The Financial Standard Accounting Board (FASB) and the International Accounting Standards Board (FASB) are the two worldly recognized authorities that determine the field of financial reporting for organizations as well as various regulatory bodies (Hlaciuc, Grosu, Socoliuc, & Maciuca, 2014). A single, unified system of international accounting standards is necessary in order to ensure that the world’s financial markets are functioning properly.
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The USA follows the rules and standards of FASB, whereas the rest of the world is following IASB. The American standardization body is powerful and influences the standards even within the IFRS (Hlaciuc et al., 2014). This creates a dichotomy of systems that mirror one another and are supposed to interact with each other while being based on different conceptual frameworks. The purpose of this paper is to highlight the similarities and differences between IASB (chosen framework for IFRS) and US GAAP (chosen framework for FASB).
Similarities and Differences Between IASB and FASB
The main difference between IASB and FASB (which the American US GAAP is based on) lies in the core framework behind its creation. IASB is built on basic principles of conduct, while FASB is based on rules (Pelger, 2016). These rules are used to enforce the standards of practice and are considerably more complex when compared to a much shorter set of principles. Rule-based standards of the FASB seek to anticipate any possible situation that can occur in accounting and provide a legal solution for it, whereas the principle-driven IASB is seeking to provide guidelines in order to help achieve the required result (Hlaciuc et al., 2014). These guidelines are less descriptive and leave more room for maneuver. Because of this, the US GAAP contains more than 17.000 pages, whereas all the principles covered by the IASB require less than 2.500 (Hlaciuc et al., 2014).
Another important difference between the FASB and the IASB lies in their perceptions regarding research and development costs. American-driven FASB standards state that R&D costs are considered to be expenses. IASB conflicts with that, as under IAS 38, only research costs are acknowledged as expenses. Development costs, on the other hand, are expected to be capitalized (Lin, 2015).
Nevertheless, IASB and FASB share similar characteristics, as even the rule-based US GAAP was based on a set of principles similar to the ones used in IASB. Both system value fundamental qualitative characteristics, such as faithfulness of representation, the relevance of reported financial information, and materiality of the information provided (Lin, 2015). Some of the policy-based similarities of both systems include the acknowledgment of stock-based compensation. Finally, FASB and IASB view equity instruments as liabilities (Hlaciuc et al., 2014).
IASB and FASB are used to process the majority of international transactions. The existence of two separate frameworks creates complications and confusion for international enterprises. The existence of a single framework would benefit globalized economies. At the same time, differences between IASB and FASB are significant. Transferring from one system to another would require time and alterations in order to smoothen the adaptation process.
Hlaciuc, E., Grosu, V., Socoliuc, M., & Maciuca, G. (2014). Comparative study regarding the main differences between US GAAP and IFRS. The USV Annals of Economics and Public Administration, 2(20), 140-145.
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Lin, H. (2015). Discussion about conceptual framework. International Business Research, 8(6), 191-195.
Pelger, C. (2016). Practices of standard-setting – an analysis of the IASB’s and FASB’s process of identifying the objective of financial reporting. Accounting, Organizations, and Society, 50, 51-73.