American Accounting Association

As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.

Normative accounting research has resulted accounting theories that are relevant for the setting of financial reporting standards (Mozes, 1992, p. 93). In this case, the FASB’s (U.S Financial Accounting Standard Board) call for normative research can be interpreted as a request for accounting researchers to investigate whether the user specific and decision-specific qualities that standard-setters require are present in the accounting data (Mozes, 1992, p. 93). A successful example of normative accounting

SFAC No. 8 addresses the cost constraint on useful financial reporting, “Cost is a pervasive constraint that standard setters, as well as providers and users of financial information, should keep in mind when considering the benefits of a financial reporting requirement.” (SFAC No. 8 BC 3.47) However, the ability to place a dollar value and fully enumerate a cost or benefit is almost an impossible task for standard-setters. Additionally, there is no way to successfully identify and measure all of the economic consequences associated with a new standard. The FASB should be applauded though for advancing uniformity in accounting standards, however; uniform financial reporting suggests a one size fits all approach. “Smaller, non-publicly listed firms (and their auditors) argue that accounting standards are formulated mainly for larger, publicly traded firms” and that “compliance costs are disproportionately higher and the

In 1973, the Financial Accounting Standards Board (FASB) was created and their mission 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.” (FASB.org, 2009a). The FASB is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. Therefore, the FASB plays a vital and important role in protecting the financial well being and the overall stability of our

Since 2002, Financial Accounting Standards Board (FASB) and International Accounting Standards Board’s (IASB) have been working toward “convergence” of US General Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). They have made significant progress in efforts to converge critical accounting standards such as those dealing with revenue recognition, financial instruments and leases. Once these projects are complete, the "era" of convergence will be at an end. Nevertheless, the benefits for investors of eventually getting to consistently applied, high-quality, globally accepted accounting

Over a decade ago, it was believed that the whole world would likely adopt the Generally Accepted Accounting Principles (GAAP). At the point in time, the International Financial reporting Standards (IFRS) was only about ten years old. In the last decade, the IFRS has been adopted in many growing countries. Currently, it is anticipated that the U.S. will converge its GAAP with the international IFRS, leaving behind only a modified IFRS. This may occur as early as 2014.

The accounting system in the US was strongly influenced by the SEC as opposed to a governmental influence. The SEC sells, exchanges and trades securities, protects investors while maintaining fair, orderly and efficient markets and ultimately facilitates capital formation (Pereira, 1992, p17). The US has the largest and one of the most important, stock exchanges in the world - the New York Stock Exchange located on Wall Street in New York City. This makes the US a huge market for investors world-wide. All investors would like to have access to certain facts about an investment before buying it and while holding it. In order to achieve this, the SEC requires all public firms and companies to disclose meaningful financial and other information to the public, to follow GAAP (SEC, 2007). Thus, any company that wishes to be a market in the SEC’s securities must register with the SEC. For those companies with foreign registrants, the SEC requires them to either report under US GAAP or to provide reconciliations to US GAAP (Nobes, p146, 2006). The SEC also requires public firms to follow GAAP in order to be audited. It is quite evident that most of American accounting is rule based, not government based. According to Nobes’ textbook, Comparative International Accounting, the commission since its inception has intended to limit the exercise of its accounting standard-setting authority to a supervisory role, permitting and encouraging the private sector, currently

Be that as it may, expanding the similarity of principles is difficult. It can't be refined by the FASB alone; it requires collaboration and assentation among standard setters around the globe. Distinctive beginning stages, diverse business societies, diverse administrative situations, diverse budgetary reporting targets, and diverse legitimate frameworks can make it troublesome for standard setters around the globe to concede to the same bookkeeping elective. Also, an option that is seen as a change in one nation may not be seen as a change by another nation. For instance:

The Morley (2012) website states that generally accepted accounting principles are standards that determine how accountants in the U.S. “Conduct and format their reports are determined by the FASB, U.S. Accounting records must be seen by a number of people outside of the organization for transparency purposes” (Morley, 2012). The Morley (2012) website states that if each company created its own accounting reporting methods, comparing financial statements would be inefficient and hiding information would be easier. According to the FASB, entities such as the U.S. Securities Exchange Commission and the American Institute of Certified Public Accountants recognize FASB's authority to set standards. This law ensures that no money is pocketed without being taxed and that all revenues are reported. As far as general financial ethical standards, “financial professionals have obligations to be competent, accountants and financial professionals must not only have secured education and practice that prepares them for their positions, but they must also continue that education by learning new information that can affect their practices” (Morley, 2012). According to “Associations For Financial Professionals” (2012), “financial professionals have an obligation to their

The FASB has the mission of create and improve the accounting standards and the financial reports by the nongovernmental organizations, offering useful information that allows investors and other users to make decisions. The implementation and improvement of the standards is made taking into consideration the opinion of all the parties interested and it is supervised by the Financial Accounting Foundation’s Board of Trustees. This process open to the public participation warranty the transparency into the standards-setting process. Therefore, the FASB issue a variety of reports requesting feedbacks on its standards setting activities. (FASB, Standard-setting process, n.d.)

Abstract: On October 11, 2011, the Public Company Accounting Oversight Board (PCAOB) proposed a new rule. The rule is meant to name the engagement partner and other key participants who play a role in preparing audit reports. PCAOB believes that new rule would help to get more information and would be useful to investors, creditors and other financial statements users. After six years of debate over the intended and unintended consequences the PCAOB concluded and issued the rule on December 15, 2015.The objective of my research was to reflect my expectations for the consequences, both intended and unintended of the Public Company Accounting Oversight Board of the new rule. The PCAOB’s final article “Improving the transparency of audits: Rules to require disclosure of certain audit participates on a new PCAOB form and related amendments to auditing standards” release No. 2015-008 issued on December 15, 2015 was very crucial for my research because it gives first hand perspective of the new rule.

The American Association of Public Accountants, created in 1887, tasked accounting professionals with the responsibility to ascertain, maintain, and evaluate company financial statements for accuracy, fraud, and compliance utilizing current accounting guidelines. Financial frauds, in the twentieth century, however continued to evaded detection due to loose accounting oversight, and a lack of proper internal and external controls (Events that shaped a century, 2005).

5 - Explain how “rules-based” accounting standards differ from “principles-based” standards. How might fundamentally changing accounting standards from bright-line rules to principle- based standards help prevent another Enron-like fiasco in the future? Some argue that the trend toward adoption of international accounting standards represents a move toward more “principles-based” standards. Are there dangers in removing “bright-line” rules? What difficulties might be associated with such a change?

Auditors are required by GAAS to understand their clients’ incentives and to search for differences between actual and expected performance that may indicate misstatements, so the auditors who participated in our study were relatively well positioned to identify specific instances of earnings management. Because respondents provided transaction-level data about attempts covering a range of financial accounting transactions, including attempts that are purely judgmental as well as attempts that involve transaction structuring, these data allow us to examine how attempts are affected by the precision of financial accounting standards2 and by other characteristics of attempts. Unlike studies that focus on only postaudit information, we consider separately managers’ decisions about how to attempt earnings management and auditors’ decisions about whether to require adjustments.3 Thus, our study provides evidence about how a key feature of accounting standards (precision of rules) and a key feature of the financial reporting process (activity of external auditors) influence earnings management. Results of descriptive analyses indicate that the earnings management attempts in our sample occurred in numerous accounting areas, including revenue recognition, business combinations, intangibles, fixed assets, investments and leases, but by far the most frequently identified attempts involve reserves. Respondents believe that managers’ attempts were motivated

At the World Bank Conference held in 1999, Jules W. Muis aptly states “….power to control the language of business is important. Standard setters will come ahead as the world grows smaller, and economic independence is no longer an option but a reality. So it happens that today a good observer can see the preparations of battle for the control of the international language of business slowly unfolds…” In this context, the statement of Harvey Pitt, US SEC Chairman at SEC Conference, (2002) is worth mentioning, “High quality global accounting standards are needed to improve the ability of investors to make informed financial decisions. Companies must keep pace with this progress in order to promote and protect their business credibility in the international market place.” It is for this reason that the convergence of accounting standards is so important. The process of convergence is accepted as the key factor to implement a single set of accounting standards across the globe. The paper follows a scholarly search approach to discuss the recent status of harmonization in accounting practices. 2. Objectives The objectives of current study are very straight forward. The very basic issue is to explain the need of harmonization in practices. Later on, it focuses on the regulatory authorities who are working actively to bring the convergence into practice. The paper also presents