International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards

Relationship between Accounting and Finance

Accounting and finance constitute very fundamental concepts in contemporary business organisations. The usefulness of these concepts has become prominent over time, and especially in the recent past. Today, every business organisation garnering for success in the world must pay special attention to its accounting and financial reporting and management practices. A comprehensive understanding of the two can be achieved by separating them.

According to Tinkelman (2011, p. 850), finance and accounting can be termed as measurement systems with regards to business operations. Accounting, on the one hand, focuses on the collection, analysis, and communication of financial information. The financial information can, for example, be communicated to shareholders through financial statements. Finance, on the other hand, is concerned with the raising and investing of business funds. It is aimed at creating value for the shareholders.

Both accounting and finance serve by helping decision-makers in contemporary business organisations. For example, Tinkelman (850) postulates that measures of accounting and finance are normally used by both internal and external business stakeholders. Internal organisational stakeholders include employees, management, and members of the board of directors. External stakeholders, on the other hand, include creditors, investors, and governments.

Accounting focuses more on systematic recording, analysis, and reporting of financial information. Finance places more emphasis on a description of the management and creation of assets and liabilities. It also addresses the issues of, among others, investment and credits. The concepts exhibit very close relationship, making them supplementary to each other and difficult to separate.

Globalisation of Accounting and Financial Standards

Both accounting and finance consist of more than just a body of rules and regulations. They are ‘live’ and broad fields of enquiry in business operation. The global business society is changing rapidly. The needs of users are also evolving rapidly. On their part, technological advancements are providing constant challenges to accounting and finance. The challenges facing the existing methods create the need for creative responses. The responses are needed for the systems to remain significant in the business and corporate world.

As a result of the present challenges, the issue of globalising international accounting and financial practices is very important. Globally, different countries employ varying systems to standardise accounting and finance. Essentially, professionals in the accounting and finance field are faced with a major challenge of keeping track of the rapid developments in modern accounting and financial practices.

Globalising international accounting and finance through unified standards is a huge undertaking. Such changes imply massive restructuring of existing standards and practices. People avoid making unnecessary changes where they can.

The current study is conducted against this backdrop of globalisation and international accounting and financial practices. The study is directed by six objectives. The objectives are as listed below:

  1. Explore the concept of international accounting and finance.
  2. Explain the current standards governing international accounting and finance.
  3. Highlight the difficulties facing international accounting and finance.
  4. Analyse how globalisation has affected leadership in accounting and finance.
  5. Highlight the main stakeholders in the globalisation of international accounting and finance practices, and
  6. Analyse the contributions made by stakeholders and global leaders in realising leadership in accounting and finance.

The issue of globalisation with regards to international and financial accounting is very essential to contemporary businesses. Currently, businesses are becoming globalised and new needs of users of financial information are emerging. Leadership in accounting and finance remains an illusion to corporations, businesses, and governments that do not accommodate changes in the practices.

Definition of globalisation will, perhaps, make the issue more clear. According to D’Amato and Roome (2009, p. 421), globalisation is the process of internationalisation of processes. The process has brought about substantial growth in interactions, as well as interdependencies between countries. The process also involves reduction of restrictions imposed by states on cross-border trading. Generally, globalisation is viewed as ‘universalisation’. It involves the spread of a horde of experiences and objects across the globe.

International accounting and finance is gaining ground in the corporate world, especially with the increase in international trade. Congruent leadership should put into consideration the concept of globalising standards of international accounting and finance. Failure to this, chaos will engulf financial reporting across regimes with significant costs. The current study is critical in highlighting the issue of globalisation as far as accounting and financial practices are concerned. The study addresses the impacts of this development not only on leadership, but also on employment and sustainability of business operations. Failure of the organisation to embrace change may lead to its elimination from the industry.

The Concept of International Accounting and Financial Standards

Dholakia (2013) notes that, “a number of multinational companies are establishing their businesses in various emerging economies” (p. 63). Dholakia further emphasises on the need for the application of sound financial reporting structures. Such structures are essential for effective functioning and wellbeing of businesses. Dholakia, however, fails to mention that this trend (and the related needs) has been there for several decades now. Companies have been investing across borders in countries where financial reporting standards are conflicting.

According to Damant (2000, p. 37), one of the most dramatic developments in the field of accounting was the development of the double entry bookkeeping system. The system was developed more than 500 years ago. However, recent changes have equally dramatic effects on accounting and financial reporting. The growing interest of corporations to invest in multiple countries has given rise to international accounting and finance. A fundamental change in financial reporting involves the introduction of International Financial Reporting Standards [IFRS] (Dholakia 2013, p. 64).

The year 1973 saw the formation of the International Accounts Standards Board, also known as IASB. The board is tasked with the development of global accounting standards (Damant 2000, p. 37). The committee ended up developing the International Accounting Standards (IAS/IFRS) that became very popular globally. Although not fully adapted globally to date, the standards by IASB greatly influenced globalisation of international accounting and finance.

According to the International Financial Reporting Standards [IFRS] (2013), the formation of the standards development board, the IASB, was guided by a number of principle objectives. The foundation aims at the development of uniform set of top quality, enforceable, and understandable International Financial Reporting Standards (IFRS). The intention is also to have the standards globally accepted. It appears that the International Financial and Reporting Standards try to establish a global language of addressing international business affairs. The development has been facilitated by the growth of international shareholding and trade. International shareholding involves people making investments in companies operating outside their country. Through development of the common arena for addressing international and financial matters, companies’ dealings become easier and manageable.

Despite the development of the IFRS, full adoption of the standards is yet to be achieved. According to Dholakia (2013, p. 65), considerable levels of commitment are required in planning for the transition, educating stakeholders, as well as generation of necessary awareness. Nigel and Eric (2002) note that IFRS would result in collective working of groups, leading to greater achievements in profits and business value.

The IFRS does not work alone. It works together with its standards setting body, International Accounting Standards Board (IASB). The U.S maintains her own financial standards setting body. The body is the Financial Accounting Standards Board (FASB). According to the Financial Accounting Standards Board [FASB] (2013), the board’s main task involves development of Generally Accepted Accounting Principle (GAAP). The principles are applicable within the United States of America.

The US maintains her own financial standards setting body. However, in the spirit of globalising accounting and financial standards, much has been achieved in the US. In September, 2002, both the FASB and the IASB came to an agreement of working together. The decision was necessitated by the need to facilitate the operations of the International Accounting and Finance Practices (IFRS 2013). The board also consults other regional and national bodies in order to reduce differences between the US’s GAAP and IFRS.

The globalisation of international and financial reporting standards would greatly facilitate sharing of financial information across countries. More importantly, the concept of international accounting and finance would become easier to understand. IASB and FASB objectives for convergence also enhance the realisation of the global goal. It is important to note that local standards are very important for most national financial systems. However, the current global financial architecture creates high demand for global accounting standards. Globalisation of these standards, however, is a major issue since the intricacies and complexities of the system are farfetched.

Literature Review

Various authors have highlighted the issue of globalising and accounting and financial standards. Some studies conducted in this field are in line with the objectives of the current study. The analysis of the findings, or the position taken by the authors of these studies, contributes to the topic of globalising accounting and financial standards. For instance, Nigel and Eric (2002) postulate that the IFRS are gaining ground as the norm in the industry. The assessment by Nigel and Eric (2002) followed the adoption of an agreement by the European Union calling for all companies listed in Europe to comply with the IFRS. All the listed companies needed to adopt the standards by 2005.

Tokar (2005) explore the convergence of IASB and FASB in 2002 and its impact on auditing firms. The convergence of the accounting standards is time-consuming and requires significant changes and training of accounting professionals in future. It is also a very costly undertaking (Tokar 2005, p. 43).

Other authors in the field have performed comparative analyses between IFRS and local national standards. For instance, Barth, Landsman, and Lang (2006) compared derivatives used in reporting for Prague Stock Exchange listed companies (based on Czech accounting legislature) with those using IFRS. A number of differences were determined. The differences highlighted the need for globalised standards.

The attitudes of business entities not subjected to the European Union (EU) regulations were also investigated (Rok 2009). The EU regulations focus on group accounts of listed companies. The investigation focused on the problems faced by smaller companies and the models that can be used as alternatives to IFRS.

Despite the convergence, numerous differences exist between the FASB US GAAP and IASB IFRS. Isle (2008) analysed the effects of the two standards on ‘English’ companies’ economic-financial indicators. The analysis further focused on the concept of harmonising global accounting and financial standards.

During the period leading to the adoption of IFRS, companies listed in Singapore, the UK, and Hong Kong adopted varying approaches to the harmonisation of the standards. Denis (2009) sought to determine the costs incurred by these countries in relation to the transition to IFRS. In addition, the benefits of the transition to the consumers of the financial statements were determined.

Recent studies have sought to determine the approaches adopted in globalising international accounting and financial standards. For instance, Armstrong et al. (2010) analysed both Corporate Social Responsibility and financial reporting among firms. The study concluded that both the US GAAP and the IFRS lacked sustainability. In addition, the two were described as means of colonial exploitation. The study highlighted some of the criticisms made against globalisation of accounting and financial standards.

More studies have been conducted in relation to the issue of globalisation of international accounting and financial standards. The studies lay the foundation for the development of the international accounting and finance concept. The difficulties and challenges faced with regards to the concept are made more apparent through these studies.

The Archetype Theory in Relation to Globalisation of Accounting and Financial Standards

The force behind the globalisation of accounting and financial standards involves the changes inherent to these concepts. The archetype theory is one of the models that present a perspective for analysing changes in accounting. The theory is also used to determine the need to globalise the standards (Greenwood & Hinings 1993).

The archetype approach falls under neo-institutionalist perspective to business operations. The approach attributes changes in accounting and finance to environmental pressures. The pressures filter to the organisations via internal processes of interpretations and attribution of meanings. The major concepts of archetype theory (coherence and tracks) can be used to explain this phenomenon. They can be used to address the issue of changes in global accounting processes.

According to the archetype theory, coherence emphasises more than just systems and their structures. It also addresses the issue of interpretive frameworks forming the basis of these procedures. The concept of tracks focuses on the process of pairing the structures and the systems.

If changes occur, they can either be successful or not. As such, through the combination of various resources, desired objectives become achievable. The basics of archetype theory are essential to understanding changes in accounting and financial reporting.

Relative to the archetype theory, changes in accounting processes develop based on varying competitive commitments. The changes are also based on shifting power alliances and multiple contingencies. The underlying meanings also change. Generally, Greenwood and Hinings (1993) imply that both internal and external dynamics in the change process are connected under this theory. The theory recognises the environmental pressures filtered by organisations. As already indicated, the pressures percolate through interpretations, which are internal processes. Accounting and financial standards become subject to the interpretation process. As such, change is inevitable.

An archetype can be seen as comprising of a set of systems and structures. The two elements represent a given interpretive scheme. The scheme constitutes beliefs, ideas, and values (Greenwood & Hinings 1993). The accounting and finance systems and structures comprise of these elements. On the other hand, the elements are comprised of values, ideas, and beliefs dominating prevailing interpretative schemes.

Considering the nature of accounting and finance, the systems mentioned are neither perfect nor static. The needs of various users need to be balanced in relation to the concepts of archetype theory. The measuring, reporting, and definition of key attributes plays a vital role in this. The users, the measurements, and the technologies related to accounting and finance have evolved in various cultures over time. They represent the varying archetypes, structures, and systems. Globalisation of accounting and financial standards aims to achieve these elements.

Importance of International Accounting and Financial Standards

Critical analysis reveals the time-consuming and costly nature of implementing IFRS globally. The training required for new accounting students also constitutes a major point of concern. As such, the adoption of IFRS requires enhancing the value of global organisations.

In the past, local accounting standards have constituted a very important position in national financial systems. In today’s global market, however, the accounting standards have expanded significantly. In addition, the standards have gained value as financial regulatory systems. They have become more complicated and interdependent throughout the global market.

According to Baudot (2012, par. 2), accounting standards are a dominant feature in the functioning of regulatory systems. Linked with efficient markets, they can result to enhanced coordination of resources. They can also improve control over the entire accounting system. Furthermore, accounting and financial standards are essential in providing a comprehensive and common point of reference. Such a convergence is significant for control, efficiency, and coordination objectives. Uniform accounting and financial standards can address these issues adequately.

The use of varying systems makes it difficult to come up with uniform reports of accounting and financial operations in different parts of the world. To this end, Latridis and Dalla (2011, p. 287) reviewed a number of divergent factors in reporting using Greek GAAP and the IFRS. Significant differences were made apparent, especially between net income and shareholders’ equity. The differences emerged in the process of reconciling IFRS and Belgian GAAP.

Latridis and Dalla (2011, p. 287) also reported high net income and shareholders’ equity. The IFRS values were above those of the Italian GAAP. Portuguese companies reported conservative profit margins. They also showed lack of compliance to reconciliation and disclosure requirements. In Germany, the book value of equity, total assets, and net income were higher under IFRS than under German GAAP. The differences highlight the difficulties faced by international companies in balancing their accounts.

Adoption of a common global accounting and financial language would have far-reaching impacts on international accounting and finance. The standards would improve, among others, the reliability and transparency of the reports generated (Dholakia 2013, p. 63). Comparability of accounting and financial reports implies treating the same items in the same manner for financial purposes. ‘Understandability’ focuses on delivery of clear and concise accounting and finance information. Verifiability, on its part, ensures that the information actually represents what it is supposed to represent accurately. The quality of timeliness implies that the accounting and financial information is delivered on time.

The achievement of objectives mentioned above will have significant effects on the global financial system. The changes would strengthen and empower investors (Dholakia 2013, p. 267).

Based on such financial information, for instance, potential investors can determine the actual value of the company they wish to invest in. The current dispersed systems make cross-border deals complex. They hinder the expansion of businesses and, as a result, economic growth (Baudot 2012).

Currently, managers involved in international accounting and finance face a number of challenges. The challenges include, among others, increased competition in international business. The challenges affect the running of global businesses and blur the connection between accounting and financial resources. Globalised accounting and information standards would influence the equity markets in a major way. Improvements on capital pricing would reflect in the share prices around the world and in the major equity markets (Damant 2000, p. 38). The international capital markets would dominate capital redirection. In addition, universally ‘agreeable’ prices would be set with the adoption of the globalised system.

Dholakia (2013, p. 267) postulates that the financial reporting environment is undergoing evolution. Therefore, it is important that the global regulatory and auditing bodies take into account the emerging changes. Keeping up will involve addressing ‘forward-looking’ information within the financial statements. It will also involve increased application of universal judgments in the application of standards.

Just like any other change process, the globalisation of accounting and financial reporting standards faces many obstacles. Environmental changes, however, make globalisation inevitable. Some accounting and financial standards regimes may object the changes for their own selfish interests. However, leadership in accounting and finance relies critically on this continuous change.

Any national, public, or private accounting regulatory body opposed to the initiative is destined for failure. Gradual implementation of the IFRS is an indication of the ultimate destination of international accounting and finance. Although some may regard globalisation of these standards far-fetched, the opposite is true.

It is obvious that a lot needs to be done for the benefits of global accounting and financial standards to manifest. According to Tweedie (2004, p. 6), the credibility of IFRS is pegged on the smooth implementation of the standards in Europe and other countries highlighted. Companies would use time and other resources to accommodate the changes. For instance, the companies would have to train their accountants on IFRS measurements and reporting.

The management, investors, and directors need to understand the differences between local GAAPs and IFRS. One-off additional costs and short-term disruptions are inevitable during the change process. However, such benefits as reduced costs will outweigh the costs and inconveniences.

Despite the progress made towards the realisation of global accounting and financial standards, the success of the entire initiative depends on a number of factors. By itself, the IASB lacks the authority to enforce or regulate financial system within any country (IFRS 2013). As such, the success of globalisation relies on the approaches adopted by financial regulating authorities in the different countries (Tweedie 2004, p. 6). Political authorities have to endorse and enforce IASB standards. On their part, local businesses have to use the IFRS. In addition, the number of policies from regulatory authorities can, to some extent, affect these standards. Rejection of a particular standard, for example, will have both systemic and local impacts on the standards. External investors will demand for explanations touching on the differences in the accounting practices. They may also reject investment opportunities, forcing the regime to comply with the standards.

The entire process of embracing IFRS exhibits vulnerabilities to biases based on political and regional interests. However, the benefits of the process to the global business community should not be ignored. IASB has invested a lot in actualising the standards, harmonising international accounting and finance.

Leadership in International Accounting and Finance: Further Analysis of the Issue

Majority of global companies engaged in responsible agendas and business sustainability are re-examining future leadership from the perspective of international accounting and finance. In order to meet the growing expectations of stakeholders, the companies are re-examining consistency in leadership patterns. Among others, the handling of employees, internal development programs, and human resource strategies are under review.

To a certain extent, it is right for business organisations to exhibit moral correctness similar to that among civil rights organisations. Such behaviour would make them reliable partners within common collaborative governance space. In the recent past, the need for enhanced integrity and fairness at all organisational levels has increased. The role of accounting and finance with respect to the demanded transparency standards is indisputable. Consistencies in international accounting and finance would greatly facilitate leadership towards the desired transparency goals.

According to D’Amato and Roome (2009), facilitation of leadership by management entails redesigning and restructuring organisations. Leadership roles also constitute sustainability in unexplored territories and sustainable development in general (D’Amato & Roome 2009). In addition, it is essential that practices in firms take into consideration environmental dynamics.

The issue of globalisation of accounting and financial reporting comes into play here. Any internationally operating firm that fails to integrate environmental thinking into its practices is likely to become insignificant. Realisation of effective leadership in accounting and finance would occur only through the understanding of the globalisation environment.

According to Terell and Rosenbuch (2013, p. 41), globalisation is an ongoing process. It involves interdependence and integration of societies, economies, and cultures. It is evolving through worldwide networks of global trade and communication. Globalisation has evolved from just a concept to a reality. The world has evolved to become a borderless multicultural society. A number of factors, such the internet, global migration, and trade have contributed to this change.

In this context, organisations have the responsibility of mastering their geographical, intellectual, and cultural reach in the development of global mindsets and skills (Terell & Rosenbuch 2013, p. 41). Global organisations are becoming increasingly complex in terms of interdependence, multiplicity, and ambiguity. In order for them to attain leadership in any dimension, they have to bring on board leaders with a global outlook.

Global leaders require new sets of competencies, which would enable them lead effectively by responding to global situations. Such leaders or managers should embrace change in international accounting and finance. Ultimately, effective leadership in accounting and finance will manifest. Shortcomings in the global market are cited as major setbacks to the process of globalising accounting and financial reporting standards. Shortcomings include lack of global leaders to steer organisations towards change, rather than from change.

Leadership in accounting and finance relies largely on global leaders. Such leaders are developed through first-hand global and cross-cultural experiences. They are aware of the value and importance of networks. Accounting and financial networks constitute a major goal in the globalisation of related standards. Therefore, addressing the issue of globalising accounting and financial standards would greatly benefit from the engagement of global leaders. The individuals would greatly facilitate leadership in accounting and finance by adopting IFRS and making it part of their organisations. The developmental experiences of these global leaders would play a vital role in the overall realisation of leadership in international accounting and finance.

The implication is that leadership in accounting and finance is a multivariate issue. The various arms of the organisation should contribute to the realisation of this goal. Global leaders who have a global perspective on the issue of international accounting can effectively address the issue of leadership in accounting and finance in any organisation. In effect, the benefits of leadership in accounting and finance can elude the given firm as a result of a leadership lacking in global foresight.

Leadership, by definition, entails effectively generating and maintaining organisational changes (D’Amato & Roome 2009, p. 427). Leadership in accounting and finance, without doubt, relies on change. Globalisation of the accounting and financial standards constitutes that greatly needed change. In the absence of change, the realisation of any form of leadership is a big illusion.

There are four paradigms of leadership significant to accounting and finance in international organisations. They include classical and transactional paradigms. The others are organic and visionary paradigms (Rok 2009, p. 462). The transactional paradigm best describes leadership in accounting and finance. It is based on exchanges between leaders and followers. The paradigm highlights management of the external and internal environmental influences. It recognises the needs associated with these internal and external influences. In addition, this paradigm highlights possible means of addressing these complexities.

The paradigm is relevant to leadership in accounting and finance with regards to changes in the system. Such changes as globalisation of the standards would address the needs of both internal and external players. Transactional leadership in accounting and finance would enhance confidence among the users and developers of accounting and financial reports.

International accounting and finance brings the two concepts to a completely new level that cannot remain dependent on earlier systems. The impact of technology on communication, for instance, has brought about a high degree of interconnectedness in the system. Creation of knowledge and information sharing has been transformed immensely. Common global standards of accounting and finance should facilitate optimum exploitation of the potentials presented here.

D’Amato and Roome (2009, p. 430) postulate that the greatest challenge facing businesses includes adapting to global challenges. The functions of businesses, such as accounting and financial reporting, require integration with the chaos that is change. The business environment is continually changing. As such, accounting would suffer the consequences if not integrated into the complex and highly dynamic environment.

Difficulties facing Globalisation of Accounting and Financial Standards

The costs and associated utilisation of resources in the implementation of global accounting standards were mentioned earlier in the study. However, these are just the basic obstacles. According to Baudot (2012, p. 4), two primary perspectives are employed in the development of global accounting standards. They include complexity and modernisation perspectives.

The modernisation perspective promotes perceived benefits of globalised standards. The perspective focuses on cultural and economic progress. According to this perspective, international standards would lead to improved financial information reporting. The information generated would be more useful to global investors and other parties in decision-making.

The complexity perspective brings to fore the perceived impediments to the implementation of global standards. Multiple traditions form the basis of the impediments. Other hindrances include dependency on historical factors. Multiple traditions include such aspects as social, legal, and institutional factors (Baudot 2012, p. 5). From the complexity perspective, different accounting patterns ‘inter-depend’ with institutional and economic differences. Such a relationship has significant effects on the development of uniform standards. For instance, market oriented systems link with national economic systems. They also link with other economic factors in other countries. Legal systems, social climate, and political systems also influence the development of global standards significantly.

The financial systems of particular countries may also hinder the adoption of global accounting standards. For instance shareholder, bank, state, or family oriented systems have differing impacts on accounting practices. The financial system of a country primarily determines its accounting system. The reason is that the financial system is the one that governs accounting processes (Baudot 2012).

Cultural-institutional elements would also impede globalisation of accounting and financial standards. According to Rok (2009), the achievement of global standards becomes difficult due to historical cultural and institutional structures. Accounting and financial standards that meet the requirements of particular local structures are preferred by the locals.


Globalisation of accounting and financial practices is an important aspect of contemporary business organisations. Considering the current trend of universalising human activities and business processes, the development of universal standards becomes important. The IASB and FASB have made significant progress towards the realisation of global accounting and financial standards. The concerted efforts of these bodies strengthen the apparent need for the standards at a global level. Considering the international trend of globalisation, the adoption of these standards seems inevitable in the long run.

The benefits of adopting the global standards outweigh the associated shortcomings and impediments. Financial costs, time constraints, and training on new standards, among other factors, would substantially affect international business. However, the related easing of cross-territorial trade and reporting, reduced costs, and other long-term benefits favours the adoption of the globalised standards.

Leadership in accounting and finance is affected by the globalisation of these standards. Global leaders are a necessary factor in the realisation of leadership in accounting and finance. The mechanisms of most international businesses are designed to respond to the pressing need to globalise. Technological advancements in information and communication have provided the much-needed platform for connecting global businesses. As such, ICT can be used to effectively promote the adoption of international accounting and financial standards.

Leadership in accounting and finance must respond to the environmental changes that come with globalisation and universalisation of business processes. The full realisation of the standardisation goal is well under away. However, it is important to note that continued input from all stakeholders in the accounting and finance sector will enhance this realisation in the future. The stakeholders should not relent in their quest for globalised standards. Ultimately, the success of leadership in accounting and finance depends on the cooperation between the global stakeholders.


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Appendix 1: Formulas for Key Figures (IFRS)

Return on equity, % 100 X profit for financial period
total equity (average for the financial period)
Return on investment, %
100 X
profit before income tax + interests
and other financial expense
total assets – non-interest-bearing liabilities
(average for the financial period)
Equity ratio, % 100 X total equity
total assets – advances received
Gearing, % 100 X interest-bearing-liabilities – cash and cash equivalents –
financial assets at fair value through profit or loss
total equity

Source: IFRS (2013).

Appendix 2: Key FASB – GASB Accounting Differences

Description FASB GASB Impact
Contributed Services Allows recognition No recognition
  • Gift revenue
  • Expenses
Restricted Cash Contributions Recognize as temporarily or permanently restricted Recognized as deferred revenue, if use restricted to a future period
  • Liabilities
  • Gift revenues
  • Net assets
Endowment Pledges Recognize as permanently restricted Recognition prohibited
  • Assets
  • Gift revenues
  • Net assets
Restricted Non-endowment Pledges Recognize as temporarily restricted revenue Prohibits recognition if for future period use
  • Assets
  • Gift revenues
  • Net assets
Investmet Income
  • Reconize and display net against income
  • Recognize as operating or non-operating
  • Display income net of related expenses
  • Cannot be operating revenue unless from student loan programs
  • Line item display
  • Operating and non-operating categories
Pell Grants Balance sheet transaction Activities statement transaction
  • Grants and contract revenue
  • Net tuition
  • Net assets
  • Liabilities
Perkins Loans Balance sheet transaction Balance sheet or activities statement Activities statement:
  • Grants and contract revenue
  • Net assests
  • Liabilities
Funds Held in Trust by Others Included as assets No recognition
  • Assets
  • Revenues
  • Net assets
Restrictions Definition Only donors can restrict Any external party can restrict
  • Categorization of net assets
Use of Restricted Funds First dollar release mandated First dollar release optional
  • Categorization of net assets
Pensions and Other Post-Retirement Benefits Expense and liability calcuated consistently using FASB methodology Expense and liability calculated consistently using GASB methodology
  • Measurement difference
  • Expenses
  • Liabilities
  • Net assets
Software Capitalization required No capitalization required
  • Assets
  • Expenses
  • Net assets
Impairment Requires cash flow approach Requires service utility approach
  • Assets
  • Expenses and losses
  • Net assets

Source: FASB (2013).

Appendix 3: FASB – GASB Reporting and Display Differences

Description FASB GASB
MD&A No requirement Required supplementary information
  • Allowable by line of business
  • Allowable by net asset class
  • Only allowable by line of business
  • Not allowable by net asset class
Balance Sheet Display
  • No classified display requirement
  • Three net asset classes that differ from GASB:
    • Unrestricted
    • Temporarily restricted
    • Permanently restricted
  • Net assets are displayed for each of the three classes
  • No special requirements for capital asset display
  • Requires a classified balance sheet
    • Current
    • Noncurrent
  • Three net asset classes that differ from FASB
    • Capital assets, net of related debt, separately display:
      • Nondepreciable
      • Depreciable
    • Restricted
      • Expendable
      • Nonexpendable
    • Unrestricted
  • Display of unrestricted net asset designations is prohibited
Cash Flow Statement
  • Indirect method allowed
  • Three categories
    • Operating
    • Investing
    • Financing
  • Direct method mandated
  • Must reconcile operating cash to net loss from operations per Statement of Revenues Expenses and Changes in Net Assets
  • Four categories
    • Operating
    • Investing
    • Capital and related financing
    • Noncapital financing
Activities Statement
  • All expenses are unrestricted
  • Operating measure is optional and self defined
  • Expense categories
    • Functional required with prescribed allocations (display or notes)
      • Depreciation
      • O&M of plant
      • Interest
    • Natural is allowed
  • Expenses among net asset classes
  • Operating measure is required and prescriptive
  • Expenses categories
    • Allows natural or functional with lack of prescriptive allocations
      • Depreciation allocation optional
      • O&M of plant is separate function
      • NACUBO guidance encourages both natural and functional in the notes

Source: FASB (2013).

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BusinessEssay. (2022, December 14). International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards. Retrieved from


BusinessEssay. (2022, December 14). International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards.

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"International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards." BusinessEssay, 14 Dec. 2022,


BusinessEssay. (2022) 'International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards'. 14 December.


BusinessEssay. 2022. "International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards." December 14, 2022.

1. BusinessEssay. "International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards." December 14, 2022.


BusinessEssay. "International Accounting and Finance: Globalisation of International Financial and Accounting Reporting Standards." December 14, 2022.