The Financial Accounting Standard Board (FASB) and the International Accounting Standard Board (IASB) have been collaborated in the convergence of the U.
S. GAAP and the international financial reporting standards (IFRS).In the sector of financial accounting and financial reporting, there are two sets of reporting standards used by most of the economies which are IFRS and the U.S. GAAP.
Thus, each of the standards has their own responsible bodies. IASB for IFRS while the FASB for GAAP.In September 2002, the IASB and the FASB signed the “Norwalk Agreement” as a beginning to formalize their commitment to the convergence of U.S. and international standards. Both of them stated their commitment to the development of high quality, compatible accounting standards that are suitable for both domestic and cross-border financial reporting.
The agreement identified two key objectives which are to make existing accounting standards compatible as soon as practicable and to maintain compatibility once convergence had been achieved. The objective of this project is to develop a single set of distinctive standards that could be used globally cited Lugo (2010).One of the short-term convergence project is fallen on 25 May 2006, IASB-FASB has proposed an amendment to IAS 23 Borrowing Costs.
Borrowing Costs directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense. IAS 23 permits 2 possible treatments: (i) the capitalization of borrowing costs, to the extent that is directly attributable to the acquisition, construction or production of a qualifying asset; (ii) Immediately expensing the borrowing costs A revised IAS 23 Borrowing Costs was issued on 29 March 2007. IASB amends IAS 23 to require capitalization of borrowing costs. This project has been completed.Next, revenue recognition is one of the major projects among IASB and FASB. Revenue is a crucial financial statements element which represents a company’s performance index for the investor and stakeholders to make investment evaluation. In the US, the revenue recognition requirements which is GAAP different from IFRS, and both sets of requirements have their own pros and cons .
Revenue recognition requirements of IFRS lacked sufficient detail, the accounting requirements of U.S. GAAP were considered to be overly prescriptive and conflicting in certain areas. Accordingly, the FASB and the IASB converge principles of recognizing revenue and to provide a substantial enhancement to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting.
The key objective of this project is to:1. Remove inconsistencies and weaknesses in existing revenue requirements.2. Provide a more robust framework for addressing revenue issues.3. Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.
4. Provide more useful information to users of financial statements through improved disclosure requirements.5.
Reducing the number of requirements to which an entity must refer to simplify the preparation of financial statements Revenue from Contracts with Customers (ASC 606) was issued on 28th May 2014. The standard is fully converged with ASU 2014-09 Revenue from Contracts with Customers. This project has been completed.