ACC 541 Accounting Theory & Research
June 30, 2015
The Financial Accounting Standards Board (FASB), since 1973, has remained the appointed organization for establishing financial accounting standards for the United States. The organization is recognized by the Securities and Exchange Commission as well as the AICPA. The International Accounting Standards Board, established in 2001, is the designated organization for establishing International Financial Reporting Standards. The International Accounting Standards Board and the Financial Accounting Standards Board have remained separate, but equal policy initiating entities until an issuance of a Norwalk Agreement launched a convergence commitment. Over the course of the last thirteen years, the joint efforts of the IASB and the FASB have proven tumultuous for both entities.
Both entities developed a Financial Crisis Advisory Group to address reporting issues associated with global financial crises. Over the next several years, the FCAG acknowledged weaknesses and complexities in the accounting standards established during their joint efforts. The result of the weaknesses includes the ongoing improvement of various models and amendments. FASB and IASB have completed several short-term convergence projects, substantially converging their standards for share-based payments, segment reporting, the fair value option for financial assets and liabilities, borrowing costs, and more. In some cases, such as share-based payments, both boards issued revised standards. In others, convergence required one board to revise its standards to align with those of the other board.
According to Clark Shaefer Hackett, “the boards also completed several major convergence projects, including: issuing joint requirements for business combination accounting and noncontrolling interests, substantially aligning their disclosure requirements for derecognition of financial assets and liabilities and reducing the differences between their accounting requirements (although the boards are reassessing the scope of this project), aligning their guidance on fair value measurement, bringing their standards on postemployment benefits closer together, and converging or substantially converging their standards on joint arrangements, other comprehensive income and consolidated financial statements. (The boards are continuing to discuss consolidation of investment companies). The boards currently are working on four high-priority convergence projects including revenue recognition, leasing, financial instruments, and insurance contracts. The boards are close to reaching an agreement on revenue recognition but continue to deliberate over the other three projects. Several projects have been reassessed as lower priority and won’t be addressed in the near future. They include financial instruments with characteristics of equity, financial statement presentation, reporting discontinued operations, earnings per share and income taxes.
While FASB and IASB have been striving to converge their standards, the U.S. Securities and Exchange Commission (SEC) has been exploring the possibility of adopting IFRS for use in the United States.” The relationship of the IASB and the FASB original pronouncements, according to the pronouncements, is a dedicated effort “to improve international comparability of financial reporting by working toward development of a single set of high-quality accounting standards. As part of that effort, the Boards jointly undertook a short-term project to eliminate certain narrow differences between the accounting pronouncements issued by the IASB and the accounting standards issued by the FASB. Both Boards agreed to limit the scope of the short-term project to issues for which (a) the Boards’ respective accounting pronouncements were different; (b) convergence to a