Acc/541 Accounting Theory and Research

Accounting Standards Boards

ACC/541 Accounting Theory and Research

March 31, 2014

Leslie Crews

Accounting Standards Boards

Much like people, the accounting field is constantly evolving.  Rapid changes in technology along with rapid globalization of businesses has forced both the field of accounting and the bodies that govern it to change as well.  The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have recently been faced with some of its biggest tests.  A brief history of these two boards will help one understand the significance of them and the standards that they have developed.  Furthermore, this paper will also take a look at a masters of science in accounting (MSA) gives one the understanding of the FASB and IASB and prepares him or her for a successful career in accounting.

 History of the FASB and IASB

The accounting standards board known today have evolved from earlier boards.  Each was created to improve upon the work of its predecessor.  Furthermore, both were developed to serve precise needs of the public, industry, and economy.  The two boards do have commonalities but are also exceedingly different.  

Financial Accounting Standards Board (FASB)

The full value of the FASB can be understood by studying the history of accounting theory development.  The American Accounting Association (AAA) was the first to examine accounting theory and standards in 1935.  Prior to the AAA, the American Association of the University Instructors in Accounting (AAUIA) was responsible for setting the curriculum for accounting students (Schroeder, Clark, & Cathey, 2011).  The AAUIA was formed in 1916 and later became the AAA.  In 1936, the American Institute of Accountants (AIA) and the American Society of Certified Public Accountants joined together to form the American Institute of Certified Public Accountants (AICPA) (Schroeder, et al., 2011).  

The newly formed group founded the Committee on Accounting Procedure (CAP) to research and institute accounting practices.  These official pronouncements were called Accounting Research Bulletins or ARB’s (Schroeder, et al., 2011).  However, many were critical of CAP and the AICPA decided to form the Accounting Principles Board (APB) in 1959.  The APB’s purpose was to specify generally accepted accounting principles or GAAP.  However, the APB fell into criticism as well, prompting the AICPA to form two committees who eventually recommended the formation of the FASB in 1973 (Schroeder, et al., 2011).  

International Accounting Standards Board (IASB)

Again, the need and the formation of the IASB spawned from the demands of the public and industry.  International trade had increased exponentially and the demand for international accounting information has increased as well.   International accounting standards were becoming required to make financial data between countries commensurate.  The International Accounting Standards Committee (IASC) was formed in 1973 to develop the standards (Schroeder, et al., 2011).  The first pronouncements of the IASC were referred to as International Accounting Standards or IAS’s.  In 2001, the IASC formed the IASB and made them the official governing body of international accounting standards (Schroeder, et al., 2011).  Standards issued by the IASB are called International Financial Reporting Standards or IFRS’s (Schroeder, et al., 2011).

IASB & FASB Convergence

The two boards converge with the goal of developing a common set of standards for domestic and foreign use in creating internationally comparable financial statements.  The Norwalk Agreement took place in 2002 and was the first time the FASB and the IASB met to discuss convergence on standards (Schroeder, et al., 2011).  Both boards reiterated their commitment to establishing compatible standard for use by domestic and foreign countries (Schroeder, et al., 2011).  

During the Norwalk Agreement, the FASB and IASB also agreed to work together on a project to remove the differences in GAAP and IFRS’s, known as the Short-Term Convergence Project (Schroeder, et al., 2011).  The Short-Term Project was designed to remove small differences and the Roadmap to Convergence Project was established to handle the larger differences between the two (Schroeder, et al., 2011).