The IASB decided to undertake a comparability and improvements project to reduce the number of allowable alternatives and make the standards more prescriptive rather than descriptive.
By the late s, the need for a common body of international standards to facilitate cross-border capital flows had generated a high level of worldwide interest. The FASB decided that the need for international standards was strong enough to warrant more focused activity on its part. During the s, the FASB developed its first strategic plan for international activities and significantly expanded the scope of its collaboration with other standard setters. The U. Congress and the SEC also became involved in the issues of international accounting standards.
Since the Board had concluded that the ultimate goal was beyond immediate reach, it established a near-term strategic goal of making financial statements more useful by increasing the international comparability of accounting standards while improving their quality. The plan outlined specific efforts toward achieving that goal. The FASB and its counterpart in Canada undertook a joint project that resulted in both Boards issuing improved standards on segment reporting that were substantially the same.
In the interest of working collaboratively, the FASB and its counterparts in Canada, the United Kingdom, and Australia formed a group to research and propose solutions to common accounting and reporting issues.
Representatives of the IASB participated as an observer. The FASB and IASC undertook concurrent projects to improve their earnings per share standards with a specific objective of eliminating the differences between them. In , the FASB updated its strategic plan for international activities, essentially affirming the strategic goals and action plans set forth in GAAP In , the FASB published an update of that staff research study.
The IASC undertook a project to complete those core standards by The IOSCO agreed that if it found those core standards acceptable, it would recommend endorsement of IASC standards for cross-border capital and listing purposes in all capital markets. The SEC issued a press release stating its intent to consider the acceptability of IASC standards as the basis for the financial reports of foreign private issuers.
To be accepted by the SEC, the IASC standards would have to be 1 sufficiently comprehensive, 2 high-quality, and 3 rigorously interpreted and applied. Following the Asian financial crisis, the World Bank, International Monetary Fund, G7 finance ministers, and others called for rapid completion and global adoption of high-quality international accounting standards.
The report said that such a system would be characterized by a single set of high-quality accounting standards established by a single, independent, international standard setter. Financial reporting standards and requirements vary by country, which creates inconsistencies. This problem becomes more prevalent for investors when they are considering funding capital-seeking companies that follow the accounting standards and financial reporting of the country in which they are doing business.
The GAAP consists of a complex set of guidelines attempting to establish rules and criteria for any contingency, while the IFRS begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation. The convergence and subsequent change of accounting and reporting standards at the international level impact a number of constituents. The International Accounting Standards Board IASB seeks a workable solution to alleviate the existing complexity, conflict, and confusion created by inconsistency and the lack of streamlined accounting standards in financial reporting.
GAAP which FASB oversees and standards for accounting and financial reporting; however, the mission has been enhanced to include the convergence and harmonization of U. Corporate management will benefit from simpler, streamlined standards, rules and practices that apply to all countries and are followed worldwide. The change will afford corporate management the opportunity to raise capital via lower interest rates while lowering risk and the cost of doing business.
Investors will have to re-educate themselves in reading and understanding accounting reports and financial statements following the new internationally accepted standards.
At the same time, the process will provide for more credible information and will be simplified without the need for conversion to the standards of the country. Further, the new standards will increase the international flow of capital. Stock markets will see a reduction in the costs that accompany entering foreign exchanges , and all markets adhering to the same rules and standards will further allow markets to compete internationally for global investment opportunities.
The shift and convergence of the current standards to internationally accepted ones will force accounting professionals to learn the new standard and will lead to consistency in accounting practices.
The development of standards involves a number of boards and entities that make the process longer, more time consuming, and frustrating for all parties involved. Once standards have converged, the actual process of developing and implementing new international standards will be simpler and will eliminate the reliance on agencies to develop and ratify a decision on any specific standard.
Arguments for the convergence are:. This will result in an increase in capital flow and international investments, which will further reduce interest rates and lead to economic growth for a specific nation and the firms with which the country conducts business. Timeliness and the availability of uniform information to all concerned stakeholders will also conceptually make for a smoother and more efficient process. Additionally, new safeguards will be in place to prevent another national or international economic and financial meltdown.
Arguments against accounting standards convergence are a the unwillingness of the different nations involved in the process to collaborate based on different cultures, ethics, standards, beliefs, types of economies, political systems, and preconceived notions for specific countries, systems, and religions; and b the time it will take to implement a new system of accounting rules and standards across the board.
The Securities and Exchange Commission's goals and efforts both domestically and internationally have been to consistently pursue the achievement of fair, liquid , and efficient capital markets, thus providing investors with information that is accurate, timely, comparable, and reliable.
One of the ways the SEC has pursued these goals is by upholding the domestic quality of financial reporting as well as encouraging the convergence of the U. Research indicates that firms that apply the international standards show the following: a higher variance of net income changes, a higher change in cash flows, a significantly lower negative correlation between accruals and cash flows, a lower frequency of small positive income, a higher frequency of large negative income, and a higher value relevance in accounting amounts.
Additionally, these firms have fewer earnings management , more timely loss recognition, and more value relevance in accounting amounts compared to domestic U. There is some opposition to the convergence from all stakeholders involved, including accounting professionals CPAs, auditors, etc.
There are various reasons for such resistance to change, and some are pertinent to the accounting profession, some to corporate management and some are shared by both. The new set of standards that will be adapted will need to provide transparency and full disclosure similar to the U.
Some reasons for the U. Based on member surveys, the Institute believes that a three- to-five-year timeline will be required for public companies and the accounting profession to successfully transition to IFRS. SEC Authority The Securities and Exchange Commission has statutory authority over accounting standards used by companies whose shares are publicly traded on U. The SEC took a first step toward allowing all U.
There is currently no estimated date for when such a decision will be made. The new-and-improved revenue recognition rules go live in for calendar-year public companies. But many organizations have taken a wait-and-…. Learn More. Read related articles and reference materials to help you equip your team and organization for recovery and resilience.
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