The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are independent, private-sector bodies working to develop and enforce financial reporting standards for publicly-held companies.
So, what sets them apart from each other, and what role do they play in the world of accounting?
Continue reading to learn more about who the IASB and FASB are, their relationship, and how they’re working together on convergence projects to champion positive change across the accountancy sector.
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) develop and enforce financial reporting standards for publicly held companies. Still, there are some differences between the two entities.
Who Are IASB?
The IASB, headquartered in London, develops and approves International Financial Reporting Standards (IFRSs). Formed in 2001, the IASB replaced the International Accounting Standards Committee (IASC) with a mission to "promote convergence on a single set of high-quality, understandable, and enforceable global accounting standards."
The IASB's role
Overseen by the IFRS Foundation, the IASB handle all technical matters concerning the IFRS. Their responsibilities include:
- Developing and pursuing the IFRS's technical agenda, subject to consultation requirements with selected trustees and the public.
- Preparing and issuing International Financial Reporting Standards (IFRSs) and exposure drafts following due process.
- Approving and issuing interpretations developed by the IFRS Interpretations Committee.
Who Are FASB?
The Financial Accounting Standards Board (FASB) is an independent, private-sector, not-for-profit organisation, headquartered in Norwalk, Connecticut. The FASB establishes financial accounting and reporting standards for specific public and private companies and not-for-profit organisations.
The FASB's Role
The FASB's priority is to improve financial reporting for the benefit of investors and other users of financial information, mainly in US capital markets.
FASB achieve this by:
- Striving to set the highest quality standards, known as Generally Accepted Accounting Principles (GAAP).
- Providing users with financial statements and information that is clear, useful, and relevant to their needs.
- Weighing up the expected benefits of that information against the costs of providing and using it.
The FASB is a private, non-governmental division that's owned and funded by the US Securities and Exchange Commission. While also a private company, the IASB receives its funding through private donors and corporations. Additionally, the FASB board members mainly work and reside in the United States, while the IASB board members live and work in several nations around the world.
As we mentioned earlier in this article, IASB and FASB both work toward the goal of developing and enforcing financial reporting standards for publicly held companies.
So what is the relationship between the two?
Firstly, the FASB focuses mainly on setting standards and rules for accounting firms and individual certified public accountants practising in the United States. In contrast, the IASB focuses on international accounting standards. However, since many companies operate globally, the IASB and FASB often work together to contribute toward global accounting standards. The FASB also actively participates in the development of IFRS, providing input on IASB projects using the IASB's Accounting Standards Advisory Forum (ASAF) and other means.
Additionally, FASB helps IFRS develop by sharing views based on experience, or created through the FASB's due process, stakeholder outreach, deliberations, and analysis. The FASB believe the international perspectives they gain from working with IASB helps improve the benefits of their Generally Accepted Accounting Principles (GAAP).
In October 2002, the FASB and the IASB issued the Norwalk Agreement, which marked a significant step towards formalising their commitment to the convergence of US and international accounting standards.
Working to combine various accounting and financial reporting requirements developed by both entities, the FASB and IASB want to create a single set of international financial reporting standards. Where they previously had different common fair-value measurement and disclosure agreements, the IASB and FASB now combine their efforts.
Below are some key initiatives included in the 2002 Norwalk Agreement:
Joint Projects Between FASB and IASB
These are projects that standard setters have agreed to conduct simultaneously in a coordinated manner, including sharing of staff resources and making every effort to keep joint projects on a similar time schedule at each Board.
For these projects, the IASB and FASB share research and Board papers — striving to discuss the same issues at closely-timed Board meetings.
The Short-Term Convergence Project
The short-term convergence is an active agenda project conducted jointly by FASB and IASB — expected to result in one or more standards that will achieve convergence in certain areas. The project is limited to the differences between US GAAP and IFRS, where a high-quality solution seems achievable.
On-Site Liaison IASB Member at FASB Offices
Having an IASB member present full-time is one of the most visible features of FASB's daily operations. The purpose of the role is to facilitate information exchange and increase cooperation between the FASB and IASB.
FASB Monitoring of IASB Projects
Just as the IASB oversees the FASB's operations, IASB's projects are also monitored by the FASB. However, the FASB may choose their level of involvement based on their level of interest in the addressed topic.
A set of global accounting standards doesn't only make it easier for companies to adhere to the proper financial reporting standards. Still, it also makes their financial reporting more transparent and understandable to investors and other financial market governance bodies.
The agreement has undergone several changes due to difficulties and disagreements surfacing between the IASB and FASB Boards. The FASB and IASB continue to work together to improve comparability and consistency in global financial reporting.
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