Should the Fasb Consider Economic Consequences in Standard Setting

1540 Words Feb 19th, 2013 7 Pages
The FASB should consider economic consequences in the standard setting process; “The Board cannot cease to be concerned about the cost-effectiveness of its standards. To do so would be a dereliction of its duty and a disservice to its constituents”. (SFAC No.2 P. 144) FASB member Victor H. Brown identified the economic costs to consider:
“The costs of introducing a new standard, of course, include the out of pocket costs of converting to the new standard, the costs of processing and reporting the information required, and possible increases in audit cost…..But costs may also include disclosure costs, measured in terms of lost competitive advantage. Even harder to assess are the costs incurred by all parties in attempting to understand,
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The IASB however has recognized the need for small to medium size firms to have separate standards and have issued a separate International Financial Reporting Standard for Small and Medium Sized Entities. Interestingly, the FASB and the IASB have been working together since 2002 to achieve convergence between US GAAP and IFRSs in order to develop a common set of high-quality compatible accounting standards. “All companies compete for capital in the world equity markets. To survive and grow, companies have to have access to the cheapest money available. By migrating to IFRS, many executives believe they will be better able to attract foreign investment for growth” and “enable analysts, shareholders, and company management to evaluate financial performance among industry competitors, no matter where they are domiciled around the globe”. (White, W.C.) Without a doubt, the FASB has considered the economic consequences and impact of accounting standards on U.S. competitiveness in the global market place.
According to CON 8, “the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt

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