ACC307: The FASB and IASB began a joint agenda project - Accounting Assignment

Internal Code: MAS763

Accounting Assignment:

The FASB and IASB began a joint agenda project to revisit their conceptual frameworks for financial accounting and reporting in 2002. Each board bases its accounting standards decisions in large part on the foundation of objectives, characteristics, definitions, and criteria set forth in their existing conceptual frameworks. The goals of the new project are to build on the two boards' existing frameworks by refining, updating, completing, and converting them into a common framework that both Boards can use in developing new and revised accounting standards. A common goal of the FASB and IASB, shared by their constituents, is for their standards to be 'principles-based'. To be principles-based, standards cannot be a collection of conventions but rather must be rooted in fundamental concepts. For standards on various issues to result in coherent financial accounting and reporting, the fundamental concepts need to constitute a framework that is sound, comprehensive, and internally consistent. Without the guidance provided by an agreed-upon framework, standard setting ends up being based on the individual concepts developed by each member of the standard-setting body. Standard setting that is based on the personal conceptual frameworks of individual standard setters can produce agreement on specific standard-setting issues and y when enough of those personal frameworks happen to intersect on that issue. However, even those agreements may prove transitory because, as the membership of the standard-setting body changes over time, the mix of personal conceptual frameworks changes as well. As a result, that standard-setting body may reach significantly different conclusions about similar (or even identical) issues than it did previously, with standards not being consistent with one another and past decisions not being indicative of future ones. That concern is not merely hypothetical: substantial difficulties in reaching agreement in its first standards projects was a major reason that the original FASB members decided to devote substantial effort to develop a conceptual framework. Question; 1. Explain why principles-based standards require a conceptual framework. 2. Why is it important that the IASB and FASB share a common conceptual framework? 3. It is suggested that several parties can benefit from a conceptual framework. Do you consider that a conceptual framework is more important for some parties than others? Explain your reasoning. 4. What is meant by a 'cross-cutting' issue? Suggest some possible examples of cross-cutting issues.