Financial Accounting Standards Board Essay
Financial Accounting Standards Board
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are two of the most important bodies of the Accounting/Finance field today. Though both boards work together to develop and enforce financial reporting standards for publicly held organizations, the FASB concentrates on the accounting standards in the United States while the IASB sets its focus on global standards. The rules and standards that are set for individual certified public accountants that practice in the United States are also set by the FASB.
By introducing the IASB and FASB into the MSA program, students are able to gain more insight into what businesses are required to report and the progress that the accounting field continues to make. The FASB was established in 1973 after the AICPA had adopted recommendation which were made by the Wheat Committee. The Wheat Committee had recommended that the Accounting Principles Board (APB) be eliminated and that FASB be created. The elimination of the APB and the creation of the FASB meant that the FASB was the board that issued accounting standards.
FASB’s structure is as follows: A board of trustees nominated by organizations whose members have special knowledge and interest in financial reporting is selected. The organizations originally chosen to select the trustees were the American Accounting Association; the AICPA; the Financial Executives Institute; the National Association of Accountants (The Naa’s name was later changed to Institute of Management Accountants in 1991), and the Financial Analysts Federation (Schroeder etal, 2011). The FASB’s mission is to create and improve financial accounting standards for the assistance and education of the public.
The IASB was established in 2001, after succeeding the International Accounting Standards Committee (IASC) which was established in 1973. The International Accounting Standards are created by the IASB and are called International Financial Reporting Standards (IFRS’s). The main responsibility of the IASB is to create and issue IFRS’s, exposure drafts, and approve interpretations which are developed by the International Financial Reporting Interpretations Committee (IFRIC). These IFRS’s are the equivalent to FASB’s Statements of Financial Accounting Standards.
The primary difference between the two sets of standards is, one set of standards are established in the United States and another set of standards are established in another country. The FASB and IASB are currently working to create a uniform set of International Accounting Standards (IAC’s). The two boards started working together to create this uniform set of standards in 2003. The goal of this project is to achieve “compatibility of identifying common, high-quality solutions” (Schroeder etal, 2011). The reason for the convergence of the two boards is to have a specific set of accounting standards that all countries must follow.
The guidelines for the convergence of the two boards are as follows: * Convergence of accounting standards can best be achieved through the development of high-quality, common standards theme * 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 * Serving the needs of investors means that the boards should seek to converge by replacing weaker standards with stronger standards (Schroeder etal, 2011)
The primary standards that are to be converged are six of FASB’s Statements of Financial Concepts (SFAC’s): SFAC No. 1. “Objectives of Financial Reporting by Business Enterprises” SFAC No. 2. “Qualitative Characteristics of Accounting Information” SFAC No. 5. “Recognition and Measurement in Financial Statements of Business Enterprises” SFAC No. 6. “Elements of Financial Statements” SFAC No. 7. “Using Cash Flow Information and Present Value in Accounting Measurements” (Schreoder etal, 2011)
Seven of IASB’s Framework for the Preparation and Presentation of Financial Statements are also part of the conversion: 1. The objective of financial statements 2. Qualitative characteristics of financial statements 3. The elements of financial statements 4. Recognition of the elements of financial statements 5. Measurement of the elements of financial statements 6. Concepts of capital and capital maintenance (Schroeder etal, 2011) The standards mentioned above are the standards that appear to have the most commonality which would seem that there would be fewer obstacles.
However; a prevalent variance is the amount of detail which is contained within the two frameworks. While the convergence of the two boards will be difficult, recognizing the commonalities between the frameworks is the first step in making sure the convergence goes through smoothly. Not only is it important to merge the two different sets of standards, but it is also important that the two boards work together to build onto the current set and establish additional standards that organizations are required to follow.
The Master of Science in Accountancy (MSA) program prepares students for a professional life within the accounting vocation by introducing students to the standards set by the FASB and the IASB. “The (MSA) provides the breadth of knowledge for the professional accountant. Students master the theory and principles that frame a wide range of problems and issues encountered in the accounting profession” (University of Phoenix, 2011). The students are able to go in depth with the boards and discover how the entire accounting system works.
By introducing the functionality of the FASB and the IASB, the students are able to understand the importance of following GAAP. By understanding GAAP and knowing the relationship between those principles and the IASB and FASB, the students will have the knowledge to perform the job and understand why the IASB and FASB set the standards that they do. The IASB and FASB are two very influential boards within the accounting field. The standards that these two boards have established and enforced have paved the way toward a single set of standards between all countries.
Having a single set of standards will allow investors to view financial reports for all organizations around the world and know that the information is being reported using the same set of standards. It is important to the future success of any organization that its current and future employees are up to date on all of the rules and regulations that are part of the accounting career. The MSA program allows students the opportunity to gain the knowledge of any current and future rules that the boards have established.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 25 December 2016
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