Role of IASB and FASB in Developing IFRS

The International Accounting Standards Board (IASB) is the independent standard-setting body
responsible for developing and issuing International Financial Reporting Standards (IFRS). Its
primary role is to formulate high-quality, principle-based accounting standards that bring
transparency, accountability, and global comparability to financial reporting. The IASB follows a
structured due process that involves research, consultation with stakeholders, issuance of
discussion papers and exposure drafts, public comment, and finalization of standards. Through
this process, it ensures that the standards are robust, relevant, and widely accepted. In addition,
the IASB provides interpretations through the IFRS Interpretations Committee (IFRIC) to resolve
practical issues that arise in implementation. The IASB also plays a significant role in promoting
adoption and convergence by working with national standard setters and regulators to align
local GAAP with IFRS, thereby reducing diversity in global financial reporting practices.

The Financial Accounting Standards Board (FASB), on the other hand, is the body that
establishes and improves Generally Accepted Accounting Principles (US GAAP) in the United
States. Although FASB does not issue IFRS, it has been actively involved in the global
convergence of accounting standards. A key milestone was the Norwalk Agreement (2002),
under which the IASB and FASB committed to work together to eliminate differences between
IFRS and US GAAP and to develop a single set of high-quality global accounting standards. This
collaboration has led to joint projects on major areas such as Revenue Recognition (IFRS 15 /
ASC 606), Leases (IFRS 16 / ASC 842), and Financial Instruments, resulting in largely converged
standards that improve comparability across borders. FASB also monitors IFRS developments,
participates in consultations, and publishes educational material comparing US GAAP and IFRS
to help stakeholders understand their similarities and differences.

Together, the IASB and FASB play a complementary role in global accounting harmonization.
The IASB provides a global platform for standard setting, while FASB ensures that the needs of
the world’s largest capital market are considered. Their joint efforts enhance the quality and
consistency of financial information, promote investor confidence, and facilitate cross-border
investment by ensuring that financial statements prepared in different jurisdictions are
comparable and understandable.

Aspect IASB FASB

Primary Role Develops and issues IFRS globally Develops US GAAP (USA)

Contribution to
Direct standard setter Collaborates for convergence
IFRS

Focus Global adoption & comparability Alignment with IFRS where possible
Aspect IASB FASB

Major Joint IFRS 15 (Revenue), IFRS 16 (Leases), Corresponding US GAAP updates (ASC
Output IFRS 9 (Financial Instruments) 606, ASC 842, ASC 326)

[Link] for Convergence with International Standards

The convergence of Indian Accounting Standards (Ind AS) with International Financial Reporting
Standards (IFRS) has been one of the most significant reforms in the field of corporate financial
reporting. The primary reason for this convergence is to ensure global comparability of
financial statements. In today’s interconnected world, investors, lenders, and other
stakeholders operate globally and need financial information that is consistent, reliable, and
comparable across different jurisdictions. When companies in different countries use different
accounting frameworks, it becomes difficult for investors to compare performance, profitability,
and financial health. Convergence eliminates these inconsistencies by adopting a single set of
high-quality global standards, thereby facilitating better decision-making and improved
transparency.

Another important reason is to facilitate cross-border capital flows and to reduce the cost of
capital for Indian companies. Investors prefer financial statements prepared under a globally
accepted framework as they can easily analyze and interpret them without requiring
reconciliations. This improves investor confidence and may result in a lower risk premium and
cost of capital. Convergence also benefits multinational corporations (MNCs) and Indian
companies with foreign subsidiaries or joint ventures, as it enables them to prepare
consolidated financial statements without the need for multiple reporting frameworks. This
reduces the cost of compliance, avoids duplication of work, and ensures that group results are
comparable globally.

Convergence is also aimed at improving the quality of financial reporting by aligning with IFRS,
which is principle-based, focuses on fair value measurement, and promotes true and fair
representation of financial position and performance. This improves credibility and reliability of
financial statements, leading to greater stakeholder trust. Furthermore, convergence helps
Indian companies remain aligned with global best practices and respond to emerging financial
reporting issues (e.g., accounting for financial instruments, revenue recognition, leases) in a
manner that is consistent with global developments. This makes Indian financial reporting more
robust and resilient to evolving business models and complex transactions.
From a regulatory and economic standpoint, convergence strengthens India’s image as a
country committed to global integration and economic reforms. It is aligned with India’s efforts
to improve the ease of doing business and to attract more foreign direct investment (FDI).
International investors gain confidence knowing that Indian companies follow the same high-
quality accounting standards as companies in developed economies. Finally, convergence also
promotes harmonization of accounting practices within India, leading to uniformity among
different industries and sectors, which makes it easier for regulators, analysts, and tax
authorities to monitor compliance and detect irregularities.

In essence, convergence with IFRS ensures that Indian companies present financial statements
that are globally comparable, transparent, reliable, and investor-friendly, which is crucial for
sustaining growth in a globally competitive environment.

[Link] and objectives of accounting standards

Accounting Standards are written policy documents issued by recognized professional or

regulatory bodies that lay down the principles, rules, and procedures for recognition,
measurement, presentation, and disclosure of accounting transactions and events.

Their primary role is to bring uniformity, consistency, and comparability in the preparation of
financial statements so that they reflect a true and fair view of the financial position and
performance of an entity. By prescribing the accounting treatment for various transactions such
as revenue recognition, inventory valuation, depreciation, and provisions, they ensure that
different companies account for similar transactions in the same way, thereby improving inter-
firm comparability. This helps investors, creditors, regulators, and other stakeholders make
informed decisions.

Another important role of accounting standards is to reduce the scope for manipulation and
creative accounting by providing clear guidelines and limiting the flexibility of management in
choosing accounting policies. This leads to transparency and reliability in financial reporting.
Accounting standards also play a crucial role in harmonizing accounting practices at the
national and international level, which is particularly important in an era of globalization where
businesses operate across borders and raise funds from international capital markets.

The objectives of accounting standards are closely aligned with their roles. The foremost
objective is to ensure that financial statements present a true and fair view of the financial
results and position of an enterprise. They aim to provide a framework of consistent
accounting policies to improve the quality and credibility of financial information. Another key
objective is to facilitate comparability across different companies and industries as well as over
time, enabling meaningful analysis of trends and performance. Accounting standards are also
designed to protect the interests of stakeholders, especially investors, by ensuring adequate
disclosure of significant information such as contingent liabilities, related party transactions, and
segment reporting.

In addition, accounting standards promote economic decision-making by supplying relevant

and reliable data to managers, shareholders, and analysts. They enhance the understandability
of financial statements by providing a standardized structure and terminology, which is crucial
for users who may not have specialized accounting knowledge. They also support regulatory
compliance, as adherence to standards is often mandatory under company law, securities law,
and tax regulations.

In summary, the role and objectives of accounting standards revolve around standardization,
transparency, comparability, reliability, and protection of stakeholder interests, ultimately
improving the efficiency of capital markets and strengthening public confidence in financial
reporting.

Q4.

Financial statements are formal records of the financial activities and position of a business,
person, or other entity. They are prepared according to established accounting principles and
standards, and serve as a key tool for decision-making by internal and external stakeholders.

1. Relevance

 Financial statements must contain information that is relevant to the decision-making

needs of users.
 Relevant information helps users assess past, present, or future events or correct past
evaluations.
 Example: Timely reporting of profits/losses affects investment and lending decisions.

2. Reliability (Faithful Representation)

 Information must be complete, neutral, and free from material error.

 Reliable financial statements accurately represent the financial position and performance
of the entity.
 Includes faithful representation of transactions and other events.
3. Comparability

 Financial statements should allow users to compare the financial performance of the same
entity over time or with other entities.
 This is facilitated by consistent application of accounting policies and standards.
 Example: Comparing two companies’ financials to decide which to invest in.

4. Understandability

 Information must be presented clearly and concisely.

 Users with a reasonable knowledge of business, economics, and accounting should be
able to understand it.
 Complex disclosures may be necessary, but efforts should be made to simplify.

5. Consistency

 Accounting methods and principles should be applied consistently over periods.

 Enhances comparability and reliability.
 Changes in policies must be disclosed with proper justification and impact.

6. Accrual Basis

 Financial statements are generally prepared using the accrual accounting method.
 Revenues and expenses are recorded when they are earned or incurred, not when cash is
received or paid.
 This gives a more accurate picture of financial performance.

7. Going Concern

 Assumes that the business will continue to operate in the foreseeable future.
 Assets are not valued at liquidation prices.
 If this assumption is not valid, it must be disclosed.

8. Periodicity
  Financial performance and position are reported for specific and regular time periods
(e.g., monthly, quarterly, annually).
 Helps users assess trends over time.

9. Materiality

 Only information that would influence the decisions of users needs to be disclosed.
 Immaterial items may be aggregated or omitted.
 Example: Small stationery expenses need not be broken down in detail.

10. Neutrality

 Information should be free from bias.

 Financial statements must not be prepared with the intention of influencing decision-
makers in a particular direction.

11. Verifiability

 Different knowledgeable and independent observers can reach consensus that the
information faithfully represents what it purports to represent.
 This supports the reliability of financial reports.

12. Timeliness

 Information should be available to decision-makers in time to influence their decisions.

 Delayed information loses its relevance.

13. Comprehensiveness

 All significant aspects of the business's financial activities should be reflected.

 Includes assets, liabilities, equity, income, expenses, and cash flows.

14. True and Fair View

  Financial statements must give a true and fair view of the state of affairs of the entity.
 This is a legal requirement in many jurisdictions and forms the basis of external audit
opinions.

15. Legal and Regulatory Compliance

 Financial statements must comply with legal requirements such as the Companies Act,
Income Tax laws, or local regulations.
 Also must align with accounting standards such as IFRS or GAAP.

Aspect IFRS (International Financial Ind AS (Indian Accounting

Reporting Standards) Standards)

1. Issued By International Accounting Ministry of Corporate Affairs

Standards Board (IASB) (MCA), Government of India,
converged with IFRS

2. Applicability Followed in over 140 Applicable to Indian companies

countries globally (especially listed & large
companies)

3. Objective Provide a single set of high- Align Indian accounting practices

quality, global accounting with global IFRS while
standards considering Indian conditions

4. Legal Status Not legally binding unless Legally enforceable under the
adopted by a country's law Companies Act, 2013

5. Customization Standardized globally, no IFRS is converged with

country-specific adjustments modifications to suit Indian
economy, laws, and environment

6. Terminology Uses global terminology Slightly different terms used (e.g.,

(e.g., "Statement of Financial "Balance Sheet")
Position")

7. Fair Value Extensive use of fair value Ind AS uses fair value, but more
Measurement accounting conservative in some areas
8. Financial Instruments IFRS 9 classifies financial Ind AS 109 is based on IFRS 9 but
(IFRS 9 vs Ind AS 109) instruments using a includes additional guidance
principle-based approach from RBI for Indian banks

9. Revenue Recognition Follows 5-step model for Same 5-step model, but with
(IFRS 15 vs Ind AS 115) revenue recognition specific guidance for Indian
industries

10. Property, Plant, and Allows both cost model and Allows both, but companies tend
Equipment (IAS 16 vs Ind revaluation model freely to prefer cost model due to
AS 16) taxation and compliance

11. Consolidation (IFRS Control is based purely on Same principle, but additional
10 vs Ind AS 110) power and returns rules for companies under Indian
corporate laws

12. Dividend Recognition Liability is recognized when Liability is recognized only when
declared approved by shareholders (as per
Companies Act)

13. Changes in Retrospective application Same as IFRS, but with more

Accounting Policies unless impractical disclosure requirements

14. Agriculture Standard Includes biological assets and Ind AS does NOT include an
(IAS 41) agricultural produce equivalent standard for
agriculture

15. Financial Statement More flexibility in Ind AS has prescribed formats

Presentation (IAS 1 vs Ind presentation under Schedule III of the
AS 1) Companies Act