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Chapter 2: Q5IFRS (page 76)

Financial Reporting CaseIFRS2-5 As discussed in Chapter 1, the International Accounting Standards Board(IASB) develops accounting standards for many international companies. The IASB also has developed a conceptual framework to help guide the setting of accounting standards. While the FASB and IASB have issued converged concepts statements on the objective and qualitative characteristics, other parts of their frameworks differ.

Instructions

Briefly discuss the similarities and differences between FASB and IASB conceptual frameworks as related to elements and their definitions.

Short Answer

Expert verified

The International Accounting Standards Board (IASB) is the one which deals with the development of international financial reporting standards and promoting the application of these standards while Financial Accounting Standards Board (FASB) is non profit organisation which deals with development of Generally Accepted Accounting Principles (GAAP) in the interest of public.

Step by step solution

01

International Accounting Standards Board (IASB)&Financial Accounting Standards Board (FASB) - SIMILARITIES:

Both IASB and FASB are independent, private sector bodies working to develop and enforce financial reporting standards for publicly held companies. They both held in setting of standards to private and public companies regarding reporting of financial statements.

02

International Accounting Standards Board (IASB) & Financial Accounting Standards Board (FASB) - DIFFERENCES:

  • IASB deals with setting and promoting the application of International financial reporting standards while, FASB is non profit organisation which deals with setting of Generally accepted accounting principles (GAAP)
  • IASB came into existence on April 1,2001 while, FASB came into existence in 1973.
  • IASB is based in London and FASB is based in US.
  • IASB is called the successor of International Accounting Standards Committee while FASB replaced the Accounting principles board (APB) and the Committee on Accounting Procedure (CAP)
  • IASC(International Accounting Standard Committee) with a mission to promote convergence on a single set of high quality, understandable, and enforceable global standards. FASB establishes financial accounting and reporting standards for specific public and private companies and for not for profit organisations
  • IASB roles are: It handles all technical matters concerning IFRS:
  1. Developing and pursuing IFRS`s technical agenda, subject to consultation requirements with specific selected trustees and the public
  2. Preparing & issuing IFRS and exposure drafts following due process.
  3. Approving & Issuing interpretations developed by IFRS Interpretation Committee

FASB roles are: Its priority is to improve financial reporting for the benefit of investors and other users of financial information, mainly in US capital markets. They achieve it by:

  1. Striving to achieve the highest quality standards known as GAAP
  2. Providing users with financial statements and information that is clear, useful and relevant to their needs
  3. Weighing up the expected benefits of that information against the costs of providing and using it.
  • FASB is a private, non-governmental division that’s owned and funded by the US Securities and Exchange Commission. IASB is also private company receives its funding through private donors and corporations.
  • FASB board members mainly work and reside in US while, IASB board members live and work in several nations around the world.

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Most popular questions from this chapter

BE2-1 (L03) Match the qualitative characteristics below with the following statements. 1. Relevance 5. Comparability 2. Faithful representation 6. Completeness 3. Predictive value 7. Neutrality 4. Confirmatory value 8. Timeliness (a) Quality of information that permits users to identify similarities in and differences between two sets of economic phenomena. (b) Having information available to users before it loses its capacity to influence decisions. (c) Information about an economic phenomenon that has value as an input to the processes used by capital providers to form their own expectations about the future. (d) Information that is capable of making a difference in the decisions of users in their capacity as capital providers. (e) Absence of bias intended to attain a predetermined result or to induce a particular behavior.

The treasurer of Landowska Co. has that conservatism is a doctrine that is followed in accounting and, therefore, proposes that several policies be followed that are conservative in nature. State your opinion with respect to each of the policies listed.

  1. The company gives a 2-year warranty to its customers on all products sold. The estimated warranty costs incurred from this year’s sales should be entered as an expense this year instead of an expense in the period in the future when the warranty is made good.
  2. When sales are made on account, there is always uncertainty about whether the accounts are collectible. Therefore, the treasurer recommends recording the sale when the cash is received from the customers.
  3. A personal liability lawsuit is pending against the company. The treasurer believes there is an even chance that the company will lose the suit and have to pay damages of \(200,000 to \)300,000. The treasurer recommends that a loss be recorded and a liability created in the amount of $300,000.

What are some of the challenges to the IASB in developing a conceptual framework?

E2-2 (L01,2,3) (Usefulness, Objective of Financial Reporting, Qualitative Characteristics) Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

  1. The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability.
  2. Relevant information only has predictive value, confirmatory value, or both.
  3. (c)Information that is a faithful representation is characterized as having predictive or confirmatory value.
  4. Comparability pertains only to the reporting of information in a similar manner for different companies.
  5. Verifiability is solely an enhancing characteristic for faithful representation.
  6. In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.

Match the qualitative characteristics below with the following statements.1. Timeliness 5. Faithful representation2. Completeness 6. Relevance3. Free from error 7. Neutrality4. Understandability 8. Confirmatory value

  1. Quality of information that assures users that information represents the economic phenomena that it purports to represent.
  2. Information about an economic phenomenon that corrects past or present expectations based on previous evaluations.
  3. The extent to which information is accurate in representing the economic substance of a transaction.
  4. Includes all the information that is necessary for a faithful representation of the economic phenomena that it purports to represent.
  5. Quality of information that allows users to comprehend its meaning.
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