Q2IFRS - Intermediate Accounting (Kieso)

Question

Do the IASB and FASB conceptual frameworks differ in terms of the role of financial reporting? Explain.

Step-by-Step Solution

Answer

The IASB, an independent body established on 1^st April, 2001, is responsible for issuing IFRS (International Financial Reporting Standards) and the implementation of these standards. The FASB, on the other hand, wasfounded in 1973 and has issued GAAP for the purpose of financial reporting. 

 

Step 1: Convergenceof conceptual frameworks

IASB and FASB are working together to eliminate the discrepancies in the way transactions are recorded and disclosed in the financial statements. The process to coordinate the way of financial reporting is termed convergence. 

 

Step 2: Differences in the frameworks of IASB and FASB for reporting purposes

FASBhas issued GAAP which states that for recording PPE assets, a business firm should record it asits historical cost. On the other hand, IASB that has issued IFRS, recommends recording PPE assets measured at FMV (Fair Market Value). The development cost incurred by afirmistreated as an expense under GAAP, but as per IFRS, such an amount is to be capitalized and then amortized as per its benefit period.