Convergence with Accounting Standards

Project Report, 2012

21 Pages, Grade: 100



The IASB and the FASB aim to complete the convergence process before the year 2015. The introduction exhibits the problem which reflects the IASB and the FASB not aligning agreements. The failure to align agreements causes the boards to lengthen the time for convergence. The meaning for convergence is reflects from the SEC’s outlook. The SEC reveals that convergence consists of getting standards as close as possible to IFRS. Due to incongruence, the boards have not complete mutuality for one specific issue since the year 2008 and 2009. These areas are income tax and relates to financial instruments. According to Hoogervorst and Seidman (2012), both of these areas are label as low priority. A key recommendation that may assist with the problem is for the boards to increase the amount of meetings. The literature review provides a discussion of the pertinent literature. The body of the paper discusses how literature relates to the paper. The board performs various efforts like public conferences, meetings, and obtains feedback from stakeholders. Also, the summary reiterates the details about the board’s efforts and future recommendations provide insight for ways that the boards can reach a mutual agreement.


The FASB and the IASB are working towards convergence before the year 2015. The goal is to transition from U.S. GAAP to IFRS in the future. The problem is that both boards must go through phases in order to reach agreements, rather than making a rapid decision. Both boards are very selective concerning which parts of the rules to adopt. The IASB and the FASB are performing a dual assignment in eight phases. Each of the beginning seven phases handle and include plans, study, initial board debates on key elements of the boards’ structures. The last phase will be applied to handle any left-over concerns (FASB, 2010). The FASB and IASB take on a dual part assignment. The first portion concluded with announcements from both boards for the valuation of nontangible assets. The next portion is focus at enhancing a criteria for a mutual pair of beliefs aim to enrich the thoroughness, importance, and comparativeness of finance data for business mixtures (Schroeder, Cathey, & Clark, 2011). Literature reviews provide insight on the efforts of various entities toward the convergence framework project. Also, various sources reveal the timeline of efforts, meetings, contracts, and other steps for convergence between FASB and IASB. SEC (2010) reveals that convergence consists of matching IFRS standards as close as possible. Apparently, this may not be reflective because the FASB does not immediately accept all of the present IFRS standards. This is exhibit within the failure for adopting various IFRS standards like income tax. Though both boards aim to reach agreements, their debates ought to rapidly aim towards a mutual goal.

Hoogervorst and Seidman (2012) reveal that income tax is a low level task for the debate between the boards. Also, Hoogervorst and Seidman (2012) unveil that a dual exposure draft was issue in the year 2009 and remains an area for both boards to address. Currently, three years have pass since the last action which reflects a slow process for convergence. Also, Hoogervorst and Seidman (2012) uncover that since the year 2008, the boards fail to agree on the issues for financial instruments with characteristics of equity. This reflects four years and agreements should have been complete. The boards ought to stop dragging their feet and increase meeting quantities for to speed up the convergence results.

Literature Review for Worldwide Acceptance

The variations among GAAP and IFRS are becoming abolished with an exceptional rate. The continuous, persistent convergence for American and international accounting philosophies, which have shadowed the creation of the worldwide accounting board in 2001, distinctly represents the dedication of the American accounting board and the (SEC) to support and help the worldwide accounting board in the expansion of a solitary pair of top-superior bookkeeping regulations that get recognized worldwide. Some prominent occurrences for 2007 emphasize the commitment of the US to worldwide accounting regulations. Within the fourth month for the year 2007, the American accounting board and international accounting board decided that the whole upcoming key assignments get performed together. Within April 2007, a structure for progressing transatlantic society mergence between America and the Europe union got autographed from the forty-third American president, and two Europe presidents (Street, 2008). The US aims to put forth efforts with IASB in order to assist with the conceptual framework project. The fact that the agreement got sign shows the effort towards convergence with IFRS. The writer believes that having an agreement is a good indicator of the commitment efforts for convergence. This is because it reflects unity which is an essential element for convergence. The literature review exhibits efforts towards convergence of IFRS with the contract and the decision of both boards to participate in all main future assignments.

Revenue Recognition and Extraordinary Items

Revenue recognition, otherwise referred to as when the right of return exists has led to the rise of many issues with regards to whether revenue is ‘earned’ at the point where it is normally sold. What SFAS No. 48 created were the rules that would regulate unjustified diversity that already existed. Statement No. 48 clarifies how a business should go about accounting for sales in instances where the buyer is at liberty to return the product. Cash received from these kinds of transactions can only be accounted for when certain conditions stated in SFAS No. 48 are constant. In the event that these conditions are not met, revenue is not recognized.

According to Lynn & Dean (2004), accounting literature regarding revenue recognition has widely covered conceptual issues that are general and some are specific to certain industries. Some of the literature that has been written on the recognition of revenue includes the statements from the Financial Accounting Standard boards and those of the Financial Accounting Standards (SFAS) No. 45, No. 13, No. 49, Accounting for leases, statements from American Institute of Public Accountants and Financial reporting by cable Television Companies.

Revenue is only recognizable when there is the existence of persuasive evidence. Different companies have different ways of documenting sales. These methods vary depending on the type of customer, the kind of service or product being offered or sold as well as other factors that can be distinguished. Some companies may not have set rules and regulations of documenting sales, but they usually have other forms of documenting sales, sometimes written, other times electronic. These documentations, then, act as enough persuasive evidence at the point of sale.

When a consumer buys something and the seller gives him or her right to return, revenue will only be recognized at the point of sale. In the event that the product is damaged or destroyed, the seller is not obliged to return money to the buyer. The seller is also not obliged in the future to ensure resale of the product to his buyer. As such, laid rules and regulations have to be followed with regards to when and how goods can be returned.

According to FASB Statement No. 5, Accounting for Contingencies, future returns cannot be reasonably estimated as it depends on various other factors and conditions that vary from one circumstance to the next. There are, however, certain conditions that can be used to determine these future returns. One such factor would be to check whether the product is susceptible to being declared technologically, obsolete or there could be variation in demand for the product. The period that it takes for a particular product to be returned must also be considered when determining future returns.

The other factor is the historical evidence about the returns of certain products. These experiences are sometimes not possible to apply as there may be changes in technology or the way customers are handled. Again, similar transactions could be absent from previous records making it impossible to refer to the past. Lack of a point of reference makes it hard for the enterprises to estimate future costs of product returns.

Furthermore, Lynn & Dean (2004) reckon that it is the norm in certain companies to allow buyers to return products that have already been sold under clearly stated circumstances. The most common circumstances are when the customer is dissatisfied with the product. In the kind of business where the customer is to resell the product, they would probably return it because they have been unable to sell it. This kind of arrangement where the buyer is allowed to return the product when he or she is not able to resell it is commonly referred to as guaranteed sale arrangements. In the case of perishable goods like vegetables and newspapers, the return is done very soon after the transaction. In other instances, it takes a long period of time for these products to be returned. Products that take long to return include books and equipment that do not expire fast.

Returns vary depending on the industry with low returns on perishable goods that are returned almost immediately. Higher returns can be found in the publishing industry that takes long to return. Problems only occur when the buyer overstocks products and thus takes much longer to return the products. It is for this reason that SOP 75-1 was adopted to regulate how revenue is accounted for in instances when buyers have the right to return goods to the seller. As such, it was decided that revenue would only be recognized when the product was accepted unconditionally.


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Convergence with Accounting Standards
Argosy University
Contemporary Accounting Theory (B7630)
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ISBN (Book)
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Accounting Standards, US GAAP convergence IFRS, FASB and IASB convergence, Contemporary Accounting Theory B7630
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Gaberella Green (Author), 2012, Convergence with Accounting Standards, Munich, GRIN Verlag,


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