The Financial Accounting Standards Board

3、Describe the relevant provisions of fair value accounting under SFAS 157(ASC 820). What does a measure like net income mean as a firm moves towards increasing use of fair value accounting (as opposed to historical cost of assets)?

Over the past several years, there has been a growing controversy over the accounting issues of fair values and historical cost. The basis of this controversy revolves around which one of these principles is the most accurate. There are many different viewpoints on this issue. Many accounting professionals believe that fair value is just as accurate as the historical cost principle, while others believe that the historical cost is more reliable. The facts about each of these valuation methods will be researched and explained throughout this research document, as well as the different viewpoint about which method is the most accurate and reliable.

Valuation of assets is considered a great difference between the two methods. GAAP always records its assets at historical price – the price paid at the point of sale – and not at their fair market value – an estimate of the price of an asset in the market today – which has had a lot of accountants say that historical cost is unreliable and irrelevant. IFRS, on the other hand, records its assets at fair market value, as long as there is market for the assets being revalued (Ernest & Young, 2011b).

Fair value accounting utilising market value as a benchmark to value company’s assets has drawn a lot of controversy.

Regulators and Accounting Standards Board have long struggled with the developing comprehensive reporting standards that will improve transparency, reliability, completeness, and comparability of the financial statements prepared by the company. The need to promote investor confidence in the market makes it important to improve the financial reporting standards so that investors are able to obtain accurate, reliable and complete information in order to make informed judgments. This paper reviews recent attempts by SEC and FASB to improve the reporting of off-balance sheet transactions, variable interest entity, and non-controlling interest.

One of the advantages of current value accounting is relevant for making decisions. This is because the market value of the current value accounting represents the current cost of economic transactions. Therefore, the information that provide are more appropriate and more useful because it always update to the latest information in market. It is better to use the latest information to make decisions rather than using previous information for measurement.

At the beginning of the 21th century, the Financial Accounting Standards Board (FASB) started to realize the importance of fair value accounting as for a new measurement basis for asset and liability. The FASB believed the primary objective of financial reporting is to provide relevant and useful information about the future cash flow to current and prospective investors and creditors (Whittington, 2008). Since the historical cost accounting usually gives information about past transaction, not information about the future, to existing shareholders or creditors, FASB thought financial statements based on historical cost accounting could not be relevant and useful to prospective investors, which makes them difficult to achieve the main

With the number of countries that have switched to the International Financial Reporting Standards (IFRS) for their financial reporting, as well as the continued efforts made between the IFRS and US Generally Accepted Accounting Principles (US GAAP), it is evident that international convergence is an overall appealing idea for global reporting. With that said, US GAAP has worked with IFRS to create a universal standard; and while progress has been made to diminish variances between the standards, there are still large, if not unattainable, efforts ahead of us. The hype over a proposed uniform set of global accounting standards appears to be stunted by the lost efforts in the convergence project between the US GAAP and IFRS. As the Financial Accounting Standards Board (FASB) moves forward with its standards setting, there must be a reevaluation of the goal for reporting standards and efforts with the International Accounting Standards Board (IASB).

Capital markets are becoming more global and the needs for accounting standards on a global level have been the one thing companies have been struggling to understand for years. The International Financial Reporting Standards (IFRS) has the capabilities to provide these standards a level that investors and auditors can better interprets all over the world. Businesses have been questioning if the GAAP is going to be replaced by the IFRS. Many organizations have gotten so content with what the GAAP has offered that transitioning over to the IFRS may be resisted by

IFRS adoption allows companies easier access to foreign capital markets by having comparability of worldwide financial statements, which would make it easier for investors to make global investment decisions. Having a worldwide set of standards makes it easier for companies to evaluate for entities for potential acquisition, and it would also minimize cost for companies to list on foreign exchange stock markets because it would eliminate the preparation of their financials in that market’s reporting requirements. As companies are becoming more multi-national in nature, it is more important now more than ever that the U.S. SEC consider the benefits of IFRS. The U.S. SEC still requires U.S. GAAP as the reporting method for U.S. based companies that list their stock on the New York Stock Exchange. The SEC does allow foreign companies to report using IFRS standards when their securities are traded in the United States. Some argued that this would pave the way for the same right to be extended to U.S. domestic companies. So far, this has not happened. Although there are benefits to adopting IFRS such that companies will be able to increase global competitiveness, the American business community still has many reservations. The cost to adopt IFRS will be very significant. There will have to be extensive training for staff to be fully

Before 2001, none of the major economies in the world requires the use of International Financial Reporting Standards (IFRS). However, since IFRS was adopted and required by the European Union (EU), IFRS is currently the most widely shared set of accounting standards with its application required or permitted by approximately 120 countries as indicated by the IFRS Resources (2015). IFRS, perceived as “a single set of high-quality, understandable and enforceable accounting standards” (IASB, 2007, p.4), shows its prevalence all around the world. Nevertheless, there are still some opponents against such harmonization. “The likelihood that any U.S. company will be forced to switch from using today’s version of U.S. Generally Accepted Accounting Principles (GAAP) to using today’s version of IFRS is absolutely zero”(2010), said the specialist in corporate financial reporting, Bruce Pounder, doubting the possibility of eliminating differences between IFRS and U.S. GAAP, not to mention sharing a single set of accounting standards in all countries.

For many years now, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been developing new standards in relation to the sales and purchases of leases. The joint effort of the two has finally come to an end, with the new standards being issued out on February 25, 2016. These new standards will come into effect starting in 2019. It is important that our diversified company begins preparing for the major implications of these new standards and fully understand what we are dealing with. The Accounting Standards Update No. 2016-02, Leases (Topic 842) will have an immediate effect on our company because is involved in many lease-related transactions as not only a lessee, but as well as a lessor. In this memo, we will be analyzing the changes Topic 842 from the perspective of the lessee and the lessor. The lessee is the company receiving the asset or property from the contract while the lessor is the one providing the asset or property. Finally, there will be an examination of the direct impact this will have on our income statement, balance sheet, and statement of cash flows. First, we will be taking a look at the changes Topic 842 makes from the original lease standards.

The talks about convergence began in 2002 between the International Financial Standards Board and the Financial Accounting Standards Board. In 2005, the Security and Exchange Commission acknowledged that the day would come when the International Financial Standards would take precedence over the United States GAAP. In the year 2007, it was decided that foreign companies would have the ability to file financial statements in the United States without reconciling the statements to the United States GAAP. This statement modeled the first step for the United States toward accepting the International Accounting Standards. This changeover would give professionals and the Security and Exchange Commission time to inspect the financial statements in respect to the International Accounting Standards and with the Generally Accepted Accounting Standards. After this moment in time, the Security and Exchange Commission issued a road map to present a blueprint of how the convergence would take place. It stated that in between the years of 2009 through 2010, a Security and Exchange Commission staff work plan would be developed to work on the substantive details of the convergence plan (“2015-IFRS in the,” 2014). In the middle of development a Security and Exchange Commission policy statement would be issued to announce more understanding of the IFRS and how it will replace the Generally

Accounting standards are authoritative statements intended to narrow the areas of differences and varieties in accounting practice. It is important regulatory devices of accounting. It serves as a contract template among management, creditors and investors. As companies have become more globalized, comparing financial statements has become more difficult because of different accounting rules (maxwellsci). Over 100 countries have adopted International Financial Reporting Standards (IFRS) in that matter. The accounting system in U.S. has been based on Generally Accepted Accounting Principles (GAAP) since the 1930s. In theory, switching to IFRS would make it easier to compare U.S. business to others around the world, reducing companies’ cost of capital. However, not everything changes at once (Nick). The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) have set a long-term strategic priority to achieve convergence of IFRS and U.S. GAAP into a common set of high quality global accounting standards. The convergence is to avoid conflict and confusion, promote simplicity, consistency and transparency (IFRS.org).

The idea of converging is nothing new. “The concept of convergence first arose in the late 1950s in response to post World War II economic integration and related increases in cross-border capital flows” (FASB Comparability... n.d.). As was mentioned earlier, it is beneficial to develop a common set of accounting standards in a time where businesses are becoming multinational enterprises. Working towards that goal through convergence of GAAP and IFRS can help develop a high quality standard, that would not be met if the U.S were to fully adopt IFRS. The case can be made that convergence alone will never amount to implementing a single set of accounting standards worldwide. And yes, although differences may still remain between the two accounting standards, through convergence,