The International Accounting Standards Committee (IASB) is a private-sector group that brings together the national and international accountancy bodies to create and implement accounting standards. The IASC, which includes 140 members from more than 100 countries, has two primary objectives: to develop and promote international accounting standards, and to achieve harmonization of accounting standards. Its goals include the development of uniform, high-quality standards for financial reporting, measurement, and disclosure.
The scope of accounting standards is broad, and standardization bodies update them often to reflect changes in the business climate. In order to apply them in practice, it is crucial to have ethical accountants who understand and practice accounting standards. Because they are frequently updated, accountants must also be knowledgeable of the changes in these standards. This is an essential part of becoming an ethical, qualified CPA. To ensure accuracy of accounting data, it is essential to have a thorough understanding of the differences between different accounting standards.
Differences between IASC and IFRS are often not resolved in the initial implementation stages, so the impact of a particular standard on a company’s financial reporting is still unknown. In practice, however, differences between standards often arise due to lack of specific requirements and guidance. One standard may contain specific guidance about government grants, while its counterpart may not. Moreover, differences in the framework for presentation of financial statements may be attributed to different practices with regard to segment reporting and business combinations, consolidation policy, and certain transition provisions.
While differences between two standards may not be significant for financial statement users, they can be problematic for companies. The different conceptual bases of two standards can lead to inconsistent information in financial statements. For instance, two standards may require different criteria for when to recognize a change in tax law. For example, the timing of tax changes between U.S. GAAP and IASC standards can vary significantly. The differences may result in differences in financial statements. However, these differences should not prevent enterprises from making the right choice for their business.
High-quality financial reporting can only be achieved with rigorous application of accounting standards. Even the strongest theoretical basis cannot guarantee the quality of financial reporting. Even if accounting standards are conceptually sound, they must be applied faithfully in order to be useful for investors. Therefore, it is imperative to insist on strict application of these standards by accountants and preparers. Only then will these standards be consistent, reliable, and comparable. These standards are essential to a market economy that relies heavily on credible financial information.
To avoid problems related to multiple sets of accounting standards, choose one set of core standards. Core standards are generally applicable to a broad range of industries and transactions. They address fundamental accounting issues and require use of U.S. GAAP. In specialized industries, home country standards should be allowed, with a reconciliation to U.S. GAAP. As a result, this approach works well. Further, it avoids the potential for conflict of interest for both parties.