Assignment

Course Title: Public Sector Accounting and Financial Management

Course Code: AIS 4202
Topic: Comparative Analysis between IFRS and FASB Conceptual
Framework

Submitted to:
Md. Harun-Or-Rosid
Associate Professor
Department of Accounting and Information Systems,
University of Barishal

Submitted by:
Student Name: Md Jubayed Hossen
Student ID: 18 AIS 012
Department: Accounting and Information Systems
Session: 2021-22
Year & Semester: 4th Year 2nd Semester

Date of Submission: 31st December 2022

The conceptual framework was to be used as a guide in the development of consistent
accounting standards, hopefully leading to a more coherent set of accounting principles to aid
practice. Components of the framework included objectives of financial reporting, qualitative
characteristics of financial information and elements of financial statements, recognition
criteria, measurement attributes, financial statements, earnings, cash flows and liquidity. The
International Accounting Standards Board (IASB), issued their version of a conceptual
framework entitled Framework for the Preparation and Presentation of Financial Statements.
While there are many similarities between the respective FASB and IASB frameworks, there
are differences as well.

The goal of both boards is to replace their existing frameworks and adopt the new and improved
framework. The project is to be conducted in eight phases, of which the first four are currently
active:

• Phase A Objectives and qualitative characteristics;

• Phase B Definitions of elements, recognition and derecognition;
• Phase C Measurement;
• Phase D Reporting entity concept;
• Phase E Boundaries of financial reporting, presentation and disclosure;
• Phase F Purpose and status of the framework;
• Phase G Application of the frameworks to not-for-profit entities;

Objectives

FASB IASB / IFRS

Provide financial information about the
reporting entity that is useful to present and
potential equity investors, lenders, and other
creditors in making decisions about providing
resources to the entity. Also maintains that
financial statements must be general purpose
in nature rather than geared toward specific
needs of a particular user group, although
investors, creditors, and their advisers are
singled out among external users.
Provide financial information about the
reporting entity that is useful to existing and
potential investors, lenders and other creditors
in making decisions relating to providing
resources to the entity. Information about the
entity’s economic resources and the claims
against the reporting entity, the effects of
transactions and other events that change a
reporting entity’s economic resources and
claims. Both types of information provide
useful input for decisions relating to
providing resources to an entity.
 Qualitative Characteristics

FASB IASB / IFRS

FASB has the same qualitative characteristics Two fundamental qualitative characteristics:
as IFRS. (1) relevance and (2) faithful representation.

Relevance: Relevant information is that which is capable of making a difference in a decision.

The Framework defines relevant information as that which influences the decisions of the user.
This is a more restrictive definition since information may be capable of making a difference
in a decision and the user may simply ignore it. Such information would then be deemed not
relevant.

Four enhancing qualitative characteristics: comparability, verifiability, timeliness and

understandability. They enhance relevant and faithfully representative information by
distinguishing the usefulness of information.

• Comparability is the qualitative characteristic that enables users to identify and

understand similarities in, and differences among, items. Unlike the other qualitative
characteristics, comparability does not relate to a single item. A comparison requires at
least two items.
• Verifiability helps assure users that information faithfully represents the economic
phenomena it purports to represent. Verifiability means that different knowledgeable
and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
• Timeliness means having information available to decision-makers in time to be
capable of influencing their decisions. Generally, the older the information is the less
useful it is. However, some information may continue to be timely long after the end
of a reporting period because, for example, some users may need to identify and
assess trends.
• Understandability, Classifying, characterizing and presenting information clearly and
concisely makes it understandable. Some phenomena are inherently complex and
cannot be made easy to understand. Excluding information about those phenomena
from financial reports might make the information in those financial reports easier to
understand. However, those reports would be incomplete and therefore possibly
misleading.
Faithful representation: Financial reports represent economic phenomena in words and
numbers. To be useful, financial information must not only represent relevant phenomena, but
it must also faithfully represent the substance of the phenomena that it purports to represent.
To be a perfectly faithful representation, a depiction would have three characteristics. It would
be complete, neutral and free from error. Of course, perfection is seldom, if ever, achievable.
The Board’s objective is to maximize those qualities to the extent possible.

Elements

Elements and Recognition, has three objectives: (1) revise/clarify the definitions of asset and
liability; (2) resolve differences regarding other elements and their definitions; and (3) review
the recognition criteria concepts.

FASB IASB / IFRS

It has ten interrelated elements that relate to
measuring the performance and financial
status of a business enterprise. (1) Assets,
(2) Liabilities, (3) Equity, (4) Investment by
Owners, (5) Distribution to Owner,
(6) Comprehensive Income, (7) Revenue,
(8) Expenses, (9) Gains, (10) Losses
The elements of financial statements defined
in the Conceptual Framework are:
(i) assets, liabilities and equity, which relate
to a reporting entity’s financial position; and
(ii) income and expenses, which relate to a
reporting entity’s financial performance.

In detail, differences between FASB and IASB / IFRS are:

Elements of FASB

Element Description

Moment In Time Asset Probable future economic benefits

obtained or controlled by a particular
entity as a result of past transactions or
events.
Liabilities Probable future sacrifices of economic
benefits arising from present obligations
of a particular entity to transfer assets or
provide services to other entities in the
future as a result of past transactions or
events.
Equity The residual interest in the assets of the
entity after deducting all its liabilities.
 Period Of Time Investment By The increase in the equity of the
Owners organization. This increase is a result of
the owner bringing any valuable item in
the business of increasing their equity
shares. It can also be in the form of
services or by converting the liability.
Distribution To A payment of the retained earnings of a
Owners business to its owners.
Comprehensive The change in equity [net assets] of a
Income business enterprise during a period from
transactions and other events and
circumstances from non-owner sources.
Revenue The total amount of income generated by
the sale of goods or services related to
the company's primary operations.
Expenses An expense is a cost that businesses incur
in running their operations. Expenses are
deducted from revenue to arrive at
profits.
Gains A general increase in the value of an asset
or property. A gain arises if the current
price of something is higher than the
original purchase price.
Losses A loss is an extra of expenses over
revenues, either for a single business
transaction or in reference to the sum of
all transactions for an accounting period.

Elements of IASB / IFRS:

Element Description

Economic Resource Assets A present economic resource controlled

by the entity as a result of past events. An
economic resource is a right that has the
potential to produce economic benefits.

Claim Liabilities A present obligation of the entity to

transfer an economic resource as a result
of past events.
 Equity The residual interest in the assets of the
entity after deducting all its liabilities.

Changes in Income Increases in assets, or decreases in

economic resources liabilities, that result in increases in
and claims, equity, other than those relating to
reflecting financial
contributions from holders of equity
performance
claims.
Expenses Decreases in assets, or increases in
liabilities, that result in decreases in
equity, other than those relating to
distributions to holders of equity claims.

Other changes in _ Contributions from holders of equity

economic resources claims, and distributions to them.
and claims

_ Exchanges of assets or liabilities that do

not result in increases or decreases in
equity.

Basic Assumptions

FASB IASB / IFRS

• Economic entity • Going concern
• Going concern • Accrual basis
• Monetary unit • Economic entity
• Periodicity • Stable measuring unit assumption
• Monetary unit
• Units of constant purchasing power

FASB and IFRS both have Economic entity, Going concern, and Monetary unit in common.
And FABS has Periodicity, IASB has Accrual basis, Stable measuring unit and Units of
constant purchasing power; those are different from each other.

FASB IASB / IFRS

Same explanation as IASB / IFRS. Economic Entity: Company keeps its
activity separate from its owners and other
businesses. separates the transactions carried
 out by the business from its owner. It can also
refer to the separation between various
divisions in a company. Each unit maintains
its own accounting records specific to the
business operations.

Going Concern: Company to last long Going concern: The assumption that a
enough to fulfill objectives and business entity will be in operation for the
commitments. assumes that any organization foreseeable future.
will continue to operate its business for the
foreseeable future. The principal purports
that every decision in a company is taken
with the objective in mind of running the
business rather than that of liquidating it.

Same explanation as IASB / IFRS. Monetary Unit: Money is the common

denominator. The monetary unit assumption
states that a company must record its
business transactions in dollars or some other
unit of currency. Companies use the dollar
since it is stable in value and available
everywhere. It also provides a consistent
method of comparing the results of one
company with those of another.

Periodicity: A company can divide its

economic activities into time periods. The
periodicity assumption states that an
organization can report its financial results
within certain designated periods of time. N/A
This typically means that an entity
consistently reports its results and cash flows
on a monthly, quarterly, or annual basis.

Accrual basis: The assumption that the

financial effects of transactions and events
N/A are recognized as they occur, and not when
cash is received or paid.

Stable measuring unit assumption: The

assumption that financial capital is measured
N/A in nominal monetary units. This is the
historical cost accounting in which assets and
 liabilities are recorded at their values when
first acquired and not generally restated for
changes in values.

Units of constant purchasing power: The

assumption that the stable measuring unit
assumption can be rejected in certain
situations: Only constant real value non-
N/A monetary items are adjusted for inflation
during low inflation or deflation. During
hyperinflation however, all non-monetary
items are adjusted as required under Constant
Purchasing Power Accounting.

Basic Principles
FASB IASB / IFRS
• Measurement Principle • Clarity
• Revenue Recognition • Relevance
• Expense Recognition • Reliability
• Full Disclosure • Comparability

Basic Principles of FASB:

Measurement Principle: The most commonly used measurements are based on historical
cost and fair value. Historical cost provides a reliable benchmark for measuring historical
trends. Fair value information may be more useful. Recently the FASB has taken the step of
giving companies the option to use fair value as the basis for measurement of financial assets
and financial liabilities.
Revenue Recognition: Requires that companies recognize revenue in the accounting period in
which the performance obligation is satisfied.
Expense Recognition: “Let the expense follow the revenues.”
Full Disclosure: Providing information that is of sufficient importance to influence the judgment
and decisions of an informed user. Provided through: (i) Financial Statements, (ii) Notes to the
Financial Statements, and (iii) Supplementary information.

Basic Principles of IASB / IFRS:

Clarity: The principle of clarity requires that financial statements be easy to read and easy to
understand. IFRS guidelines allow substantial discretion in deciding what information will be
included and how it will be presented in the financial statements. The final decision rests with
the accountant.
Relevance is the concept that the information generated by an accounting system should impact
the decision-making of someone perusing the information. The concept can involve the content
of the information and/or its timeliness, both of which can impact decision making.
Reliability: The reliability principle aims to ensure that all transactions, events, and business
activities presented in the financial statements are reliable. Information is considered reliable if
it can be checked, verified, and reviewed with objective evidence.
Comparability: The compatibility principle is an information system concept that suggests the
accounting system of any company should adapt to their operations, employees, and business
structure.

Recognition
FASB IASB / IFRS

• Definition of elements of Financial • Relevance

Statement • Faithful Representation
• Measurability
• Relevance
• Reliable