Executive Summary: The report supplies with the information in relation with the joint effort of IASB and

FASB to execute convergence project and the development of the conceptual framework concerning the convergence project. It evaluates how these projects were originated the key objectives, procedures and the achievement of the project to this point. The information offers the understanding that a business should acknowledge when supplying its general-purpose financial report. Supplied information is researched from IASB, FASB websites, journals, and books.

IASB and FASBs Convergence Project and Conceptual Framework Project

Introduction With the mutual agreement between International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB), a new project Convergence project was implemented in October 2002 intended for the stable principled based accounting standards. IASB is responsible for setting the global accounting standards for the companies who are obliged to provide general-purpose financial report. FASB in other hand is responsible for the financial accounting standards in private sectors. The first step of the convergence project was to implement conceptual framework project which involves the definition and characteristics of the reporting entity, the objectives of the project, and the qualitative characteristics of the financial information.

1. Purpose of the IASB and FASB convergence project The major principle of convergence project recognized by combined attempt of IASB and FASB is to develop international financial reporting standards (IFRS) and US generally accepted accounting principles (GAAP) and assembling their convergence. The purpose of convergence project purpose is to eliminate the diversity, which existed in both the standards, and to establish a common standard that can be applicable throughout the countries in the world. The objective of the convergenge project develop the concept of joint conceptual framework. The conceptual framework that had been formed by convergence project is the first

stage of the convergence project. In order to have stable foundation that is more likely to be converged, consistent and principled, conceptual framework was established.

2. Limitations in existing conceptual framework used by IASB and FASB The excising concept that was developed in 1970s and 1980s have been criticized my many. The board has found it guidance in forming principle-based standards but is unable to accept the fact that their goal was not intended for the development of the common standards. Those ancient statements obviously needed revision, convergence and conclusion. The similar topics in accounting are expressed and illustrated in different ways in IASB and FASB. These dissimilarities need convergence in the new IASB and FASB conceptual framework. Hence, the ongoing framework project not necessarily requires to change the whole concept and aspect of standards in place for AASB and FASB but to focus on the regions that need attention to bring common practices in both the standards. The continuing framework project is directing to follow the same previous technique of defining the objectives and the qualitative characteristics. However, the existing conceptual frameworks thus have some aspects that many people have criticized. The existing frameworks have not set the margins to the standards that need to be applicable in the accounting standards. The framework is more likely to be flexible than strict. The limitations in the existing conceptual framework are obviously the diversity in the AASB and FASB standards for the same subject matter. Those specific areas are listed below. I. Explanation of assets and liabilities

II. III. IV. V.

Recognization and derecognization of assets Classification of reliability and relevancy Measurable Attributes Concern with future economic benefits in AASB and FASB standards

3. Differences between IASB and FASB Standards: In recent times, FASB has issued statements, which have produced some differences with standards in relation to IASB standards. These consist of asset held for sale, discontinued procedures and provisions. Some other differences tend to be ancient but can be determined in short period. These contains accounting strategies, depreciation on idle assets, depreciation on assets help for disposal, income taxes, joint ventures funds, research and development costs, interim financial reporting, estimates and error adjustments. Some of the major differences with AASB and FASB standards are illustrate below: I. II. III. Differences in capitalizing the item or accounting as an asset Dissimilarity in measurement techniques of objects in both the standards Choice of permitting the recording of particular transaction in one standard while more strict in another

4.

How IASB and FASB are eliminating the differences?

Well, the major intention of the conceptual framework is to eliminate these differences. AASB and IASB are working jointly sequentially to have reliable principled foundation for financial

accounting standards. This may bring many obstacles in forming if the focus on the different frameworks. The framework not only is dealing with forming a universal standard but also in arranging the matter for which standards have not been formed. The following principles are adopted by IASB and FASB in thir framework project to overcome the differences: I. Reorganization and measurement of the transaction: The ongoing frameworks project states that the accounting transaction needs to focus on the reality rather than the assumptions continuing the historical accounting standards. II. Distinguishing operating actions from monetary actions: Operating activities is concerned with the earning revenue from the past, present or transactions while, monetary actions is related to loans and debts. Therefore, the new project explains the carrying costs for operating assets and the liabilities does not include market value practice. III. Measurement of Operating income: The income statement must reveal the nonoccurring transactions that take place in the business. IV. Balance Sheet conservatism: this states that the return on net operating assets should not go beyond the overall capital cost of a business for many years. V. Applying proprietary perception for Owners equity accounting: The comprehensive income including cash dividends and other capital transaction common shareholders and change in common shareholders equity msut be equivalent.

5. Progression in the formation of the IASB and FASB conceptual framework project:

On October 2004, IASB and FASB determined to implement and initiate processing of the joint conceptual framework project. Until now, they had various meetings and progressions brought into practice for the accomplishment of the project. I. Reporting Entity

The general-purpose financial report of an entity should consider the actual meaning of the reporting entity. The information should be useful to the creditors and investors. Reporting entity under IASB and FASB is defined as a division of a legal entity or in addition, the composition of two or more entities, those who requires consolidated financial statement. The group of reporting entity should use the control model, which declares that the parent company of the group of the entity should provide the consolidated financial report. In regard with the control concept, there are few major issues to look. All the significant fact and analysis should need to take place to prove the entity has control over its subsidiaries as in some cases the control is only for short-term. The control idea should consider the percentage of the voting rights and the power to govern

II.

Objectives and Qualitative Characteristics

Objectives The overall objective of the project is to provide useful information to the outsiders, creditors, bank and the probable users. It includes the concerns whether an entity should be revealing its financial report to the potential users or only within the shareholders of the company. There are

the users who might be in need of this information for their own purpose so the companies have to prepare this information and should not focus this information only to the shareholders. It was also mentioned that the creditors and the banks have rights to get these information. The general-purpose financial report of a company should be prepared focusing on the general users and the users intending to get information for companys liquidity and solvency.

Qualitative Characteristics of the financial Statements The past meetings held by IASB and FASB discussed about the significant characteristics of the financial information and Statements. Following features were argued in relation to the characteristics of the information. a) Relevance: The board agreed on the staffs perception for relevance, which was confirmality feedback value, materiality, correctness. For information to be relevant, it should in decision making for the users. Users should be able to assess the history transactions and to estimate cash flows in future.

b) Comparability: It is the important factor that helps users in the decision making process. The information should be consistency in the sense that the information provided should be consistence.

c) Understandability: The board discussed that the information supplied by the companies should be understandable in the sense that the information should be classified, characterized and be clear and logical. The people who are knowledgeable

enough of the business and the companies should understand the content of the information. The relevant information that may affect the decision making process should not be eliminated from the financial statement.

d) Materiality: The entities should provide the financial information with all the relevant information on good faith. The omission of the relevalent information may affect the decision making process which may end up in making the incorrect judgment. Materiality is more to do with the information preparers and the auditors.

e) Faithfull representation: Faithfull representation is a bread term. It includes all the qualitative characteristics of financial information. The information provided should be complete and concise. Faithfull representation means the information should be free from partiality. It should have the quality of neutrality and prepared focusing the possible users and the outcomes from their decisions. Financial information should provide gurentee that the information represents the true and fair picture of the business without any fraud and error. It should provide assurance that the information is free from material error and omission. Therefore, we can conclude that faithful representation almost covers all the aspects of the qualitative characteristics of the financial information.

f) Reliability: The qualities of reliability discussed in the meeting were completeness, verifiability and neutrality. The information should influence the decision of the investors in the business.

g) Cost benefits: The cost of supplying the information and the benefits gained from the provided information should be comparable.

Conclusion: The report focuses the base concept of the convergence project and the conceptual framework project held by IASB and FASB. The major objective for these projects is to begin uniformity in the accounting standards. There have been many obstruction in the process regarding many aspects of the financial term. However, IASB and FASb have been able to invent alternative to substitute the complication.

References: 1. Academic Paper http://academic-papers.blogspot.com.au/2009/03/differences-between-iasb-and-fasb.html 2. Deegan, 2009 Deegan, C. Financial Accounting Theory, Edition 3, McGraw Hill 2009 3. FASB Website: http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&bl obwhere=1175818825710&blobheader=application%2Fpdf http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB/FASBContent_ C/NewsPage&cid=1176157497474 http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&bl obwhere=1175819375002&blobheader=application%2Fpdf 4. IASB website: http://www.iasplus.com/agenda/framework-d.htm http://www.iasplus.com/agenda/framework-a.htm