The Emerging Issues Task Force (IETF) was formed in 1984 by Financial Accounting Standards Board (FAST) in response to recommendations of the FAST task force on timely financial reporting guidance (FAST, 2011). The most important impact that the mission of the Emerging Issues Task Force (IETF) exerts upon the Financial Accounting Standards Board purpose of the emerging issues task force was to assist FAST in timely identification. The emerging Issues Task Force influences Generally Accepted Accounting Standards in a number of ways.
The purpose of the task force is to reach consensus on how to account for unusual and new financial transactions that have the potential of creating diversity in known financial reporting procedures and practices. Effectiveness with finding resolutions to emerging accounting issues by discussing on new and emerging accounting issues, the task force is able to set new standards regarding the new data on how accounting reporting will be conducted upon them. The task force also makes extensive use reports generated by the accounting process to set standards for accounting practices (FAST, 2011).
IETF identifies arising uncial reporting issues, suggest alternative treatments to those problems, and recommend preferred solutions. IETF influences the standards of accounting and also the generally accepted accounting standards Tips Current Issues One current issues IETF is No. 01-13 that states that an entity may use judgment when classifying business interruption insurance recoveries in the income statement as long as the classification elected does not violate the present generally accepted accounting principles.
The IETF No. 01-13 asserts that for business interruption insurance recoveries the nature of the event that cause he loss and where the insurance recoveries are reported as an extraordinary item and the amount of recovery reported in the present accounting period. This IETF relates to income statement display of business interruption insurance recoveries. This was issued in the aftermath of the September 11, 2001 terrorist attacks. The second is FAST 145 this relates to the classification of items as extraordinary items.
This takes into consideration the probability of the recurrence of that type event. Only if he recurrence is sufficiently low will it be accepted as an extraordinary item, also the item depends on the environment n which the entity operates, including factors like the industry, regulation and location. It also disallows the extinguishing of debt as extraordinary, and makes it mandatory to report extraordinary items at the bottom of the income statement. In my opinion FAST IETF No. 01-13 has not adequately dealt with the issue of business interruption insurance recoveries.
The reason is that IETF in its meeting on 20th September following the 11/09 attacks had decided against the use of extraordinary item treatment for losses incurred in connection with 11/09 terrorist attacks. The reason was that there were far reaching effects of he event and it would be difficult to record the resulting economic effects in the companies’ financial statements, IETF No. 01-13 is against the decisions of the IETF. Abs’s classification of unusual and infrequent events under FAST 145 is not correctly dealt with.
The reason why I object is that in the perception of the company the fall in the market interest rate is unusual and such falls are not envisaged, that is why it has issued debt at a higher rate. Early extinguishing happens because of extraordinary reasons and losses resulting from it should be treated as extraordinary. (www. Fast. Erg) The work being done by the IETF with company’s accounting and financial reporting is likely to be impacted by the work being done by the IETF on Issue No. 13-C, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists.
A company’s accounting and financial reporting will be impacted by the work being done by the IETF in two ways. First, if the liability for an unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in the recognition of Net Operating Loss carry-forward or that year and that Net Operating Loss carry-forward has not been used, the unrecognized tax benefit will be presented as a reduction to the Net Operating Loss. In this case the Income Statement is impacted and the Net Operating Loss is reduced.
Second, in all other case the Net Operating Loss carry-forward or the Tax Credit Carry-forward should be presented as a liability. In this case the Balance Sheet of the company will be impacted. (www. Fast. Org) Against the IETF In the issue 1 requiring providing additional guidance on the accounting anomaly in foreign subsidiary, it was concluded that no additional guidance should be revived in this matter since the foreign economy became highly inflationary under topic 830 and the issue is not currently relevant under this issue.
Foreign subsidiary functional currency was no longer its local currency but the US dollar. Argument is against the IETF because of highly inflationary; they were able to reach to this conclusion by having two views where they each were supposed to support one. View A did not support additional guidance on the issue of Foreign, while view B supported additional guidance. The team appointed a working group to decide and they concluded that additional guidance is not required n such a case.
In issue two regarding the exchange rate that should be used for the measurement of foreign currency transactions at a foreign subsidiary and the translation of the foreign subsidiary’s financial statements into the parent company’s reporting currency when multiple exchange rates exist in a multiple currency country, it was concluded that a legal exchange rate should be used to premature monetary assets and liabilities.
They also concluded that it is appropriate to use different legal exchange rates for different portions of monetary assets and liabilities and the use of the new Transaction System or foreign Currency Denominated Securities (SITE) rate when pressuring monetary assets was not appropriate since it would delay transition and this can result to inconsistencies between entities (FAST Emerging Issues Task Force, 2010).
GAP and FIRS The different accounting treatments between GAP and FIRS for the issue that increased globalization in the business world has brought to fore some of the issues and challenges that multinational businesses face in financial recording and reporting of foreign based operations. With operations based in different entries that operate under different accounting principles and with varying currencies, there has been a need for the accounting principles and standards to be converged.