Since the Enron scandal in 2001 there has been more and more media coverage on the topic of accountancy. The focus shifted from the financial statements and the companies themselves to the audit firms. The big five, and later, after the ending of Arthur Andersen, the big four, are working under significantly more pressure today.
But the audit firms are not the only scapegoats in this matter. People also started to look more and more critically to the accounting standards. Questions have risen on the relevance of the Financial Standards. Also the fact that there are more than one set of Financial Standards is remarkable. Some things that are illegal in the United States of America can be legal in the European Union and the other way around.
Therefore the IASB and the FASB are trying to come together in a process which is called convergence. In their Norwalk Agreement of September 2002, and later on renewed by the FASB-IASB Memorandum of Understanding in February 2006, it is acknowledged that both sides will need to move some way towards each other to come to a unified set of worldwide applicable financial accounting regulations. This resulted in the FASB adopting some IASB regulations, and the IASB adopting some FASB regulations, and in some cases a joint project to issue new and identical regulations on specific matters (Veron, 2007).
This process of convergence has raised criticism and questions. As put in The Global Accounting Experiment by Nicholas Veron (2007):
“The forces driving the Global Accounting Experiment are insufficient to guarantee its continued success. It is bound to face major challenges in the next few years. Two main factors are behind this: the deficit of legitimacy and accountability of the IASB, and the difficulty of ensuring consistent implementation of IFRS across sectors and countries.”
The questions raised in the convergence process, for example, are: which type of regulations on a specific subject is “better”, or more relevant? Are the adopted standards by the FASB of equal importance compared to the adopted standards by the IASB? To put this differently, is there one-way convergence from one side to another? This is namely being criticized in Europe, where critics say that this convergence process is a process of one-way convergence from IFRS towards US GAAP (Camfferman, 2010).
These three questions mentioned above bring me to the main question which I am going to answer with this research: Are the worldwide applicable
Table of Contents
1. History FASB / IASB
1.1 The International Accounting Standards Board (IASB).
1.2 The FASB
1.3 What is Convergence
1.4 The rise of the convergence process
1.4.1 The rise of the convergence Process (1960’s – 2001)
1.4.2 The convergence process today.
1.5 Discussion on the convergence process
1.6 Summary
2. Standard Setting & Lobbying
2.1 Standard Setting
2.2 Lobbying
3. Research Outline
4. Research
5. Conclusion
Research Objective & Topics
This research investigates whether the worldwide applicable financial accounting standards are converging towards a model that is predominantly American or European. By analyzing comment letters regarding one-way convergence Exposure Drafts issued by the FASB and the IASB between 2005 and 2009, the study evaluates the influence of different stakeholders on the standard-setting process and determines the direction of the convergence path.
- Convergence processes between US GAAP and IFRS
- Influence of lobbying and comment letters on standard setters
- Distinction between "fixed" and "incidental" commenter groups
- Analysis of specific Exposure Drafts from IASB and FASB
- Evaluation of stakeholder support and standard-setter dominance
Excerpt from the Book
IAS 39 Transition & Initial Recognition of Financial Assets and Liabilities
This Exposure Draft proposes an amendment that would apply when entities first adopt IAS 39. It would allow, but not require, entities to adopt an approach to transition that is easier to implement than that in the previous IAS 39 standard. This would enable entities to eliminate a difference between the IASB’s Standards and US requirements (Press Release IASB, 8 July 2004). In other words, a step in convergence of the IASB towards the FASB.
There have been issued 37 comment letters on this Exposure Draft. 21 Of these comment letters were issued by the group of fixed commenters, and the remaining sixteen have been issued by the other commenters. In the graph you can see how the responses of the two different groups are distributed among the five categories.
Summary of Chapters
1. History FASB / IASB: This chapter outlines the origins and development of the FASB and IASB, providing context for their missions and the necessity of convergence.
2. Standard Setting & Lobbying: This chapter details the procedural frameworks used by both boards and explains how external parties exert influence through lobbying and the comment letter process.
3. Research Outline: This chapter describes the methodology for identifying, categorizing, and selecting one-way convergence standards for empirical analysis.
4. Research: This chapter presents the empirical results, including statistical analysis of comment letters, for the selected IASB and FASB exposure drafts.
5. Conclusion: This chapter summarizes the findings regarding the direction of the convergence process and provides a final discussion on the overall research question.
Keywords
Convergence, IFRS, US GAAP, Accounting Standards, FASB, IASB, Lobbying, Comment Letters, Financial Reporting, Stakeholders, Standard Setting, Global Capital Markets, Reconciliation, Financial Statements, Regulation
Frequently Asked Questions
What is the core focus of this research?
The research examines whether the ongoing convergence between IFRS and US GAAP results in accounting standards that lean more towards American or European regulatory philosophies.
Which stakeholder groups are identified in the analysis?
The study distinguishes between a "fixed group" of regular commenters (e.g., audit firms, standard setters) and an "incidental group" of commenters who participate less frequently.
What is the primary methodology applied?
The author performs an empirical analysis of comment letters submitted during the exposure periods for one-way convergence standards between 2005 and 2009.
How is the influence of stakeholders measured?
Influence is assessed by classifying comment letters into categories ranging from "not supportive" to "fully supportive" and calculating a weighted tendency value for each proposed standard.
What does the main body of the work cover?
The main body details the historical backgrounds of the boards, their due process, lobbying mechanisms, and a comprehensive analysis of specific IASB and FASB Exposure Drafts.
Which keywords best describe the research?
Key terms include convergence, IFRS, US GAAP, lobbying, standard setting, and stakeholder influence.
Does the IASB exhibit a different approach to commenters compared to the FASB?
Yes, the research finds differences in the composition of commenter groups and their tendencies, with IASB proposals often facing stronger negative sentiment from the fixed group of commenters.
What is the conclusion regarding the direction of convergence?
The author concludes that on important subjects, the IASB is moving towards the FASB, suggesting that the resulting global regulations are becoming more American than European.
- Arbeit zitieren
- Dr Alfred Mully (Autor:in), 2010, America vs. Europe. The battle between accounting standard setters, München, GRIN Verlag, https://www.grin.com/document/267065
