Financial Reporting : Private And Public Accounting

The FASB mission statement states, “that it is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities and provides decision-useful information to investors and other users of financial reports. That mission is accomplished through a comprehensive

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.

In 1973 the Financial Accounting Standards Board (FASB) was established to set the financial accounting standards in the United States of America for nongovernmental entities. These standards are collectively called U.S. Generally accepted Accounting Principles, or U.S. GAAP. The Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants acknowledge the authority of these standards (FASB, n.d). A “proven, independent due process” is used to collect the viewpoints of the financial statements prepares and users for the constant improvement of these standards. An Accounting Status Update(ASU) is not an authoritative source however documents the amendments to communicate the changes in the FASB Codification for a user to understand the reason and future of those changes (FASB, n.d).

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

The FASB is an agency of the federal government that has the broad powers to prescribe accounting standards to be employed by companies that fall within its jurisdiction.

As a result of financial fraud disasters such as Enron, WorldCom, and AIG there has been a growth in the past decade of how companies conduct full disclosure reporting. Enron, for example, misinformed and manipulated financial information to users of losses of its fiscal year statements. These scandals of fraud have also caused the Securities and Exchange Commission (SEC) to enforce strict rules of a company as it relates to the disclosure of reporting financial information. The SEC is also responsible for how a company discloses information in financial statements. The SEC requires corporations to employ complete interim data of notes to financial statements in a timely manner. These notes must be precise and accurate the first time to assure users of statements confidence. The SEC’s interest is to ensure corporations reveal required expanded data to users of financial statements. Without these enforcements of provisions, and contractual obligations, corporations are capable of omitting required information that results in scandals such as, Enron, WorldCom, and AIG corporations. Under the provisions of the SEC, the failure of a company to disclose required data in financial statements can result in serious consequences. The Financial Accounting Standards Board (FASB) also plays a role in the growth of how corporations conduct financial reporting. The

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).

In accounting, private companies are treated differently than governmental and non-profit companies. However governmental and non-profit companies use different reporting requirements from the private sector. The requirements for governmental companies use the Government Accounting Standards Board (GASB), whereas profit and non-profit companies use the Financial Accounting Standards Board. This paper will explain the purpose, discus the similarities, and differences between the GASB and FASB.

For as long as human interactions have allowed the exchange of value between goods or services, accountancy has been the language of which business transactions are speaking (Salem, 2013). Accounting keeps track of and explains how money is used by non-profit organizations, for-profit businesses, governments and other individuals. Sounds simple enough right? Well, in all reality it is not that simple. Nowadays, there are many different forms of accounting let alone different set of standards that certain, and sometimes all, organizations must follow. Today there are two main standard setters in the United States that is responsible for providing up to date standards for its corresponding organizations. Although these two standards are very similar in nature, they are also very different when it comes to their own individual reporting requirements. Throughout the rest of this paper I will not only compare and contrast the differences between the Governmental Accounting Standard Board (GASB) and the Financial Accounting Standard Board (FASB), but also how they differ when it comes to their reporting requirements.

There are certain regulations that come along with financial reporting. One of the guidelines used by Americans is the Generally Accepted Accounting Principles (GAAP), which are made by the Financial Accounting Standards Board (FASB). According to authors Harrison, Horngren, and Thomas, accounting is used to reveal information about a company to its investors, lenders, and creditors. They also convey that the information

Before issuing its standards, the GASB follows the set of “due process” activities enumerated in its published rules of procedure. Due process is stringent and is designed to permit a thorough and open study of financial accounting and reporting issues by the preparers, auditors, and users of financial reports, in order to encourage broad public participation in the standards setting process. Significant steps in the process are announced publicly. The GASB’s meetings are open to public observation and a public record is maintained.

To address the increasing challenges of legislating those governs our society today, “countries all over the world have begun to outsource rulemaking to bodies consisting of people familiar with the subject. For that reason, policymakers rely on private entities to establish financial accounting and reporting standards” (Donald Kieso, 2003, Intermediate Accounting). The two most influential standard-setters are the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

Analysis of Various Financial Statement Users’ Attitudes and Recommendations for the FASB’s Proposed Accounting Standards Update

Accountants have used whatever tactics they could to place a positive spin on the financial statements. Over the years, there was a need for improvements in financial reporting. In 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34; which caused a major change in the reporting requirements of the government (Fischer, Cheng, & Taylor, 2009). This also led to a very comprehensive accounting process. GASB 34 made big improvements in how the government views their financial statements.

The purpose of the Financial Accounting Standards Board (FASB) is to create and improve the standards of financial accounting and reporting for nongovernmental entities. It is a standard for not for profit financial reporting which provides useful information to investors and other users of financial reports. The Accounting Standards Update 2011-5 discusses the reporting and presentation of comprehensive income and its components in a full set of general purpose financial statements.