The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) set out to complete their ambitious goal of convergence before the year of 2015. The author provides an outline of these efforts, emphasizing the importance and ramifications of International Accounting Standards (IAS) as a means to globally improve quality and clarity of financial reporting across financial sectors. An extensive review of pertinent literature is given, visualizing the two-pronged approach of converging global accounting standards while continuing to improve the US Generally Accepted Accounting Principles (US GAAP).
As no significant agreement has been implemented since 2008, the main areas of interest to this date remain income tax, revenue recognition, leases, and financial instruments. The present work puts in perspective the roadmap by the Securities and Exchange Commission (SEC), whilst assigning pivotal roles in the harmonization process to Certified Public Accountants (CPAs) and Chief Financial Officers (CFOs). The author offers a conceptual framework and strategies for the successful completion of the convergence project, adding special emphasis on business mergers and taking a strong position on the active involvement of major players and stakeholders.
Table of Contents
- Introduction
- Literature Review for Worldwide Acceptance
- Revenue Recognition and Extraordinary Items
- Harmonization and Quality
Objectives and Key Themes
The main objective of this paper is to examine the convergence process between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), highlighting challenges and proposing recommendations for achieving a mutual agreement on accounting standards before 2015. The paper explores the complexities of aligning U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS).
- Convergence of U.S. GAAP and IFRS
- Challenges in aligning accounting standards
- Impact of convergence on financial reporting quality
- Role of stakeholders (CPAs and CFOs) in the convergence process
- Revenue recognition under differing accounting standards
Chapter Summaries
Introduction: This chapter introduces the ongoing convergence effort between the FASB and IASB to align U.S. GAAP with IFRS by 2015. It highlights the phased approach necessitated by the boards' selective adoption of rules and the dual assignment involving eight phases, with the final phase addressing remaining concerns. The chapter emphasizes the need for a rapid, mutually agreed-upon goal, contrasting with the slow pace of convergence, particularly concerning income tax and financial instruments. The slow progress is exemplified by the unresolved issues regarding financial instruments with equity characteristics, lingering since 2008, and the low priority assigned to income tax issues. The chapter concludes by advocating for increased board meetings to expedite the process.
Literature Review for Worldwide Acceptance: This chapter explores the literature surrounding the convergence of GAAP and IFRS, emphasizing the accelerating pace of harmonization and the commitment of the U.S. and international bodies to creating globally recognized accounting standards. Key events in 2007, such as the joint commitment of the FASB and IASB to future assignments and the signing of a transatlantic convergence agreement, underscore the dedication to the project. The chapter highlights the significance of these agreements as indicators of commitment and unity, essential elements for successful convergence. The literature reviewed illustrates the significant efforts towards convergence reflected in contracts and the joint participation of the boards in major future assignments.
Revenue Recognition and Extraordinary Items: This chapter delves into the complexities of revenue recognition, particularly when the right of return exists. It examines how SFAS No. 48 addresses inconsistencies in accounting for sales where buyers can return products. Revenue recognition is conditional on meeting specific criteria outlined in the standard. The chapter reviews existing accounting literature on revenue recognition, including discussions on conceptual issues, industry-specific concerns, and the implications of various accounting standards (SFAS Nos. 45, 13, 49). It analyzes the conditions under which revenue is recognized, considering factors such as persuasive evidence of sale, product returns, and estimating future returns. The chapter also explores guaranteed sale arrangements and the variability of return rates across different industries. Finally, it addresses the adoption of SOP 75-1, which mandates revenue recognition only upon unconditional product acceptance and clarifies the accounting treatment for situations involving the right of return.
Harmonization and Quality: This chapter discusses the widespread adoption of International Accounting Standards (IAS) and its impact on financial reporting quality. It highlights the uniformity in financial document preparation and review across numerous countries, enabling better stakeholder understanding and clarity in financial reporting analysis. The chapter then addresses the attitudes of Certified Public Accountants (CPAs) and Chief Financial Officers (CFOs) regarding the convergence of U.S. GAAP with IFRS and their importance in identifying areas needing improvement. The significance of their input in shaping the convergence process is emphasized, emphasizing their crucial role in ensuring the quality and effectiveness of the new standards. The chapter suggests that open communication between accounting specialists and rule-makers is essential for mitigating negative impacts and enhancing the overall quality of financial reporting.
Keywords
Convergence, IFRS, GAAP, FASB, IASB, Revenue Recognition, Financial Reporting, Accounting Standards, Harmonization, Quality, CPAs, CFOs, Stakeholders.
Frequently Asked Questions: A Comprehensive Preview of Accounting Standards Convergence
What is the main objective of this paper?
The paper's primary objective is to analyze the convergence process between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), identifying challenges, and suggesting recommendations for reaching a mutual agreement on accounting standards before 2015. It focuses on aligning U.S. Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS).
What are the key themes explored in this paper?
Key themes include the convergence of U.S. GAAP and IFRS, challenges in aligning accounting standards, the impact of convergence on financial reporting quality, the role of stakeholders (CPAs and CFOs) in the convergence process, and revenue recognition under differing accounting standards.
What topics are covered in the Introduction chapter?
The introduction sets the stage by discussing the ongoing convergence effort between FASB and IASB to align U.S. GAAP with IFRS by 2015. It highlights the phased approach, the slow pace of convergence (especially regarding income tax and financial instruments), and advocates for increased board meetings to accelerate the process.
What does the Literature Review chapter cover?
This chapter examines existing literature on the convergence of GAAP and IFRS, emphasizing the increasing pace of harmonization and the commitment of U.S. and international bodies to creating globally recognized accounting standards. Key events and agreements supporting this convergence are highlighted.
What are the key aspects discussed in the Revenue Recognition and Extraordinary Items chapter?
This chapter delves into the complexities of revenue recognition, especially when dealing with the right of return. It analyzes existing accounting literature, focusing on SFAS No. 48 and other standards (SFAS Nos. 45, 13, 49), and examines conditions for revenue recognition, including issues like product returns and guaranteed sale arrangements.
What is the focus of the Harmonization and Quality chapter?
This chapter explores the widespread adoption of International Accounting Standards (IAS) and its impact on financial reporting quality. It emphasizes the importance of Certified Public Accountants (CPAs) and Chief Financial Officers (CFOs) in the convergence process and highlights the need for open communication between accounting specialists and rule-makers to ensure high-quality financial reporting.
What are the key words associated with this paper?
Key words include: Convergence, IFRS, GAAP, FASB, IASB, Revenue Recognition, Financial Reporting, Accounting Standards, Harmonization, Quality, CPAs, CFOs, Stakeholders.
What is the overall structure of the document preview?
The preview provides a comprehensive overview, including a table of contents, objectives and key themes, chapter summaries, and keywords. It offers a structured and professional analysis of the themes related to accounting standards convergence.
What is the intended audience for this preview?
This preview is intended for academic use, supporting structured and professional analysis of themes within the context of accounting standards convergence.
- Quote paper
- Gaberella Green (Author), 2012, Convergence with Accounting Standards, Munich, GRIN Verlag, https://www.grin.com/document/272864
