Print Сite this

The IASB and the FASB and Their Role in the Accounting

FASB (Financial Accounting Standards Board) is the U.S.-based organization that issues Financial Accounting Statements (FAS) and other accounting pronouncements that constitute U.S. GAAP (Generally Accepted Accounting Principles). IASB (International Accounting Standards Board) was formed in 2001 as the successor to the IASC (International Accounting Standards Committee). IASB issues its series of accounting pronouncements under the label of International Financial Reporting Standards (IFRS) and these standards are widely used in many countries for purposes of financial reporting.

We will write a
custom essay
specifically for you

for only $16.05 $11/page
308 certified writers online
Learn More

In today’s increasingly international business environment, American (Certified Public Accountants) CPAs are frequently encountering IFRS as they serve U.S. subsidiaries of foreign companies and foreign subsidiaries of U.S. companies and they assist in cross-border transactions. Therefore there is increasing demand for a common system of accounting. Towards achieving that end, FASB and IASB have embarked on a process of convergence and its success will depend on responsible corporate governance, clear principles, and understandable rules.

History of FASB and IASB

The development of accounting standards in the United States began with the creation of the SEC in 1934 which was given powers to establish accounting standards in the US for public corporations to follow. The SEC delegated the task of establishing accounting standards to the AICPA’s Committee on Proclamation (CAP). In 1938, the CAP issued an initial 51 proclamations known as Accounting Research Bulletins that formed the basis of GAAP (Smith and Walter, 2005).

The CAP was replaced in 1959 by the Accounting Principles Board (APB) and in 1972 the Financial Accounting Standards Board (FASB) replaced the APB (Smith and Walter, 2005). With the advent of FASB, the “accounting principles” were replaced by “accounting standards”, to reflect the new role of FASB as the agency meant to establish accounting standards. Till recently the FASB had seven full-time members, but in February 2008, it has been reduced to five members (Leone, 2008). FASB is funded by the Financial Accounting Foundation.

The development of international accounting standards is less clear. The International Accounting Standards Board (IASB) was formed much later than FASB in 1972, with 140 professional accounting bodies in 101 nations (Smith and Walter, 2005). Apart from the 13 member countries on the Board its members also include the Nordic Foundation, Swiss companies, financial analysts, and the International Organization of Securities Commissions (IOSCO) of which SEC is a member (Smith and Walter, 2005). In the first decade of the IASB’s history, best practices in accounting were codified.

Accounting principles were descriptive and member countries could choose one of many accepted practices. For example, inventory could be accounted for under “Last in First Out” (LIFO) or “First in First Out” (FIFO) or any other principle used by member countries (Smith and Walter, 2005). Initially, IASB worked on strengthening the original standards and addressed several difficult issues. Soon, the role of the IASB expanded and includes the tasks of gaining recognition in key capital markets, working on an interpretation program of accounting standards, and establishing working relationships with national standard setters. It has amended a number of its own international accounting standards and issued new standards as well (Smith and Walter, 2005).

FASB follows a rules-based approach whereas the IASB takes a principled approach. IASB outlines only brief general principles that are open to interpretation by companies and their auditors. FASB and IASB are currently working towards making their regulations eventually the same (Dallas 2004).

Get your
100% original paper
on any topic

done in as little as
3 hours
Learn More

In the meeting held at Norwalk, Connecticut in 2002, FASB and IASB agreed to work together and reduce the differences between them by having joint projects to develop new guidance that would apply to both and formal FASB monitoring of projects conducted by IASB in the United States. The aim is to achieve convergence of U.S. GAAP with IFRS. On Feb. 27, 2006, the two organizations issued a Memorandum of Understanding (2006 MOU) to reaffirm their unity and cooperation in setting financial reporting standards and also revealed their common goals for 2008 (Gill, 2008).

With the globalization of capital markets, the issue of harmonization of accounting standards has acquired a great deal of significance. Harmonization in an accounting context refers to “the process of increasing comparison of accounting practices by setting bounds to their degree of variation”. Harmonization of accounting standards worldwide will reduce capital costs and costs of preparing financial statements for a multinational company and in enhancing capital flows by improving international comparability in financial statements. It is due to the recognition of the importance of harmonization that FASB and IASB have announced the short-term convergence project aimed at ensuring a single set of quality, understandable and enforceable global accounting standards.

One of the major problems in harmonization is that it can cause political ramifications at the local level. It would not be possible for all countries to ensure compliance with a set of international standards. For example, conflict was created when French banks in 2003 opposed vehemently the new IASB standard on financial instruments and hedging, calling for greater transparency in structured and derivative transactions.

Moreover, IASB and FASB also have their potential areas of conflict. U.S. rules-based approach required too many details that sometimes taken together can yield misleading financial information. The international principle-based accounting standards are too vague and subjective to find practical application. Shifting to a more international form of accounting, though desirable, maybe impracticable for those operating within the U.S. legal system.

IASB equivalents of the FASB original pronouncements

There are some IASB equivalents to FASB’s Original Pronouncements. FASB’s recent Statement no. 159, The Fair Value Option for Financial Assets and Financial Liabilities provides for a fair value option that the statement’s summary calls “similar, but not identical, to the fair value option in IAS 39” (Schwartz and Ketz, 2006) The FASB has switched to the IASB approach to restatement for most changes in accounting principle understatement 154.

FASB’s current regulations show prior period adjustments to retained earnings and restatement of comparative statements for error corrections, the same approach used by the IASB. In the US, FASB Statement No. 13 (FASB, 1980) provides a checklist of specific items to follow in deciding whether to expense or capitalize a lease. The IASB leasing standard (IASB 17, 2003) calls for the exercise of professional judgment to determine if capitalization is appropriate (Schwartz and Ketz, 2006).

IFRS permits an entity to reverse inventory write-downs in certain situations, whereas U.S. GAAP does not. IFRS also requires the recognition of certain development costs and prohibits LIFO which is not so in the case of U.S. GAAP (Gill, 2008). IFRS guidance regarding revenue recognition is not as detailed as its equivalent U.S. GAAP. IFRS, for example, does not have specific guidance for software revenue recognition (Gill, 2008). Likewise, there are IASB equivalents in the realm of expensing pre-operating and pre-opening costs, assets valuation in the balance sheet, investment property, and extraordinary items. In the realm of investment property, both GAAP and IFRS approve of a historical cost-based method but IFRS also includes the fair market value (Gill, 2008).

We will write a custom
essays
specifically
for you!
Get your first paper with
15% OFF
Learn More

The MSA program

The MSA program is meant for students opting for a career in accounting. It provides the students with an in-depth knowledge of U.S. accounting concepts and practices, their effects on business behavior and decision-making. The program equips the students with a broad understanding of the U.S. federal income tax system and its application in the wider context of international business.

The program also focuses on developing conceptual and technical ability, oral and written communication skills, and research and analytical skills in field of accounting Moreover, students who do this program can easily pass other prestigious exams such as the United States Uniform Certified Public Accountant (CPA) examination, the Certified Management Accountant (CMA) examination and the Certified Internal Auditor (CIA) examination.

In the present-day atmosphere of globalization, the accounting profession has become more complex, challenging, and competitive. Accountants are at a crucial stage when FASB and IASB are working towards convergence. The Master of Science in Accounting Program equips the students with the necessary skills and knowledge needed to survive as accountants in this changing competitive environment.. Overall, it increases their career prospects.

Bibliography

Dallas, S. George (2004). Governance and Risk: An Analytical Handbook for Investors, Managers, Directors, and Stakeholders. McGraw-Hill Professional.

Gill, M. Lawrence (2007). IFRS: Coming to America What CPAs Need to Know about the New Global GAAP. Journal of Accountancy. Volume: 203. Issue: 6.

Leone, Marie (2008). FASB Parent: Five is More Than Seven. CFO. Web.

Schwartz, N. Bill and Ketz, J. Edward (2006). Advances in Accounting Education. Emerald Group Publishing.

Smith, C. Roy and Walter, Ingo (2005). Governing the Modern Corporation: Capital Markets, Corporate Control and Economic Performance. Oxford University Press. New York.

Need a
100% original paper
written from scratch

by professional
specifically for you?
308 certified writers online
Learn More

Cite this paper

Select style

Reference

StudyCorgi. (2021, October 25). The IASB and the FASB and Their Role in the Accounting. Retrieved from https://studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/

Reference

StudyCorgi. (2021, October 25). The IASB and the FASB and Their Role in the Accounting. https://studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/

Work Cited

"The IASB and the FASB and Their Role in the Accounting." StudyCorgi, 25 Oct. 2021, studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/.

1. StudyCorgi. "The IASB and the FASB and Their Role in the Accounting." October 25, 2021. https://studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/.


Bibliography


StudyCorgi. "The IASB and the FASB and Their Role in the Accounting." October 25, 2021. https://studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/.

References

StudyCorgi. 2021. "The IASB and the FASB and Their Role in the Accounting." October 25, 2021. https://studycorgi.com/the-iasb-and-the-fasb-and-their-role-in-the-accounting/.

References

StudyCorgi. (2021) 'The IASB and the FASB and Their Role in the Accounting'. 25 October.

This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal.