FA ASSIGNMENT 2

KOMAL REHMAN-12498

The FASB issues Statements of Financial Accounting Standards (SFAS) and Statement of
Financial Accounting Concepts (SFAC) to guide accountants in the preparation of financial
statements using General Accepted Accounting Principles (GAAP). The purpose of GAAP is to
assure that the objectives of the financial statements are relevant, reliable and faithfully
represented by being consistent and comparable with the activities of all the other organisations
doing business in any industry This translates into transparency of financial statements across
countries and industries. These standards are the basic framework that the preparers of financial
statements use in the generation of financial reports. Financial statements of publicly traded
companies have to be presented in accordance with GAAP and the regulations of the SEC.

The International Accounting Standards Board (IASB) serves as the regulatory body for all
international financial statements undergo a process similar to the FASB. The equivalent to
SFAS is the International Financial Reporting Standards (IFRS). The IASC concepts are issued
by the IASB. The assumption is that there is a significant impact on the financial statements and
this ambiguity is what is frustrating the process of preparing transparent financial statements.

The procedure used to conduct this research is to determine the differences in the IASB and
FASB conceptual framework by comparing the IASB International Financial Reporting
Standards (IFRS) used by Canadian publicly traded companies as compared to the United States.
One of the outcomes of this study is to analyze the influence that the conceptual framework of
both regulatory bodies has on the financial statements.
IFRS, with higher quality than national accounting standards, restrict or reduce alternative
accounting choices. Thus, even though managers have incentives to manage earnings, they have
less options/opportunities to do so. It also reduce the ambiguity and inconsistence of local
standards, as it is easier to interpret and implement. This will reduce the likelihood that managers
take advantage of ambiguous local standards to manage earnings. IFRS would also improve
financial reporting quality by changing managerial incentives. It is generally accepted that
managerial incentives are influenced/determined by economic and political systems. Accounting
standards form part of the overall economic and political systems. Thus, changes in accounting
and reporting standards also create incentives for managers to produce high‐quality financial
reports. As international investors are more familiar with IFRS, it would be easier for
stakeholders to monitor the managers through published accounts. As a result, this will increase
the pressure and the incentives for managers to faithfully report their performance. Finally, the
new accounting standards would likely create incentives for auditors to implement and enforce
IFRS, because accounting profession is generally supporting a single set of accounting standards
(such as IFRS) in the world.

A first time adoption of international financial reporting standards (IFRS) is to ensure that an
entity’s first (IFRS) financial statements provide high quality information that is transparent and
comparable over all periods presented, is a suitable starting point for accounting under IFRS and
can be generated at a cost that does not exceed its benefit to users.
Disclosures in the financial statement of a first time adopter:

IFRS I requires disclosures that explain how transition from previous GAAP to IFRS affected the
entities of financial position, financial performance and cash flows (IFRS)

1.The classification of the combination as an acquisition of a uniting of interests is not changed.

• At the data of open IFRS balance sheet

• The end of the last annual period reported under the previous GAP (for an entity adopting
IFRS for the first time in its 31st December 2009 financial statement, combination would
be as of 1st January 2008 and 31st December 2008).

2 . The assets and liabilities acquired or assumed in the combination that were recognized under
previous GAAP are recognized the acquirer’s open IFRS balance sheet, unless recognition is not
permitted by IFRS.

3 . Assets acquired and liabilities assumed in the combination that are measured at fair value
under IFRS are restated to fair value on the opening IFRS balance sheet.

4 . The deemed cost of assets acquired and liabilities assumed in the combination is the carrying
values under the previous GAAP immediately after the business combination.

5 Assets and liabilities that were not recognized after the business combination under the
previous GAAP are recognized on the opening IFRS balance sheet only if they would be
recognized in the acquired entity’s opening IFRS balance sheet.

6. Goodwill written off directly to equity under previous GAAP is not reinstated as an asset on
transition to IFRS. It is also not taken to the income statement as part of any subsequent gain or
loss on disposal of the subsidiary.

7. Goodwill recognized as an asset under previous GAAP is only adjusted on transition in

specific circumstances, including recognition of an intangible under IFRS that not recognized
under previous GAAP, reclassification of an intangible to goodwill that was recognized under
previous GAAP that does not quality for recognition under IFRS, or an impairment loss at the
date of transition.