The IASB was established in 2001, which is a standard-setting organization of the IASC foundation. IASB is set up to be an independent world standard-setter. Which could reflect the new demands which is made by the IOSCO. In the beginning, those standards in the IASB are accepted by EU companies only. The IASB inherited a remarkable legacy from its predecessor body, not only in terms of the standards that it had promulgated but also in terms of international support. In addition, the IASC was essentially a voluntary organization which is made by accounting profession and its stakeholders rather than than legislators or government regulators,therefore, IASB is a stage to support and give the evidence to the international accounting standards, also, IASB offers the demand for the accounting standards in the global capital market. (http://www.sciencedirect.com)
The financial reporting provides useful information not only for the internal users, but also for the external users, the standards should be structured to be comparable and understandable. In addition, in consideration of there are a lot of companies form foreign countries,the international converged framework and consistent reporting standards are necessary.
Since its the IASB was created, this organization has achieved some significant successes. The expected implementation of its standards in the EU has taken place with out significant problems, Australia accept the standard for all of the corporations which is a requirement by the law, also, some other countries move toward accepting and using the IASB's standards. IASB includes many convergence of domestic standards with IFRS for listed companies. These include significant economies, such as Canada, China and India. Morn than 100 countries recognize international standards for some purposes.
Cooperation between IASB & FASB
The common conceptual framework project of the IASB and the FASB was initiated in 2002, which is a direct result of the Norwalk Agreement, in that day, these two boards agree to work togather and converge the financial standard.
Since working together, the purpose of the conceptual framework is to delete the differences between these two framework, not only of doing this, filling gaps and make improvements if it is necessary. This task will take a lot of years, however, in another hand, in these two frameworks, there are many common characters: both frameworks have a strong target. What's more, because there is still some of differences between two groups, filling gaps is a serious problem, the reason is that: in these two framework, controversial nature is likely to be difficult. However, the extensive scope and knowledge of the IASB could bring an opportunity to those EU corporations who did not use it yet.
Also, the IASB will be optimistic in its original intention, the reason is that: GAAP is accepted not only in the US but also in other countries, however, FASB is heavily involved in building information standards with IASB, although there is a lot of barriers and problems, international convergence is a certain trend around the world.
Converged conceptual Framework
Converged conceptual Framework (CCF) was initially proposed at the joint meeting of the FASB and IASB in October 2004, this meeting indicates that CCF can benefit investors from consistent and objective financial reporting standards and ensures the feasibility of global harmonization through the cooperation among the countries.
(http://www.fasb.org/fasac/12_2004confwk.pdf)
Barrier and Problems of IFRS in international market
IASB tries to prepare an perfect framework, but there are some problems which cannot be solved well. FASB has adopted a set of standards, however, there are some of reasons, such as legal systems, business ownership, stock exchange and taxation which are hinder the convergence framework being completed. What's more, There are many issues which are primary to the international convergence process between two groups which have to be solved. The fair value accounting and financial statement presentation needs to converge. The solution to these issues are necessary to developing.The point is that financial measurement toward fair value and historic cost, choosing principle-based or rule-based approach is the key aspect which needs to be rationalize behind the convergence of international programme. Which is a hard choice for IASB.
What's more, there is a lot of arguments about the IFRS is that IFRS do not have a conceptual root, in another word, the conceptual framework is not technical and functional. Some argument is about the transition, it is hard and expensive if the country change the standards from other system(GAAP) into IASB standard. It is obvious that building a new systems for financial reporting is very difficult, in addition, adapt to using and accepting new standards needs a lot of money to change,for example, training the new labour to adapt to the new system, change the data system in the computer.
Second, there is a barrier to IFRS is based on controlling, although that IFRS are useful for global comparisons and make a stage to converge financial standard in the world-wide.However, it could be summarized as" everybody should use the same standards...and I should set them". So, who has right to set them is a problem, everybody want to set the standards by themselves, which will make some benefits for themselves, therefore, the best way is to work together and vote for each standards,then, getting the best idea to converge. In addition, there are some other barriers that hinder international convergence programme.For example, different countries have different using. There is an analysis by Bush (2005) ,he researched the different legal systems governing financial reporting in the UK and the USA. He said that the UK's accounting report is to present for the shareholders and its financial accounting is governed by company law. However, the USA 's target is to make the decision-useful financial report to capital markets, this view of financial reporting is controversial. Therefore, there is a undoubtedly difference between the UK and USA , they act different role in financial reporting, What's more, this situation is reflected in IASB's statement of principles. Also, there will be a conflict between the large companies and small companies. These problems are exist, and the IASB need to face, too.
The third problems is the culture of the individual constituency. Each country has its own accounting culture, which means it includes the market environment, education environment. In another word, each country has its specific practice in accounting, the own conceptual framework may last for many years. Therefore, for those people who do not undertake the accounting job, they may be glad to converge international standards. However, for those people who undertake the financial occupation, such as banker, accountant, auditor , they have to learn more about the new standards, it will be a hard working. Even that all of the knowledge they have learned will be replaced. Also, if the accounting standards change,the institutional framework includes the structure of markets, company law, tax law and regulation would be changed, too. To solve this problem, IASB should create different views as to the appropriate content of financial standard, What's more, the development of the conceptual framework should clarify some existing cultural differences. In this context, we think the the IASB's conceptual framework could be better.
In order to overcome these difficulties, and ensure convergence of standards could act step by step, IASB should give more structured and technical framework in its standard.What's more, some aids are necessary. ( for example, help the country in developing the knowledge and teaching them about the new standards.)
The main difference between IASB and FASB
Firstly, there is a significant different between IASB and FASB, which is the valuation method between historic cost and fair value. The issue is that which one is more better to use.
The advantage of historical cost is that it is direct and objective, also, it is easy to calculate and understandable, however, which will result some problems, for example, the value of the company may overestimate or underestimate.
By contrast, fair value has many advantages. Firstly, it contributes to the requirement of decision-usefulness, which is the purpose of financial reporting. The reason is that the fair value reflects current market value and provides the different value in different time, which is face to the reality. The purpose of FASB and IASB is that giving the most reliable and relevant information to the users, therefore, base on this target, it can be seen that it is more useful of fair value over historical cost.
The second difference is that IASB is principle-based, and FASB is rules-based. However, After Enron bankrupt, the USA had a deep confession for its standard-setting model. The community had criticized them because of the deficiencies and inadequacies based method. Well-known financier George Soros commented, "The U.S. accounting system is rules based. But only rules based is not enough, because it leads to avoidance behaviour." He also pointed out that Europe, for example, different from the United States, it is principles based accounting system. Although Europe will also have scandals like the U.S., but it would not have such a system problem. Nobel laureate in economics Michael Spence said, "Traditionally, the western economy is rules based system. Provided that they meet the rules, they can play 'edge ball', which is finding the loopholes in the rules, resulting in investor losses. For the principle-based, it is less complex regulation of reporting, the advantages is that principle makes the problem more easier to understand, also, it is coordinated and clear. In addition, principle-based method is effective in reporting, which is open and honest, interesting and engaging.However, the biggest problem is that accountants need to have a higher skill and ability to follow it, professional skill is necessary. Therefore, certain principles are needed. Namely, determine the principles while making the rules. Using the two together, neither is neglected. Thus avoid the bad results of asymmetric information to their highest possible level of function." Therefore, combining rules and principles is the key point that IASB must to face.It 's a long-term and a really hard task,which also means CCF would face all of the problems above.
Conclusion
For the companies around the world, IASB should use fair value as the pragmatic measurement which provides more objective financial report. In addition, this common standard will lead the financial information more reliable to the users for decision making.
Producing specific standard for those countries which have different accounting culture, if possible, the ISAB should aid these countries, training their labour who undertake the financial occupation, which will make the convergence of international accounting standard more quickly.
Finally, the IASB should combine the rules-based and principles-based standard, the reason is that: rule-based accounting is more reliable, but incomprehensive. However, principle-based accounting reflects the fair view of accounting, but this method needs accountant has a higher professional judgement. Therefore, after using their advantages and delete the disadvantages, the new standard will more better.
These three converging solutions will help the IASB to establish the new standard, in addition, the boards should have a clear prospective plan for the future, making the international convergence programme act accordingly.
