Shivani Patel 01/06/12 Unit 5 Research Paper The International Accounting Standards Board (IASB) is an independent, private sector,

standard-setter that is based in London, England. Before the IASB was the International Account Standards Committee (IASC). In 2001 the IASB took over and replaced the IASC. This body is responsible for producing and managing the International Financial Reporting Standards (IFRS). It is comprised of 15 full time-board members who are appointed by their expertise on accounting standards and their previous work experience. This body enables firms all around the world to be able to follow one set of standards. The U.S. Financial Accounting Standards Board (FASB) is similar to the International Accounting Standards Board (IASB) but is based in the United States. It was founded in 1973 and has seven members. These members are appointed by the Foundations Board of Trustees and are allowed to serve a five-year term. After that five-year term they are entitled to serve one more five-year term if they choose too. It is a private body that is designated to set the guidelines for financial reporting and accounting. These guidelines are known as the Generally Accepted Accounting Principles (GAAP). There are many benefits of having one worldwide standard for financial reporting. Firstly this would greatly help investors of international companies. It would ensure that all investors are sharing the same set of guidelines and could easily compare companies to each other. It would also help to begin more international investments and worldwide companies coming together. Many sources also say that combining these two bodies would decrease many costs and the risk that investors face now. With the talk of these two bodies combining to form one set of standards there are issues that a public company would have with the IFRS replacing GAAP. As a manager of a large public company there would be few concerns with this change. There are many differences between these two bodies. Financial statement presentation, Inventory, Assets, Lease, Taxes and Employee Benefits are just a hand full of differences. Firstly the production of financial statements would have to be reviewed and changed. For example in GAAP deferred taxes are shown as current and non-current. If IFRS were to replace GAAP we would now have to show deferred tax and non-current only. Secondly we would have to look at the different ways that Inventory is controlled between these two standards. GAAP uses a last in, first out (LIFO) method while IFRS prohibits the use of LIFO. If IFRS were to replace GAAP it would take a company a lot of work to switch over to new guidelines. It would require a lot more work and time and increase the cost of the business in the

beginning. I would also be worried about how investors are going to react with this change. It would benefit the company in the long run but would take a while to reach that point. It would take a company a lot of research to understand the new standards that would be set in place. Looking at the qualities of information we can determine if accounting information will become more useful or not if the FASB accepts IFRS. Firstly we have Understandability. It may take time for the companies to understand the new financial statements but it would eventually happen with the training and knowledge that others would provide. Secondly we look at relevance. In this case adopting the IFRS would make information more relevant. It becomes more current and non-biased, as it is now a worldwide standard set. You would be able to access information from anywhere and be able to see weather it is relevant or not. Next we look at reliability. With the converging of FASB and IFRS we would be able to rely on the information better. Knowing that it is a worldwide process helps investors believe that all information would be similar and reliable. Comparability and Consistency would also become more useful. The whole world would now have just one set of standards that would ensure consistency. Materiality and conservatism are also going to show that accounting information would be more useful. In my opinion using these characteristics we can see that if FASB accepts IFRS accounting information would become more useful. These characteristics are strong enough with just the FASB but if combines with IFRS it would enhance them more.

Two questions: 1. How might the US and IFRS converge on the issue of LIFO accounting for Inventory? There is a large controversy over the LIFO method when the US converges with IFRS. Firstly there could be talk about the US treasury department eliminating the conformity rule, which would allow companies to continue to use LIFO. It would ensure that companies use FIFO for IFRS. Secondly there could be a way to increase the number of years tax payments could be made. Eventually companies may have to slowly lower their inventory level, which is called LIFO liquidation. Overall there is a lot of talk about what would happen with LIFO. As of this point it is still said the LIFO will be removed. Companies would have to follow and it would cause a great deal of problems and impact the tax liabilities represented by their LIFO reserves.

2. What is the difference between principles based and rule based accounting? Which approach would be better for investors? Principal based accounting is a form of accounting that involves few rules and more of a company trust. In this form of accounting, firms are required to ensure that their financial statements fairly and accurately represent these principles ("Ventureline). Rules based accounting is where specific accounting rules are set forth and must be followed in order to comply with GAAP (Venturline). For investors a rule-based accounting would be better. In this accounting it would be harder for companies to have fraud in their financial statements. It would ensure that investors are receiving all the information they need and that it is correct. With this form of accounting investors would know that the statements are all done the same and on the rules followed and not by what the company believes is correct.

References: IFRS. (2011). Retrieved from http://www.ifrs.org/The organisation/IASCF and IASB.htm What is the IASB?. (2011). Retrieved from http://www.iasplus.com/restruct/whatis.htm What is the FASB? (n.d.). Retrieved from http://www.bordeglobal.com/foruminv/index.php?showtopic=33441 Facts about FASB. (n. d.)Retrieved from http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176154526495 Benston, G. J. (2007). Worldwide financial reporting, the development and future of accounting standards. Oxford University Press, USA. Fogarty, M. (2008, June 01). International financial reporting standards is the world ready for convergence?. Retrieved from http://www.eisneramper.com/catalyst/0608-catalyst-InternationalFinancial-Standards-Convergence.aspx Carlson, M. (2008). An introductory roadmap to IFRS convergence. Porter, G. A., & Norton, C. L. (2009). Using financial accounting information, the alternative to debits and credits. South-Western Pub. White, W. C. (n.d.). The lifo conundrum: Convergence of us gaap with ifrs and its implications on us company competitiveness Retrieved from http://www.qfinance.com/accountancy-best-practice/the-lifo-conundrumconvergence-of-us-gaap-with-ifrs-and-its-implications-on-us-companycompetitiveness?page=1 Ventureline. (n.d.). Retrieved from http://www.ventureline.com/accountingglossary/P/principlesbased-accounting-definition/ Ventureline. (n.d.). Retrieved from http://www.ventureline.com/accountingglossary/R/rulesbased-accounting-definition/