Discussion of the Changes Proposed by the International Accounting Standards Board and How These Changes Will Affect the United States’ General Accepted Accounting Practices
The changes that are proposed by the International Accounting Standards Board (IASB) will affect the United States’ Generally Accepted Accounting Principles (GAAP). These changes may have the most significant effects in the areas of revenue recognition, leases, and financial instruments ( ).
The proposed changes under the IASB call for one standard be used in revenue recognition. This standard would apply to all industries and transactions. So under such a standard, no specific revenue for transactions and industry will exist. The
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Also collectibility would affect the amount of revenue is recognized rather than whether revenue is recognized. In light of this, expanded utilization of estimates would be needed to decide both the amount to allocate and the basis for such allocation ( JA ).
The proposal would apply to all contracts that give goods or services to customers or clients, save leases, insurance contracts and financial instruments. Under the new standard, a company would need to disclose qualitative and quantitative information about contracts with customers and clients inclusive of maturity analysis for contracts extending past a year, and the important judgments and alternations in judgments done in applying the prosed standard to those contracts (JA ).
The proposed changes through the IASB will answers worries that several lease obligations are not documented on the balance sheet and that the present accounting for leases fails to illustrate the economics of all lease transactions ( Significant Changes). The jist of the proposal is to require and organization to recognize assets and liabilities coming from a lease. This shows an improvement as the existing lease standards do not require lease assets and lease liabilities to be recognized by many lessees. A lessee would admit assets and liabilities for leases with a top term of more than twelve months (Significant Changes). The acceptance, appraisal, and delivery of expenses an cash flow coming from a lease by a
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).
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
In May 2008, the AICPA’s Governing Council designated the International Accounting Standards Board (IASB) as the body authorized to establish international financial accounting and reporting principles under rule 202 and 203 of the AICPA Code of Professional Conduct. Below is an illustrative Independent Auditor’s Report on financial statements issued in conformity with IFRS.
The International Accounting Standards Board (IASB) was formed in an attempt to bring uniform accounting standards within international countries through its issuing of the International Financial Reporting Standards (IFRS). Today, over 100 countries including Canada, India, and Japan have adopted these standards for financial reporting. The growth of multinational companies such as Coca Cola and the increasing desire of cross-border investing have made it apparent that the U.S.accounting standards known as the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB) can no longer remain separate from IFRS. Under the request of the Securities and
The IASB and FASB have been working on a project together to minimize the differences in the way financial statements are presented to the public. Some of the major changes that we will notice in the statements are the adoption of the International standards. The information portrayed will be the same with some changes in the organization of the data. The changes are said to bring more understanding to the interpretability of financial statements as a whole.
The Accounting Standards Update requires improved presentation and disclosures to enable the not-for-profits issue out
One of the changes involves the criteria for what is considered the delivery of a product or the performance of a service. This is one of the four conditions needed to be able to recognize revenue under the current model. The condition currently states that revenue should not be recognized until the seller has substantially accomplished what it must do pursuant to the terms of the arrangement where substantial accomplishment of performance usually occurs upon delivery of good(s) or performance of service(s). Risks and rewards of ownership must also pass upon delivery or performance in order for revenue to be recognized. The proposed model considers the delivery of goods or the performance of services to be fulfilled once the control of the contractually promised goods or services has transferred to the customer and that revenue may be recognized. This delivery may occur at a point in time or over time. Indicators of the transfer of control include: right to payment, passage of legal title, physical possession, significant
The IFRS are superseding GAAP as the official reporting structure of many countries and as of July 2014, 283 have adopted the IASB’s new rule book (PricewaterhouseCoopers, 2014). The transition to IFRS has spawned a worldwide dialog of investors and analysts discussing the effects it will have on reporting and the implications this move carries into the future. This paper will review some financial reporting standards, the major distinctions between the U.S. GAAP and IFRS, and the competitive advantages and disadvantages of altering the U.S. reporting structure.
In the global business arena, there are two main institutions whose accounting standards are used for financial reporting, Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). The IFRS, whose rules are established and maintained by the International Accounting Standards Board (IASB), is the most widely used of the two institutions but the primary choice for the United States continues to be GAAP, whose standards are established and maintained by the Financial Accounting Standards Board (FASB). Although both systems have many similarities, there are a variety of significant differences that have a great impact on how reporting amounts are calculated and reported to the general public.
In the telecommunication industry, month-to-month contracts are frequent. In accordance with the update, these entities would need to treat each month as a separate contract “unless the renewal options provide the customer with a material right” (EY, 2015, p.6). This is the contract by contract basis. The standard does allow for a portfolio approach in which, similar contracts are grouped and treated together.
The Financial Accounting Standard Board (FASB) was established in 1973 to guide nongovernmental entities in the presentation and reposting of financial statements. Their mission is to “establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports” (Financial Accounting Standards Board, 2016). Throughout the years, the FASB has diligently accomplished their mission, specially by issuing Accounting Standard Updates (ASUs) that help amend the standards in those
On February 26, 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which revised the standards on leasing. The intent for this revision was to improve how leases are being reported on the financial statements. The consensus is that the classification tests in current use for making this determination fail to provide a faithful and accurate representation for leasing transactions in general. In 2005, the U.S. Securities and Exchange Commission had also made recommendations which indicated this need for change in regard to how leases were being reported. Overall, it is believed that this change would ensure greater transparency in the financial statements concerning these type transactions.
Additionally, companies will need to train their employees in the preparation of the change as well as familiarize outside stakeholders like analysts and investors with the IAS. This could include, but is not limited to hiring outside consultants because of the lack of in-house knowledge and familiarity with the IAS, organizing conference calls for investors, preparing public statements explaining differences in accounting policies, and redesigning their financial publications such as annual and quarterly reports Choi & Meek, 2011). Also, the IAS can affect a country’s government-regulated industries such as utilities, telecommunications, and financial institutions that deliver financial statements to their regulators. For example, in the U.S. capital requirements for financial institutions are many times determined on the basis of U.S. Generally Accepted Accounting Principles (GAAP) financial statements (Doupnik & Perera, 2012). Although the impact of IAS adoption on the magnitude of reported earnings of U.S. firms is unclear, studies from other settings suggest that earnings instability could rise, in particular if the switch to an IAS were to accelerate the use of market-to-market
o October 3rd - 4th : European leaders issue a response to the American changes in policy by announcing that they will be reviewing and adjusting their own policies in the interest of keeping European banks competitive. Since they have very little time before Q3 reports, they make it clear that their intention is to change quickly. Although they do not at this point specifically state the need for IASB changes, they do announce their intention to align with the US to stay competitive, and therefore an IASB change is all but guaranteed.
Hans Hoogervorst is chairman of the International Accounting Standards Board (IASB), and his stand on the International Financial Reporting Standards (IFRS) has been firm for many years. With more than 100 nations that have implemented IFRS, it’s no surprise Hoogervorst believes the U.S should accept the IFRS and follow the steps of other leading market countries. By starting to allow public companies to volunteer their transition, Hoogervorst believes would be a step in the right directions (Lamoreaux, 2011). Since many of the U.S. trading partners have already accepted the IFRS, Hoogervorst finds it hard to imagine the U.S. not accepting it in the future (Lamoreaux, 20100).