An Executive Guide to IFRS: Content, Costs and Benefits to Business

Convergence

This would have led to widespread use of IAS/IFRS for secondary listings. In addition, some countries already used them either to meet gaps in local rules or as the model for national rules. However, everything changed in 2000 when the convergence initiative could be said to have taken over. In 1999 the international standard-setter completed an overhaul of its standards and in May 2000 IOSCO accepted them as the basis of its secondary listing approach. But in June the European Commission announced that it would bring forward legislation to make IAS/IFRS compulsory for the primary financial statements of companies listed on European Union (EU) stock exchanges. This was the start of the worldwide move to use only IAS/IFRS for financial statements provided by companies using public capital markets. National GAAP was set to disappear progressively and be replaced by IAS/IFRS, at first in the EU but progressively in Australia, South Africa, Canada, India, Brazil, South Korea, Japan, China and many other countries. Even the US is thinking about it.

Convergence, then, is the move towards using a single, globally accepted set of financial reporting standards in preference to using standards developed nationally. Why has the world suddenly decided after centuries of national rules that international ones are necessary? The short answer is that the world economy is increasingly being polarized into small and large business, and financial reporting is also being polarized as ...