Accounting_Standards_Board

Running head: ACCOUNTING STANDARDS BOARD Accounting Standards Board University of Phoenix ACC/541 History of IASB and FASB The International Accounting Standards Board (IASB) began operations in 2001. The purpose of the IASB is to develop a single set of global accounting standards for all companies to follow regardless of what country they are located. The focus of these accounting standards is to provide transparency and comparable information in reporting standards and procedures. Comparability is a critical component of international companies being able to analyze and audit financial statements around the globe. The IASB has developed procedures that bring transparency, predictability, and consistency (IASB, 2007). The Financial Accounting Standards Board (FASB) began operations in 1973. FASB is the most recognized name in financial accounting standards within the private sector of businesses. The Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA) both recognize FASB as the official authority of accounting standards and practices. FASB standards govern the preparation of financial statements for most private sector companies. FASB’s mission 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, 2010). These standards are critical to efficient financial reporting because creditors, auditors, investors, and stakeholders rely on transparent, credible, verifiable, and comparable financial information about organizations. The IASB and FASB have been working together since 2002 to achieve a convergence of International Financial Reporting Standards (IFRS) and the widely used generally accepted accounting principles (GAAP). A common set of high quality global standards remains a priority of both IASB and FASB. The boards shared objective is to develop a common, high quality, set of accounting standards to 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 the United States 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 international companies that use IFRS’s and are registered in the United States. The Norwalk Agreement 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, or roadmap, to be reached by 2008. The ability to meet the objective set by the roadmap depends upon the efforts and actions of companies, auditors, investors, standard-setters, and regulators. The IASB recognized that their contribution to achieving the objectives 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 three main guidelines. First, convergence of accounting standards can best be achieved through the development of high quality, common standards over time. Secondly, 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 resources. Instead, a new common standard should be developed that improves the financial information reported to investors. Lastly, serving the needs of investors means that the boards should seek to converge by replacing weaker standards with stronger ones. Remaining consistent with the above-mentioned guidelines and after negotiations with representatives of the European Commission and the SEC staff, the FASB and IASB have agreed to work toward many goals to ensure the success of the IASB-FASB convergence program. Joint projects should be conducted together so that staff resources can be shared and the projects can progress at a similar pace within the IASB and FASB. Short-term convergence can be successful if a few changes are followed. A liaison member of the IASB should be physically located at the FASB offices. The purpose of this is to increase and promote communication and cooperation between FASB and IASB. Depending on the level of importance and FASB’s interest, FASB should be given access to monitor some of the IASB’s projects. The convergence research project seeks to identify the substantive differences between 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 The convergence project focuses on the reduction of five main differences arising from proposals in the IASB improvements project. Asset exchanges, specifically 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. Currently, GAAP does not require companies to recognize a gain on the exchange of similar productive assets. The 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 issuance date of the financial statements. A third change needed is 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. The IASB and FASB acknowledge that some of the differences in standards on financial instruments will require a long-term project to complete; others may be capable of resolution in the short-term (Convergence of GAAP & IASB Standards Aids International Credit Analysis, 2002). Another change is in relation to the classification of liabilities on breach of borrowing agreement. Using the same principle as with liabilities, IAS 1 would require borrowing 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 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. Lastly, a voluntary change in accounting policies as stated in IAS 8, Accounting Policies, Changes in Accounting Estimates and Error, proposes that voluntary changes in accounting policy should be treated retroactively. GAAP generally requires a cumulative adjustment in the year of change. MSA Program The MSA program at the University of Phoenix provides students with educational opportunities to learn and develop their skills and knowledge not just from the textbooks, but also from other resources such as fellow classmates. The ability to gain knowledge from the textbook and have an open discussion with classmates on topics that are not always in the textbooks gives students a chance to broaden their knowledge and start thinking in a professional setting. The topics covered in the MSA program cover all different sectors of businesses from non-profit, public, private, and others. This knowledge allows students to become familiar with different types of organizations and gives them an idea of what to expect when they get out in the work force. Completing the program with a wide range of knowledge gives the student a head start when entering the professional accounting world because they will have heard stories from classmates and instructors who are working in the field now. Students will graduate with an idea and foundation of what to expect and what they want to achieve for themselves personally. References Financial Accounting Standards Board. (2010). About FASB. Retrieved from www.fasb.org on March 28, 2011. Financial Accounting Standards Board. (2002). Convergence with the International Accounting Standard Board (IASB). Retrieved from http://http//www.fasb.org/intl/convergence_iasb.shtml&pf=true on March 28, 2011. 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 March 28, 2011. IASCF. (2007). IASB tops global rankings for stakeholder participation. Identified as “high performer” for transparency and evaluation. International Accounting Standards Committee Foundation. Retrieved from www.iasb.org on March 27, 2011.