Reporting Standards, otherwise known as IFRS, is a set of rules that govern public firms' financial statements to ensure that they share uniform, reliable, and comparable financial information to potential investors (Palmer, 2022). The International Accounting Standards Board, or IASB, governs IFRS. IFRS is used in over 160 countries and the European Union (Palmer, 2022). Unfortunately, IFRS has not yet been implemented in the United States, which has not helped to simplify and streamline many of the largest firms’ financial statements. The US utilizes Generally Accepted Accounting Principles or GAAP, which is governed by the Financial Accounting Standards Board and the Securities and Exchange Commission (SEC). Through certain attempts to integrate the standards protocol, the US has gotten closer to aligning with IFRS, but there are still considerable differences between the IFRS and GAAP standards. One way that IFRS and GAAP have attempted to reconcile their differences was through the Norwalk Agreement. The Norwalk Agreement is a Memorandum of Understanding that the FASB and IASB agreed to that would help develop consistent, high-quality financial information that could be utilized for domestic or global consumption by firms in the US (FASB, 2002). The Norwalk Agreement set out four essential agenda items to place their focus on in order to achieve GAAP and IFRS compatibility. First, a project would begin to remove minor individual differences between the two guidelines (FASB, 2002). Second, other differences would be reviewed with the intent to resolve them by both FASB and IASB concurrently (FASB, 2002). Third, all joint projects would proceed that are currently underway with the idea that compliance with both standards would be achieved (FASB, 2002). Fourth, FASB and IASB would be 2 encouraged to coordinate their actions and work together to achieve compliance moving forward (FASB, 2002). The FASB and IASB also have been working on several projects since the signing of Norwalk that will move toward more continuity among financial reports. One example of a joint project between the two groups is the effort to define what financial statements should be presented, what they should contain, and how the information should be shown (Wagoner, 2009). As most stakeholders have seen, information among financial statements of different firms is almost always presented with moderate stylistic differences, even if they contain substantively similar information. With this joint project, investors should be able to compare the financials of two or more firms more easily. Another project that the FASB and IASB are working on together is defining “what accounting elements are and under what circumstances they should be recognized” (Wagoner, 2009). The impetus of defining these accounting elements is critical because if these do not align, all other efforts will have significantly diminished value. As the FASB and IASB have implemented their changes, the value of the Norwalk agreement has become more apparent. As time has progressed, more iterations of the Norwalk agreement have taken place, which have led to even greater value generation. In the seventh iteration of the agreement, there has been evidence that capital markets are functioning more efficiently (Usurelu & Dutesch, 2018). The efficient productivity of markets is one of the most significant achievements Norwalk could generate, and if this continues to improve Norwalk, its changes will continue. The speed of information and its review is faster today than ever, and making it easily interpreted and consistent is of the utmost importance. While the US still needs to implement full 3 IFRS or full compliance with its guidelines, it is only a matter of time before the two policies become fully aligned, if for no other reason than investor demand. 4 References FASB. (2002, September 18). The Norwalk Agreement. FASB Home. https://fasb.org/page/ShowPdf?path=memorandum.pdf&title=The+Norwalk+Agreement+ %28MOU%29 Palmer, B. (2022, September 13). What are International Financial Reporting Standards (IFRS)? Investopedia. https://www.investopedia.com/terms/i/ifrs.asp Usurelu Valentin, I., & Dutescu, A. (2018, May 1). IFRS 15 – the seventh wave of Norwalk Agreement’s convergence roadmap. Proceedings of the International Conference on Business Excellence. https://econpapers.repec.org/RePEc:vrs:poicbe:v:12:y:2018:i:1:p:992-1001:n:89 Wagoner, J. (2009). The Convergence Movement Six Years after Norwalk. Journal of Financial Service Professionals, 63(1), 10–12.
