FASB versus IASB
Accounting is often a profession mocked for being “bean counters”. I, being an accounting major, was not aware of this stereotype until my third year in college. One of my current professors constantly harps on how valuable a degree in accounting is and that everyone who is not an accounting major should switch and become one. The first couple of classes I thought he was blowing smoke, but as the class has progressed and we are in week ten I have come to understand why he had said this so many times. Although, I never believed that accountants were “bean counters”, I did once believe that they simply reconciled a balance sheet, prepared an income statement and called it a day. Over the years, of course, I have gained knowledge on the profession and this increased understanding has only made me want to pursue it more. As my professor says, “You won’t be handling debits on the left, credits on the right. You are future business advisors. All of you-some of you, will be helping make management level decisions based on the information that debits on the left, credits on the right provides.” GAAP is a topic that I was introduced to in my second year of high school. At the time, it had been all about memorization. Rules for this, rules for that, I memorized it for the multiple-choice tests and I forgot most of it when I left the class. Now in my third year of college, a bit more mature, a little wiser, I have been reintroduced to GAAP and this time, alongside IFRS. Just like the U.S. can’t use the metric system we can’t use IFRS. For some reason we must be difficult-different and make our own set of rules, and just like our measurement system its worse than the system the rest of the world is using. Convergence is the word and GAAP and IFRS are further from it than you can imagine.
The Financial Accounting Standards Board (FASB) and The International Accounting Standards Board (IASB). Just for fun I thought I would throw in some synonyms for international; global, worldwide and universal are just a few that I like. Not sure I need a source for this information, but the United States is in fact a part of the globe, the world and the universe. We continue to create and divide ourselves from the world anyway and make cross-national understanding more difficult by creating our own set of standards and rules. I digress. Currently, the consensus is that GAAP is more rule based and IFRS is more principle based. The problem with rules is that there are always loopholes or ways to get around providing information in the best interest of investors. IFRS is by no means a perfect set of standards but it is leaps and bounds ahead of GAAP. The need for the best set of standards is because financial information is formulated and presented in accordance with these standards. The financial information is then used by many individuals including outside investors and inside management, who use this information to assess progress, measure performance and other critical factors. IFRS has set of standards and principles that allows for a more appropriate allocation of information on financial statements that paints a more reliable and accurate picture for outside investors and inside management to make well informed decisions. Over the past decades the FASB and IASB have been working to converge their rules, standards and principles to coincide with one another to make understanding and comparing companies on a global scale easier. At first the two worked hard to meet in the middle of some disputes and even changed some principles so that some things are now uniform across the globe. But in the past decade not much has gotten done at all. This is in large part due to politics.
A convergence between these two boards is necessary in order to allow global and multinational companies to be able to record and present financial information in such a manner that is uniform, reliable and accurate when relied upon by investors and management to make tough decisions. Most of these thoughts are my own and come from what I have learned just in this one semester in my junior year. I have heard most of it in class, but read a few things in a couple of articles before starting my paper. I have been pretty one sided so far, so I will offer a counter point. To converge IFRS and GAAP would require a large amount of capital. In order to train, implement, and convert companies and accountants to a new set of accounting rules would take too much time and cost too much money, that the costs would far exceed the benefits. Also, a main hindrance in the convergence is a major difference of ethics and cultural principles across the globe. So, the FASB and IASB have been unable to nail down any one set of accounting rules because they largely disagree with each other’s underlying principles and reasoning behind the rules in place. It would be great if they could converge but it is unlikely to happen in my lifetime. Some new group will just need to create new ones not based on either of the current two I suppose.
In closing, the FASB and the IASB have been working for decades to converge and create one single set of understandable and globally accepted accounting principles. At the start of their meetings the two boards were optimistic and hard-working, although in recent years the progress has halted. In my opinion GAAP does not do as great of a job as IFRS for providing principles and rules that allow investors and management to make well informed decisions. I currently am studying accounting and am learning and researching GAAP and IFRS. I just needed this paper to get published for a grade in my class. My research into the convergence has much more substance but not any of which I will publish until completed.
Baudot, L. (2014). GAAP convergence or convergence Gap: unfolding ten years of accounting change. Accounting, Auditing & Accountability Journal, 27(6), 956-994
Garmong, S. K. (2012). The State of Major FASB IASB Convergence Projects. Financial Executive, 28(7), 24-27.
Hlacuic, E., Grosu, V., Socoliuc, M., & Maciuca, G. (2014). COMPARATIVE STUDY REGARDING THE MAIN DIFFERENCES BETWEEN US GAAP AND IFRS. USV Annals of Economics & Public Administration, 14(2), 140-145.
Walter, Paul R., “GAAP and IFRS: A look at whether the two should converge” (2017). Selected Honors Theses. 62.