What Is the Norwalk Agreement

The Norwalk Agreement is an international agreement between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). This agreement was reached in September 2002 in Norwalk, Connecticut.

The purpose of the Norwalk Agreement was to establish a framework of compatible accounting standards that could be used in both the United States and in other countries. This agreement was necessary due to the globalization of business and the need for consistency in financial reporting.

The Norwalk Agreement consisted of a set of five principles that were agreed upon by the IASB and FASB. These principles included the need for a shared understanding of concepts and objectives, a converged set of standards that could be used by all parties, a commitment to cooperation and coordination, continued improvement based on feedback from stakeholders, and a process for ongoing dialogue and communication.

One of the most significant outcomes of the Norwalk Agreement was the creation of the International Financial Reporting Standards (IFRS). This set of standards was created to be a globally recognized accounting framework that could be used by companies in different countries.

IFRS is now used in over 135 countries, with the European Union being the most notable adopter. The United States, however, has yet to fully adopt IFRS, with the Securities and Exchange Commission only allowing foreign companies to use IFRS for financial reporting purposes.

In conclusion, the Norwalk Agreement was a key milestone in the development of global accounting standards. The agreement led to the creation of IFRS, which has become the globally recognized accounting framework used by many countries around the world. As businesses continue to expand and operate in different countries, the need for a common set of accounting standards will only grow in importance.