Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) both set standards of financial reporting and are responsible for developing and enforcing such standards. FASB is responsible for setting standards in US while IASB focusses on global accounting standards (Carty).
Both the bodies have been trying to converge the standards for more than forty years now, and have been successful to some extent. Major memorandums of understanding and agreements have been signed between the two organizations in the last decade, bringing down the differences between the accounting standards.
Norwalk Agreement was signed between the two organizations in 2002, according to which both organizations agreed to make the standards fully compatible and there have been several follow-up agreements related to individual standards after that. Although, currently the standards of US GAAP set by FASB and IFRS set by IASB are not fully compatible, yet significant number of standards have been made supplementary (FASB).
The effect of convergence and common accounting standards significantly affect financial reporting by companies who have presence in multiple countries across the world. Global businesses can subscribe and comply with one single set of accounting standards once full convergence happens.
The quality of financial reporting would most likely improve with organizations not been able to take advantage between the gaps and differences of the two standards. This will also make the role of supervisors and regulators easier as they will not have to deal with multiple laws and clauses for the same thing. It will also benefit companies for reporting financial data in terms of time, effort and cost. Further, penalties and fines will decrease when proper and compliant data is submitted (Carty).
References
FASB. Comparability in International Accounting Standards – A Brief History. Retrieved from http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156304264.
Carty, S. What is the Relationship Between the IASB & the FASB? eHow. Retrieved from http://www.ehow.com/info_8446276_relationship-between-iasb-fasb.html.
