Explain How Measurement Conventions (IASB and FASB) Affect Presentations

Explain how measurement conventions (IASB and FASB) affect presentations.

The original international standards setter was the predecessor to the International Accounting Standards Board (IASB).The Financial Accounting Standards Board (FASB).

The Foundation, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Committee (IASC) have long recognized that in order for international capital markets to function properly, a single set of high quality, international accounting standards must exist.

The board of the International Accounting Standards Committee (IASC), 13-member (all part-time) organization representing professional accounting groups (e.g., the AICPA) from member countries, promulgated IAS beginning in the mid-1970s. By the end of 2000, the number of IASC member countries had grown from 10 charter members to 134. The board of the IASC handed over responsibility for standards-setting to a new organization, the International Accounting Standards Board (IASB), appointed by newly established IASC trustees.Convergence of national and international standards is a key priority, as clearly indicated by the outgoing IASC board in the IASC. The path established by IASC's restructuring decisions for achieving agreement on global accounting standards is through convergence of national and international standards [emphasis added]. The Board recommends to the new Board the adoption of a plan for achieving this convergence as a top priority.

The balance sheet is a snapshot of the company's financial standing at an instant in time. The balance sheet shows the company's financial position, what it owns (assets) and what it owes (liabilities and net worth). The "bottom line" of a balance sheet must always balance (i.e., assets = liabilities + net worth). The individual elements of a balance sheet change from day to day, andreflect the activities of the company. Analyzing how the balance sheet changes over time will reveal important information about the company's business trends.

Liabilities and net worth on the balance sheet represent the company's sources of funds. Liabilities and net worth are composed of creditors and investors who have provided cash or its equivalent to the company in the past. As a source of funds, they enable the company to continue in business or expand operations. If creditors and investors are unhappy and distrustful, the company's chances of survival are limited. Assets, on the other hand, represent the company's use of funds. The company uses cash or other funds provided by the creditor/investor to acquire assets. Assets include all the things of value that are owned by, or due to, the business.

ASSETS

As noted previously, anything of value that is owned by or due to the business is included under the Asset section of the Balance Sheet. Assets are shown at net book or net realizable value (more on this later), but appreciated values are not generally considered.

Current Assets

Current assets are those that mature in less than one year. They are the sum of the following categories:

From the Small Business Administration

The primary financial statements are represented in the balance sheet and income statement. Learn more about these statements:

• Balance Sheet
• Income Statement

The balance sheet is a snapshot of the company's financial standing at an instant in time. The balance sheet shows the company's financial position, what it owns (assets) and what it owes (liabilities and net worth). The "bottom line" of a balance sheet must always balance (i.e., assets = liabilities + net worth). The individual elements of a balance sheet change from day to day, and reflect the activities of the company. Analyzing how the balance sheet changes over time will reveal important information about the company's business trends.

In this lesson we'll discover how you can monitor your ability to collect revenues, how well you manage your inventory, and even assess your ability to satisfy creditors and stockholders. Liabilities and net worth on the balance sheet represent the company's sources of funds. Liabilities and net worth are composed of creditors and investors who have provided cash or its equivalent to the company in the past. As a source of funds, they enable the company to continue in business or expand operations. If creditors and investors are unhappy and distrustful, the company's chances of survival are limited. Assets, on the other hand, represent the company's use of funds. The company uses cash or other funds provided by the creditor/investor to acquire assets. Assets include all the things of value that are owned by, or due to, the business.

Liabilities represent a company's obligations to creditors, while net worth represents the owner's investment in the company. In reality, both creditors and owners are "investors" in the company the only difference being the degree of nervousness and the timeframe in which they expect repayment.

ASSETS

As noted previously, anything of value that is owned by or due to the business is included under the Asset section of the Balance Sheet. Assets are shown at net book or net realizable value (more on this later), but appreciated values are not generally considered.

Current Assets

Current assets are those that mature in less than one year. They are the sum of the following categories:

• Cash
• Accounts Receivable (A/R)
• Inventory (Inv)
• Notes Receivable (N/R)
• Prepaid Expenses
• Other Current Assets.

FASB/IASB

The objective of convergence is to have one set of high-quality, globally accepted accounting standards. The FASB and the IASB decided that the best approach would be to evaluate existing standards to determine whether the existing FASB or IASB standard meets that objective. If it did, then it would be selected as the standard for both. If neither standard would, then the Boards would start a joint project to come up with a preferred standard.

His first major project the Boards completed was the project on business combinations. The Boards were unable to reach complete agreement, so some differences remain between the IASB standard and the FASB standard. Although the actual accounting for business combinations is largely the same under either standard, it does highlight that word-for-word agreement in accounting standards remains elusive.

U.S. convergence really began in earnest a number of years ago. In 2002 the FASB and the IASB signed what came to be known as the Norwalk Agreement. (The FASB’s offices are located in Norwalk, Connecticut.) Both Boards pledged to work together to converge their standards. That agreement was reaffirmed in a February 2006 Memorandum of Understanding (MOU), which put forth a plan of actions to be taken through 2008. In September 2008 the Boards issued an updated MOU, which included their plans for convergence through 2011. The MOU discusses plans for short-term convergence and major joint projects.

For short-term convergence, the Boards note that some convergence has already been accomplished. The FASB has moved to the IFRS approach for the fair value option and for research and development assets acquired in a business combination. The IASB has moved to the U.S. approach for borrowing costs and segment reporting.

For ongoing short-term convergence, the IASB has an exposure draft on joint venture accounting that would eliminate the use of proportionate consolidation. The Board expects to have a final standard in 2009. The IASB has plans for a proposed standard on income taxes that would both improve IAS 12, Income Taxes, and remove some differences between IFRS and U.S. GAAP. The

FASB plans to issue a proposed standard on subsequent events in 2008. The FASB intends to solicit comment on the IASB’s income tax proposal. The FASB will also be considering investment properties and research and development.