Running Head: ACCOUNTING STANDARDS BOARDS PAPER Accounting Standards Boards Paper Lila Alemar ACC 541 Shauki Smith May 24, 2010 History of the relationship between IASB and FASB The International Accounting Standards Board (IASB) began operations in 2001. It is an organization committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements. The IASB has developed procedures that bring transparency, predictability, and consistency (IASCF Press Release, December 2, 2007).
The Financial Accounting Standards Board (FASB) began operations in 1973 and has been the designated organization in the private sector for establishing standards of financial accounting. Those standards govern the preparation of financial statements. They are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA). Such standards are important to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information.
The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information (Financial Accounting Standards Board, n. d. ). The IASB and the US FASB have been working together since 2002 to achieve convergence of International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP). A common set of high quality global standards remains a priority of both the IASB and the FASB.
The boards shared objective of developing high quality, common accounting standards for use in the world’s capital markets. Both boards believe that a common set of high quality accounting standards will enhance the consistency, comparability and efficiency of financial statements, enabling global markets to move with less friction (Financial Accounting Standards Board 2006). In September 2002 the IASB and the FASB agreed to work together, in consultation with other national and regional bodies, to remove the differences between international standards and US GAAP.
This decision was embodied in a Memorandum of Understanding (MoU) between the boards known as the Norwalk Agreement. Although the document does not represent a change in the boards’ convergence work program, it reflects the context of the ‘roadmap’ for the removal of the reconciliation requirement for non-US companies that use IFRSs and are registered in the United States. It also reflects the work undertaken by the Committee of European Securities Regulators (CESR) to identify areas for improvement of accounting standards.
The boards’ commitment was further strengthened in 2006 when the IASB and FASB set specific milestones to be reached by 2008 (A roadmap for convergence 2006 – 2008). The ability to meet the objective set out by the roadmap depends upon the efforts and actions of many parties including companies, auditors, investors, standard-setters and regulators. The IASB recognized that their contribution to achieving the objective regarding reconciliation requirements is continued and measurable progress on the FASB-IASB convergence program.
Recent discussions by the boards regarding their approach to the convergence program indicated agreement on the following guidelines: • Convergence of accounting standards can best be achieved through the development of high quality, common standards over time. • Trying to eliminate differences between two standards that are in need of significant improvement is not the best use of the FASB’s and the IASB’s resource- instead, a new common standard should be developed that improves the financial information reported to investors. Serving the needs of investors means that the boards should seek to converge by replacing weaker standards with stronger standards. Consistently with those guidelines, and after discussion with representatives of the European Commission and the SEC staff, the FASB and the IASB have agreed to work toward the following goals for the IASB-FASB convergence program: Joint projects being conducted with the IASB: Joint projects involve the sharing of staff resources, and every effort is make to keep joint projects on a similar time schedule at each board.
Short-term convergence: The goal is to reach a conclusion about whether major differences in the following few focused areas should be eliminated through one or more short-term standard-setting projects. Liason IASB member on site as the FASB offices: One of the most visible features of the FASB’s daily operations that promoted convergence is the presence of a full time IASB member in residence at the FASB offices. The role was created to facilitate information exchange and increase cooperation between the FASB and the IASB.
FASB monitoring of IASB projects: IASB projects are monitored the FASB based upon the FASB’s level of interest in the topic being addressed. The convergence research project: The project seeks to identify the substantive differences between US GAAP and IFRS and to catalog those differences according to the Board’s strategy for resolving them. The project scope includes differences in standards addressing recognition, measurement, presentation, or disclosure (Financial Accounting Standards Board, 2002).
IASB equivalents to FASB original pronouncements and the changes needed to converge The convergence project focuses on the reduction of differences arising from proposals in the IASB improvements project, including: ? Classification of liabilities on refinancing. IAS 1, Presentation of Financial Statement, would require liabilities to be classified as current unless the refinancing is completed by the balance-sheet date, not by the date of issue of the financial statements. ? Classification of liabilities on breach of borrowing agreement.
Using the same principle as above, IAS 1 would require such liabilities to be classified as current even if the lender had agreed not to demand repayment before the issue of the financial statements. Currently, under U. S. GAAP, they would be classified as noncurrent if the lender had agreed before the issue of the financial statements not to demand repayment for more than one year from the balance-sheet date. ? Asset exchanges. IAS 16, Property, Plant and Equipment, would require a gain or loss to be recognized on the exchange of similar assets based on fair value. U. S.
GAAP currently does not require companies to recognize a gain on the exchange of similar productive assets. ? Voluntary change in accounting policies. IAS 8, Accounting Policies, Changes in Accounting Estimates and Error, proposes that voluntary changes in accounting policy should be treated retrospectively. U. S. GAAP generally requires a cumulative adjustment in the year of change. ? Improvements to IAS 32 and IAS 39 on financial instruments. Many of the changes proposed in the improvements to IAS 32 and IAS 39 reduce differences between IASB and FASB standards. However, some of the proposed changes will create differences.
It is acknowledged that some of the differences between IASB and FASB standards on financial instruments will have to form the subject of a longerterm major project, but some may be capable of resolution in the short term (Convergence of GAAP & IASB Standards Aids Int’l Credit Analysis, 2002) How the MSA program prepares the student for a professional life within the accounting vocation The University of Phoenix MSA program provides the students access to higher education opportunities and enables them to develop the knowledge and skills necessary to achieve their goals.
With the hardship in the economy, more people are looking to improve their education. In my personal life, the MSA program is providing me with the tools necessary to complete a degree in accounting a field I have been working for some time. I love to work with numbers, but throughout the classes I have learned the other side of accounting, working and interpreting financial statement. This is an area I always stayed away from but gaining the knowledge on how to interpret and analyze them will increase the possibilities of applying for a better job and improving the quality of life for my family.
References (2002). Convergence of GAAP & IASB Standards Aids Int’l Credit Analysis. Managing Credit, Receivables & Collections, 2(12), 6. Retrieved from Business Source Complete database. (2000, December 2). [Press Release]. IASB tops global rankings for stakeholder participation. Identified as “high performer” for transparency and evaluation. International Accounting Standards Committee Foundation. Retrieved from iasb. org on Saturday, May 22, 2010. Financial Accounting Standards Board. (n. d. ). Facts about FASB. Retrieved from http://www. asb. org/facts/index. shtml&pf=true on Saturday, May 22, 2010. Financial Accounting Standards Board. (2006). FASB and IASB Reaffirm Commitment to Enhance Consistency, Comparability and Efficiency in Global Capital Markets. Retrieved from http://www. fasb. org/news/nr022706. shtml&pf=true on Saturday, May 22, 2010. Financial Accounting Standards Board. (2002). Convergence with the International Accounting Standard Boar (IASB). Retrieved from http://http//www. fasb. org/intl/convergence_iasb. shtml&pf=true on Saturday, May 22, 2010