To develop the global harmonization of financial accounting rules the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) are working hand in hand (Ketz, 2009).
Since 1973, FASB has been working as a private organization for establishing the standards of financial accounting to administrate the preparation of financial reports by non-governmental bodies. Whereas, IASB which was formed during the year 2001 is an autonomous, private-sector body that develops and accepts the International Financial Reporting Standards (IFRS) which is an independent, non-profit foundation, created in 2000 to supervise the IASB (Financial Accounting Standards Board, 2009).
The basic aim of the joint project of FASB-IASB is to form a worldwide model which will have more predictive value for all financial statement users. This project grew strongly after an agreement between the two boards in September 2002.
The goal of this paper is to discuss the two tools of global harmony FASB and IASB. We will be having a clear view of the two accounting concepts after describing the terms, their most significant differences, and comparisons between them, the conceptual frameworks, and their future evaluations (Cain, 2008).
Most significant differences between FASB and IASB
Although both the boards come together in many ways they have some major accounting reporting differences too.
The notable differences include: IASB is based in the UK capital London while FASB is based in the United States.
As far as their work is concerned, IASB deals with the progress of International Financial Reporting Standards whereas; FASB caters to the development of Generally Accepted Accounting Principles (GAAP) in the interest of the people (Schwartz, 2006).
Other prominent and significant differences are:
- When we talk about guidance, distinction in both systems becomes evident. The subsequent recognition rather provides a distinctive classification between the systems which is further followed by absolute criteria. It can create differences in whether the difference is recognized at all, whether the item is capitalized or recorded as an income, and other effects on financial statements and in what period the item is recognized (Cain, 2008).
- IASB and FASB contrastingly differ from each other on the basis of measurement. The measurements noted with the help of this system are far different from one another because one notes relatively smaller units of measurement while the other one would estimate larger units. In other words, it could be said that a single time period can be measured in different amounts by the usage of both the same system specifically (Gowthorpe, 2006).
- Alternatives: Any difference in standards where one allows you to follow any one of the allowed alternative treatments whereas the other one requires you to follow one precise procedure, this anomaly may give rise to two different procedures adopted by two institutions of the same nature of business (Ketz, 2009).
- Rules for treatment of a particular type of transaction may be described while its related issues may lack guidance (Gowthorpe, 2006).
Comparison and contrast of IASB’S and FASB’S conceptual frameworks
In comparison, both the boards have various things in common and different as well. The common things:
- The purpose of the conceptual framework is to assist standard setters in developing and revising accounting standards.
- The conceptual framework does not override the accounting standards, and therefore in this respect, it has a lower status than specific accounting standards (Cain, 2008).
And the differences are:
- The IASB’S framework is broader than the FASB’S framework. The IASB’S framework has also other purposes like assisting preparers, auditors, and users of financial statements while the FASB’S framework has less emphasis on other purposes (Financial Accounting Standards Board, 2009).
- The difference in the purposes is reflected in the difference in the frameworks. The IASB’S framework resides at a higher level in the GAAP hierarchy than does the FASB framework in the U.S. GAAP hierarchy. The management requires the consideration of the IASB framework when there is no standard present for application or for dealing with the same or related issues for those bodies which prepare themselves under IFRS (Gowthorpe, 2006).
Coherence and relevance of the frameworks
From the above analysis, it is observed that there are several issues that are solved by the different boards. The problem itself decides that which board is more relevant. If the IASB is offering the services related to the problem then IASB is preferred on FASB. Similarly, if the problem can be solved by FASB only then FASB is supposed to resolve it. Also, there are other frameworks too apart from IASB and FASB so we cannot decide which framework is more applicable even after their convergence. This is stated because in the IASB meeting in September 2004 there were some conclusions derived by considering the IASB’S and FASB’S framework convergence which could create some issues. The issues which were under observation are:
- Both the boards need improvements in the framework rather than the convergence.
- Another pointer to be noted here is that in terms of convergence, the terminology of consideration is substituted to another framework. This shows that there is no limitation of considering the IASB and FASB frameworks as the sole frameworks for convergence.
- As a regulation, it is commended that any amendment that is required in the convergence shall be given by Board. This includes the improvement of convergence steps in the accounting procedures (Cain, 2008).
Evaluation, that someday IASB will replace FASB
By the above comparisons made between IASB and FASB, we can evaluate that as IASB is engaged in many other purposes so there is a probability that someday IASB will replace FASB. IASB has many features that FASB has not. For example, IASB’S framework is broader than FASB’s, it deals with many other things like assisting the auditors, preparing, etc with which FASB is not dealing. IASB’s resides at a very high level in the GAAP hierarchy too. Like this, many other aspects give the evaluation that IASB can replace FASB in the future (Financial Accounting Standards Board, 2009).
Cain, S. (2008). FASB and IASB Propose a Free Change to Financial Reporting. The RMA Journal, 84-88.
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Financial Accounting Standards Board (FASB). (2009). Financial Accounting Standards Board. Web.
Gowthorpe, C. (2006). CIMA Learning System 2007 Financial Analysis. Burlington: Butterworth-Heinemann.
Ketz, J. (2009). The Accounting Cycle. Web.
Schwartz, B. (2006). Advances in Accounting Education: Teaching and Curriculum Innovations. London: Emerald Group Publishing.