Fi Asb the FASB and the IASB

FI ASB

The FASB and the IASB

As a series of recent and ongoing events have made abundantly clear, there is a great need for consistency and oversight in the accounting practices of large business, and for overall standardization that will lead to increased transparency in the financial sector and the accounting industry as a whole. From the Enron scandal that occurred a decade ago to the far more recent and more potent mortgage-backed security schemes that were in large part responsible for the global recession, accounting "irregularities" and practices that are questionable both ethically and legally have led to major problems for many investors and consumers, often while racking up major profits for certain individuals that hold the real information while publishing their "creative" reports. It is for this reason that various boards developing and governing standardized accounting practices have been established, and though the degree of their influence is somewhat questionable it is certainly a step in the right direction.

Unfortunately, this step in the right direction isn't necessarily being taken in the same right direction by all pertinent and relevant individuals the accounting industry. In the United States, the Financial Accounting Standards Board (FASB) has been the private sector's selected agency of choice in achieving accounting standardization since 1973 (FASB 2011). The same year saw the creation of the Board of the International Accounting Standards Committee, now the International Accounting Standards Board (IASB) and operated as a part of the International Financial Reporting Standards Foundation (IASB 2011; IFRS 2011). These organizations have differing standards and nomenclatures that make true international standardization difficult.

A large part of the disparity between these two accounting standardization boards can be put down to the fact that the organizations simply did not communicate in meaningful ways until recent years. For the first three decades of their existence, the two boards created effective standardization practices for their constituent communities (though without any legal teeth to enforce these standards, as is still the case today, and thus the degree of standardization achieved is somewhat questionable) without really consulting each other, so there is very little surprise in the fact that their methodologies, lexicons, and ultimately the standardizations themselves have developed in trajectories that have very little to do with each other (IASB 2011; FASB 2011). The fact that international business has grown increasingly intertwined and interdependent as likely led to their recent collaboration.

The growing number and prominence of accounting scandals in the business world also likely spurred this collaboration, as it was following the wave of scandals including the Enron scandal in 2001 that the two boards first met. The Norwalk Agreement was achieved in 2002, following this first meeting of the IASB and the FASB (IASB 2011). This agreement, however, was really only as binding as any of the standardization recommendations that either board made in the past, and was really simple a "memorandum of understanding" that the two boards came to regarding their need to develop more consistent standards, and a commitment to attempt this (IASB 2011). Still, it was a sign that the importance of standardization and transparency in accounting was being recognized.

To date, however, very little real progress has been made between the two accounting organizations insofar as establishing a truly cohesive and comprehensive set of terminology, practices, and other standardizing elements. The IFRS (essentially the governing board of the IASB) has called for the replacement of the U.S. Generally Accepted accounting Principles (GAAP) standards with the complete set of standards and practices outlined by the IFRS has seemed to some like an ultimatum, and to all as a clear statement of the greater efficacy and overall quality of the IASB's set of standards when compare to the FASB's (McKay 2009). While smaller moves have been made by both organizations, they still do not see eye-to-eye enough to actually develop a single set of standards and practices. Instead, they continue to debate about which elements of the two already-created systems should be kept and which should be done away with in a hybridization of the two systems.