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Chapter 2: Q2IFRS (page 76)

Do the IASB and FASB conceptual frameworks differ in terms of the role of financial reporting? Explain.

Short Answer

Expert verified

The IASB, an independent body established on 1st April, 2001, is responsible for issuing IFRS (International Financial Reporting Standards) and the implementation of these standards. The FASB, on the other hand, wasfounded in 1973 and has issued GAAP for the purpose of financial reporting.

Step by step solution

01

Convergenceof conceptual frameworks

IASB and FASB are working together to eliminate the discrepancies in the way transactions are recorded and disclosed in the financial statements. The process to coordinate the way of financial reporting is termed convergence.

02

Differences in the frameworks of IASB and FASB for reporting purposes

FASBhas issued GAAP which states that for recording PPE assets, a business firm should record it asits historical cost. On the other hand, IASB that has issued IFRS, recommends recording PPE assets measured at FMV (Fair Market Value). The development cost incurred by afirmistreated as an expense under GAAP, but as per IFRS, such an amount is to be capitalized and then amortized as per its benefit period.

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Most popular questions from this chapter

Question: Which of the following statements about the IASB and FASB conceptual frameworks is not correct?

  1. The IASB conceptual framework does not identify the element comprehensive income.
  2. The existing IASB and FASB conceptual frameworks are organized in similar ways.
  3. The FASB and IASB agree that the objective of financial reporting is to provide useful information to investors and creditors.
  4. IFRS does not allow use of fair value as a measurement basis.

What is the primary objective of financial reporting?

E2-7 (L05,6) (Assumptions, Principles, and Constraint) Presented below are a number of operational guidelines and practices that have developed over time.

Instructions

Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.)

  1. Fair value changes are not recognized in the accounting records.
  2. Financial information is presented so that investors will not be misled.
  3. Intangible assets are amortized over periods benefited.
  4. Agricultural companies use fair value for purposes of valuing crops.
  5. Each enterprise is kept as a unit distinct from its owner or owners.
  6. All significant post-balance-sheet events are disclosed.
  7. Revenue is recorded when the product is delivered.
  8. All important aspects of bond indentures are presented in financial statements.
  9. Rationale for accrual accounting.
  10. The use of consolidated statements is justified.
  11. Reporting must be done at defined time intervals.
  12. An allowance for doubtful accounts is established.
  13. Goodwill is recorded only at time of purchase.
  14. A company charges its sales commission costs to expense

Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.

Instructions

a) Describe briefly the following characteristics of useful accounting information.

1. Relevance (4) Comparability

2. Faithful representation (5) Consistency

3. Understandability

b)For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other.

1. Relevance and faithful representation.

2. Relevance and consistency.

3. Comparability and consistency.

4. Relevance and understandability.

c) What criterion should be used to evaluate trade-offs between information characteristics?

What is the definition of fair value?
See all solutions

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