Accounting Standards Boards Paper
May 24, 2010
History of the relationship between IASB and FASB
The International Accounting Standards Board (IASB) began operations in 2001. It is an organization committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements. The IASB has developed procedures that bring transparency, predictability, and consistency (IASCF Press Release, December 2, 2007). The Financial Accounting Standards Board (FASB) began operations in 1973 and has been the designated organization in the private sector for establishing standards of financial accounting. Those standards govern the preparation of financial statements. They are officially recognized as authoritative by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA). Such standards are important to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information (Financial Accounting Standards Board, n.d.). The IASB and the US FASB have been working together since 2002 to achieve convergence of International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP). A common set of high quality global standards remains a priority of both the IASB and the FASB. The boards shared objective of developing high quality, common accounting standards for use in the world’s capital markets. Both boards believe that a common set of high quality accounting standards will enhance the consistency, comparability and efficiency of financial statements, enabling global markets to move with less friction (Financial Accounting Standards Board 2006). In September 2002 the IASB and the FASB agreed to work together, in consultation with other national and regional bodies, to remove the differences between international standards and US GAAP. This decision was embodied in a Memorandum of Understanding (MoU) between the boards known as the Norwalk Agreement. Although the document does not represent a change in the boards’ convergence work program, it reflects the context of the ‘roadmap’ for the removal of the reconciliation requirement for non-US companies that use IFRSs and are registered in the United States. It also reflects the work undertaken by the Committee of European Securities Regulators (CESR) to identify areas for improvement of accounting standards. The boards’ commitment was further strengthened in 2006 when the IASB and FASB set specific milestones to be reached by 2008 (A roadmap for convergence 2006 – 2008). The ability to meet the objective set out by the roadmap depends upon the efforts and actions of many parties including companies, auditors, investors, standard-setters and regulators. The IASB recognized that their contribution to achieving the objective regarding reconciliation requirements is continued and measurable progress on the FASB-IASB convergence program. Recent discussions by the boards regarding their approach to the convergence program indicated agreement on the following guidelines: • Convergence of accounting standards can best be achieved through the development of high quality, common standards over time. • Trying to eliminate differences between two standards that are in need of significant improvement is not the best use of the FASB’s and the IASB’s resource- instead, a new common standard should be developed that improves the...