Question

what is the accounting process within the standard framework and the presentation of the financial statements between the following regulatory agencies:

SEC
FASB
IASB
GASB

what are the strengths and weaknesses of each agency that sets the standards.

Answer 1

SEC

The U.S. Securities and Exchange Commission (SEC) is an independent, federal government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation.

The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. The FASB replaced the American Institute of Certified Public Accountants. The SEC is expected to issue a recommendation before the end of the year that may require publicly held companies to adopt international accounting standards issued by the International Accounting Standards Board (IASB).

FASB

The FASB creates standards for private entities in the United States, and generally accepted accounting principles form the basis for a company’s financial statements. Methods for recording inventory, payables, receivables and other specific line items are all contained within GAAP. The standard-setting process includes a board and peer review of proposed standards, which puts accounting treatments under scrutiny before they are added to the Accounting Standards Codification. Changes to existing standards go through a similar review process.

FASB Standard Setting Process

A high-level overview of the standards-setting process as established by the Rules of Procedure follows. The nature and extent of the Board's specific research and outreach activities will vary from project to project, depending on the nature and scope of the reporting issues involved.

1. The Board identifies financial reporting issues based on requests/recommendations from stakeholders or through other means.
2. The FASB decides whether to add a project to the technical agenda based on a staff-prepared analysis of the issues.
3. The Board deliberates at one or more public meetings the various reporting issues identified and analyzed by the staff.
4. The Board issues an Exposure Draft to solicit broad stakeholder input. (In some projects, the Board may issue a Discussion Paper to obtain input in the early stages of a project.)
5. The Board holds a public roundtable meeting on the Exposure Draft, if necessary.
6. The staff analyzes comment letters, public roundtable discussion, and all other information obtained through due process activities. The Board redeliberates the proposed provisions, carefully considering the stakeholder input received, at one or more public meetings.
7. The Board issues an Accounting Standards Update describing amendments to the Accounting Standards Codification.

GASB

The Governmental Accounting Standards Board (GASB) was established in 1984 as an independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments.

The GASB creates standards for governmental entities in a similar manner. Proposed standards go through a rigorous review process before they are codified. Entities that follow these standards include local and state governments, regulatory agencies and the federal government. GASB financial statements are prepared using the modified accrual form of accounting, which differs from FASB accrual or cash basis accounting. Modified accrual accounting is a combination of accrual and cash basis accounting. Revenues are recorded when measurable and available, while expenditures are recorded using the full accrual basis.

Difference in Accounting Practices Between GASB & FASB

Financial Statement Presentation

The FASB prescribes a greater level of flexibility for presenting financial information than that offered by the GASB. Government entities are required to provide detailed information in the management discussion and analysis section, among other areas of their statements. The financial reports produced by private entities, which differ from GASB reports, include a balance sheet, income statement, statement of cash flows and a statement of stockholders equity. These statements also have different notes and disclosures compared to governmental reports

Accounting Treatments

Contributed services, restricted cash contributions, endowment pledges and impairment are among the items accounted for differently between the FASB and the GASB. The differences in accounting treatment include recognition, realization and the statement upon which items are displayed. For these reasons, stakeholders must understand the methods used to create private or governmental financial reports. Otherwise, the time frames and account balances in financial statements may be misleading.

IASB

The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs). The IASB operates under the oversight of the IFRS Foundation. The IASB was formed in 2001 to replace the International Accounting Standards Committee.

IASB Standard Setting Process

The Standard Setting Process International Financial Reporting Standards (IFRSs) are developed through an international consultation process, the "due process", which involves interested individuals and organisations from around the world. The due process comprises six stages, with the Trustees of the IFRS Foundation having the opportunity to ensure compliance at various points throughout:

1. Setting the agenda

2. Planning the project

3. Developing and publishing the discussion paper

4. Developing and publishing the exposure draft

5. Developing and publishing the standard

6. After the standard is issued

The joint project between the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) in developing a common accounting language for the world has gained much attention after the Securities and Exchange Commission (SEC) in United States (U.S.) announced its plans to adopt the International Financial Reporting Standards (IFRS). As investments by U.S. investors in foreign public corporations have grown drastically, it is timely for the U.S. to adopt a uniform set of accounting standards to facilitate comparative analyses of foreign and U.S. corporate financial statements.

Strength and Weakness of FASB and IASB

The broad conceptual difference between GAAP and IFRS is that GAAP is rules-based and IFRS is principles-based. As such, the IFRS is considered more thoughtful, transparent and reflective of the true nature of each transaction.

            Strength

1. IFRS is less detailed than U.S. GAAP , thus reducing complexity that masks economic reality.
2. IFRS is easier to use (principles-based) and will result in better reporting (substance over legal form)
3. IFRS is a "global" approach; comparability to financial statements from other countries that have already adopted IFRS.
4. Reduce costs for companies and smooth cross-border investing for investors

• Weakness
• Management is given more discretion in the interpretation of economic events due to the lack of specific rules.
• Enforcement and cultural interpretations vary (risk of comparability) when individual countries added their own exceptions to the rules, defeating the purpose of a global standard
• Accounting under IFRS tends to lead to higher earnings , thus inflating earnings of U.S. companies and misleading investors
• More extensive audit procedures are required to test the reasonableness of financial reporting determinations made by management