How does GAAP affect financial reporting?
GAAP affects financial reporting in numerous ways. GAAP sets the guidelines, principles, laws, and framework for accounting professionals to follow when conducting accounting work and when reporting financial information. The Securities and Exchange Commission (SEC) requires that publically traded companies prepare their financial reports following GAAP.

How does GAAP need to change to accommodate today’s dynamic business environment?
One area that GAAP needs to change in order to accommodate today’s dynamic business environment is to have room for international accounting and financial reporting practices. Currently GAAP is referred to as US GAAP to signify that GAAP is designed to meet the needs of accounting professionals and financial statement users in the United States. However, more and more businesses are finding that they can operate more efficiently with offshore operations, meaning that a set of international accounting criteria needs to be followed. The International Financial Reporting Standards (IFRS) is a globally accepted set of guidelines and considerations that many U.S. subsidiaries use when reporting their financial position.

In an International Accounting Standards Board (IASB) article titled “IASB Responds to G20 Recommendations and US GAAP Guidance”, the global need for a single set of high quality accounting standards is emphasized. The article mentions that the Financial Accounting Standards Board (FASB), along with the Accounting Standards Board of Japan (ASBJ) and many other national standard setters are working towards this goal.

As the world continues to globalize, fueled by increased communications and education, the need for a globally accepted accounting standards will become much more prevalent.

International accounting standards:
As a result of the 2001 restructuring of the International Accounting Standards Committee (IASC) Foundation, which provided a standard for how members conducted international accounting for several decades, the International Accounting Standards Board (IASB) was developed to establish a set of standards and convergence on international financial reporting. Below is a brief history of the IASB, including contact information for the IASB’s London headquarters, and a discussion about the role of the IASC Foundation, the structure of the IASB, the number of accounting standards currently published, and an explanation of the steps involved in creating an international accounting standard in accordance with due process. In addition, a brief summary is provided that discusses the two most recent accounting standards issued by the IASB.

History of the IASB:
In 2001, the IASB was founded under the nonprofit corporation, the IASC Foundation, as an independent entity responsible for creating International Financial Reporting Standards (IFRS). The European Union currently requires all publicly listed companies to provide their consolidated financial statements using IFRS, and the U.S. FASB works with the IASB to help improve international standards.

The principal offices of the IASB are located in central London at: First Floor, 30 Canon Street, London, EC4M 6XH, United Kingdom; the phone number is: +44 (0)20 7246 6410; and the contact email address is: iasb@iasb.org.

Role of the IASC Foundation:
The IASC Foundation operates with the intention of developing a single set of understandable and enforceable global accounting standards, in the public’s interest. This objective is to aid the transparency and comparability of the information in financial statements and other financial reports. Other IASC Foundation objectives include the promotion of the use and rigorous application of each standard; to take account of the special needs of small and medium-sized business entities and emerging economies; and to converge the national accounting standards and International Accounting Standards and IFRS to acceptable solutions.

Structure of the IASB:
The IASB is overseen by the IASC Foundation, who in return is advised by the Trustee Appointments Advisory Group. The Standards Advisory Council (SAC) advises the IASB on a range of accounting issues and consults with representatives from user groups including financial analysts, academics, auditors, regulators, and other professional accounting bodies. The SAC and IASB meet three times annually to discuss international accounting policies and translations.

The International Financial Reporting Interpretations Committee (IFRIC) is the interpretative body of the IASC Foundation and covers newly identified financial reporting issues that are not addressed in the IFRS, and issues where unsatisfactory interpretations have developed, or may be likely to develop in the absence of authoritative oversight.

The IASB is the creator of high quality and enforceable International Financial Reporting Standards, which are accepted on a global scale.

Accounting standards currently published:
There is currently eight IFRSs that include guidelines on first-time adoption of IFRSs, share-based payment, business combinations, insurance contracts, non-current assets held for sale, discontinued operations, exploration and evaluation of mineral resources, financial instruments, and operating segments. Then there are twenty-nine IASs (International Accounting Standards) which include the presentation of financial statements, inventories, cash flow statements, accounting policies, changes in accounting estimates, events after the balance sheet date, construction contracts, income taxes, property, plant and equipment, leases, revenue, employee benefits, accounting for government grants, disclosure of government assistance, changes in foreign exchange rates, borrowing costs, related party disclosures, retirement benefit plans, consolidation and separate financial statements, investments in associates, hyperinflationary economies, joint ventures, financial instruments, earnings per share, interim financial reporting, impairment of assets, provisions, contingent liabilities and assets, intangible assets, investment property, and agriculture.

Creating an international accounting standard:
When the IASB considers on developing a new standard it must go through due process. This consultation process involves gathering interested organizations and individuals to both seek advice from and confer with. Due process comprises of six stages that allow for Trustees to ensure compliance at various points throughout: (i) setting the agenda, (ii) planning the project, (iii) developing and publishing the discussion paper, (iv) developing and publishing the exposure draft, (v) developing and publishing the standard, and (vi) after the standard is issued.

Recent accounting standards issued by the IASB:
Two standards that have recently been updated include the IFRIC D24 – Customer Contributions and the IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

The IFRIC D24 has been reworded to address the definition for the requirements and focus on who controls the asset – “When an entity receives a transfer from a customer in the form of tan item of property, plant and equipment, it should assess whether the transferred item meets the definition of an asset set out in the Framework. Paragraph 49(a) of the Framework states, “an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.”

Regarding the IFRIC 14 IAS 19 there has been much concern about the requirements and the difficulties that they are causing. One such issue being addressed is the in Paragraph 22 of IFRIC 14 which requires an entity to include particular expected cash outflows in the assessment of whether there is an asset at the reporting date and in some cases this inclusion will imply that there is a liability at the reporting date when there is not.

The IASB in short:
The IASB operates, under the IASC Foundation, to create International Accounting Standards and International Financial Reporting Standards in efforts to standardize the financial reports of organizations. There are currently eight IFRSs and 29 IASs that are designed to guide and conform accounting practices. Due process involves a six-stage consultation process that allows for Trustees to ensure compliance throughout.