Relationship Between the Financial Accounting Standards Board and International Accounting Standards Board

ACCOUNTING THEORY & RESEARCH

ACC/541

Relationship between the Financial Accounting Standards Board and International Accounting Standards Board

Financial Accounting Standards Board (FASB) was created in 1973. FASB is a private, not-for-profit organization responsible “for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental entities” (Financial Accounting Standards Board, 2010). FASB is the highest authority in establishing generally accepted accounting principles (GAAP) for non-government companies in the United States. The Board is authorized to amend existing accounting rules and establish new ones. Accounting standards issued by the FASB are considered generally accepted accounting principles in the USA. The Securities and Exchange Commission (SEC) is a U.S. government organization that supervises financial reporting and protects investors and market integrity, but it relies on FASB and officially recognizes the standards developed by FASB for financial reporting. The FASB issues three major types of pronouncements (Kieso, Weygandt, & Warfield, 2007):

1. Standards, Interpretations, and Staff Positions.

2. Financial Accounting Concepts.

3. Emerging Issues Task Force Statements.

GAAP is not a formal law in the United States, but SEC recommends that United States companies follow GAAP, because GAAP give investors and other users comparable, relevant, and transparent financial information.

Advances in communication and transportation expanded the marketplace in which companies operate and trade capital. Stocks of non-United States companies play an increasingly important role on America's top stock exchange. According to New York Stock Exchange (2010) , hundreds of foreign companies are trading capital in the USA.  NYSE Listing Directory includes 952 European companies, 80 from Latin America, 71 from Canada, 113 from Asia/Pacific, and 2789 from the USA. US companies...