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

Modified convergence

It is worth pointing out that the literature is starting to refer to convergence in a slightly different sense as well. China, as noted above, has not adopted IFRS as such but has chosen to issue local standards that are largely the same as IFRS but reflect the local economic and legal framework. Japan has said that it will do the same, although it now lets Japanese companies use IFRS voluntarily and may still go for adoption. Convergence in the Chinese manner is therefore slightly different than the general convergence movement discussed above, even though it is a subset of that. Chinese convergence will result in standards very similar to the international model but not the same. A report by the staff of the SEC in October 2010 raised the possibility that this modified convergence might be a route that the US could follow instead of full adoption of IFRS.

Generally the IASB does not like the modified convergence approach. Their call is ‘adopt, do not adapt’. It is confusing to investors if there are several comprehensive bases of accounting in use in the international markets, all claiming to be more or less IFRS. Also the IASB does not want its standards devalued (as happened to an extent in the 1990s) by countries using all the standards except the tough ones.