Though governments and business organizations across the globe use local laws and regulations regrading to the reporting of financial statements, increased globalization has necessitated the need for standardization. Ensuring that the information is financial statements is accurate is of paramount importance, but preparing it by following common standards is also equally important. The need for common standards has led the Financial and Accounting Standards Board (FASB) and the International Accounting and Standards Board (IASB) to make changes to financial statements.
FASB has proposed changes to recognition of accounting principle. Initially, entities were required to include in the net income of the duration of change the aggregate effect of altering to the new accounting principle. Under the proposed changes by FASB, entities are required to use retrospective application to past duration’s financial statements of changes in accounting principle (FASB, 2019). The only exemption is when it is impractical to determine the duration-specific effects or the aggregate impact of the change. If it is impossible to determine either the duration-specific impacts of an accounting change on a single or more individual past periods, FASB’s proposed changes demand that the new accounting principle be applied to the balance of liabilities and assets as of the start of the earliest period for which the retrospective application is feasible and that a equivalent change be made to the opening balance of the retained earnings for that duration instead of being reported in an income statement.
Delegate your assignment to our experts and they will do the rest.
Additionally, the proposed changes by FASB requires that when it is impossible to determine the cumulative impact of applying a change in accounting principle to all previous durations, the new accounting principle be used as if it was implemented with hindsight from the initial date feasible. FASB’s proposed changes define “retrospective application” as the use of a different accounting principle to past accounting durations as if the principle has always been applied or that the change of past issued financial statements to show a change in the reporting party (FASB, 2019). The other proposed change by FASB is the retrospective use of a change in accounting principle to be restricted to the direct impacts of the change. Regarding indirect impacts of a change in accounting principle, the proposal require that such changes such as non-discretionary profit-sharing agreements be recognized during the period of the accounting change. Furthermore, change in amortization, depreciation, or depletion techniques for long-lives, non-financial assets be accounted for as an alteration in accounting estimate influenced by a change in the accounting standard.
Proposed changes by IASB requires that when an entity applies an accounting standard retrospectively, or make backdated restatement of items in its financial statement, or reclassifies items, it must offer a statement of financial position or a balance sheet as at the start of the earliest comparative duration (IASB, 2019). Additionally, proposed changes by IASB requires that financial reports presented beyond financial statements such as in environmental reports, management reviews, and value added statements are beyond the scope of International Financial Reporting Standards (IFRS).
IASB’s proposed changes also cover fair representation and compliance with IFRS. In IASB’s proposed changes, fair representation should include faithful portrayal of the impacts of transactions or other events in accordance to the recognition criteria and definitions of liabilities, assets, expenses, and income stipulated in the framework. Entities whose financial statements comply with IFRS are required to make clear and open statements of such compliance in the notes. Thus, financial statements cannot be deemed compliant with IFRS unless they adhere to all IFRS requirements such as International Accounting Standards, IFRS, and IFRIC interpretations.
In case of inappropriate accounting policies, IASB requirement stipulate that they cannot be corrected by disclosure of the accounting standards used or explanatory material. It is a requirement that differs with FASB proposal, which require the issuing of restatements, which revise previously issued financial statements to show the correction of a mistake. The other prosed change in IASB proposals is the going concern. According to the IFRS framework, a going concern is a perception that an entity will continue with operations into the foreseeable future (IASB, 2019). According IASB proposal, the management must evaluate an entity’s going concern, and if they have doubts over its ability, the uncertainties must be disclosed. If an entity shown not to be a going concern, its financial statements should not be organized using the going concern approach.
The proposed changes to international accounting standards by FASB and IASB are aimed at enhancing the comparability of international financial reporting. The result has been the removal of narrow differences between current reporting standards. Under existing standards, accounting changes were recognized through the inclusion in the net income of the duration of the change the aggregate impact of shifting to the new reporting standards. The changes introduced by FASB and IASB enhance financial reporting since they demand voluntary reporting in a changes through retrospective application unless impossible, which improves the consistency of financial data between durations ( American Institute of Certified Public Accountants, 2017) . The enhanced consistency promotes the importance of financial data by encouraging analysis and comprehension of accounting information.
References
American Institute of Certified Public Accountants. (2017). U.S. GAAP financial statements: Best practices in presentation and disclosure . New York, NY: American Institute of Certified Public Accountants.
FASB. (2019). Summary of Statement No. 154. Retrieved from https://www.fasb.org/summary/stsum154.shtml on July 23, 2019.
IASB. (2019). IAS 1 — Presentation of Financial Statements. Retrieved from https://www.iasplus.com/en/standards/ias/ias1 on July 23, 2019.
