Similarities and Differences of Financial versus Government Accounting Standard Board - Essay Example

Similarities and Differences of FASB Vs GASB Similarities Financial Accounting Standard Board (FASB) and Government Accounting Standard Board are important institutions of accounting that have similarities and differences. For instance, in terms of accounting standards and principles, FASB, an organization established in 1973 deals with the publishing of public sector materials. It also reports on the guidelines that assist in interpreting accounting principles. It implies that that FASB concerns itself with the issuance and creation of GAAP standards particularly in the regulation of standards that touch on private sector. The scenario is replicated with GASB which majorly defines the single reporting method and it comes in three methods (Anderson, 2009). These include methods focussing on governmental agencies, business-type activities, and government-related business-type activities. In other words, the establishment of GASB in 1984 was meant to reinforce the previous functions of FASB. Another similarity is both FASB and GASB ensure reporting standards and financial accounting principles affecting state and local government agencies are fully implemented. Alternatively, the two accounting agencies are critical for financial experts in their preparation of financial statements when they intend to conduct annual financial reporting. It equally ensures that both FASB and GASB focus on demonstrating accountability especially in the utilization of public resources by government and local union officials to avoid corruption. The entire process is often done through a rigorous audit process (Fischer et al, 2011). By enforcing compliance of standards, both FASB and GASB are also evaluate balance sheets, key financial reports and expense report to provide essential guidelines and structure vital in financial reporting. FASB and GASB, in terms of statement of cash flows equally share notable similarities. First, both financial entities deal with financing activities, operating activities, and investments of companies and organizations with statement of cash flows. It means that FASB and GASB are important in the analysis of interests and income taxes of companies. Second, as a result of their successful analysis in tax evaluation, the two financial boards help investors and lenders when examining an organization’s cash flow statement. According to financial experts, the step is important because it ensures that the net income of a company is geared toward generating substantial cash of reducing increased dividends and debts. Additionally, both FASB and GASB are concerned with striking a financial balance between the company’s net income and its operating activities in order to avoid unnecessary borrowings. Sharing of seven-member board of directors is another interesting similarity that connects FASB and GASB. It means the board members have similar functions that include centering on financial reporting and accounting standards. As part of being non-governmental agencies equally accords FASB and GASB an important step when recommending business processes of tax evaluation. Another crucial similarity involves their service financial clients only and no other professionals. The process demonstrates that the two financial entities are specific in their quest to improve financial services offered by companies. Conversely, FASB and GASB complement the work of another with the latter as a government entity partly sponsoring the former. GASB also borrow ideas from FASB in exchange for financial support. Differences In spite of the numerous similarities aforementioned, there are also multiple differences. For example, in terms of standards offered, contribution of services differ because while FASB provides for recognition and giving a criteria that supports measurement, GASB does not. Instead, GASB is still formulating financial plans of adopting a criteria for such recognition. Additionally, while FASB recognizes the urgency of contribution of revenue including correspondence of expense, GASB only evaluates contributed services in form of fair value without any net assets. It reveals another significant difference concerning endowment pledges. GASB, for example, forbids the determination of endowment pledges because they deem endowment as a form of investment perpetuity. In other words, GASB proponents believe that the receivership of funds is the most vital step because it will have impact on gif revenue, net assets, and total assets (Fischer et al, 2011). On the other hand, FASB determines the existence of permanently restricted net assets. Interestingly, restricted cash contributions also affect FASB and GASB. The former has standards that acknowledge cash contributions especially if they both permanently and temporarily restricted. However, the latter demands the deferment of revenue for future use to save resources. Consequently, the management of revenue, deferred assets, and liabilities will reveal a financial difference. In terms of restricted non-endowment pledges, FASB and GASB are also poles apart. The latter supports the reporting of realized gains and losses and net investment income as a single amount while FASB demands for separated display. FASB equally forbids the total determination of operating revenue while GASB recognizes operating revenue in form of investment income when it is used to service a student loan (Kieso et al, 2011). According to financial analysts, the outcome of the above outlined steps will affect investment income because of different operating results in regards to portion of endowment spent and other forms of investment income. The issue of Pell grants equally has ramifications in the operations of FASB and GASB. For example, while the former deems grants as balance sheet pass, the former describes grants as part of activity statement transaction. It means that when operating with GASB, the grant revenue will be higher in public institutions including the net tuition revenue unlike FASB that affects net assets and liabilities. Operation of Perkins loans is another interesting observation on how the two financial entities function (Weil et al, 2012). FASB, for example, describes the loans as part of balance-sheet transaction by citing federal portion as an aspect of liability. On other hand, GASB embraces the activity-statement approach that considers federal portion as wholly part of net assets and not liability. Therefore, funds in possession of others under trust management will display different calculations and guidance. FASB demonstrates guidance by calculating funds as parts of asset while GASB focusses on report and record of entities to establish the value of assets. In definition of restrictions, according to FASB literature, restrictions are imposed by donors and for a GASB environment, only external party has the right to put restrictions. Accordingly, the entity report and record as spelt out in GASB 14 and GASB 39 stipulates that only affiliated foundations have a right over assets, net assets, and revenues unlike for FASB. Utilization of restricted funds equally elicit a big difference between GASB and FASB. The former supports various approaches of issuing restrictions to explain disclosure of funds while the latter uses a report model of reducing net assets. It means that post-employment benefits caused by both financial entities not have a similar outlook. Instead, there shall be consistent treatment of post-retirement benefits and pensions through FASB’s reporting model. The process occurs despite the existence of unrestricted resources usually called the dollar release concept. GASB, however, integrates consistent methodologies that account for all accruing post-employment benefits and pensions (Kieso et al, 2011). In terms of asset impairment, FASB depends on future cash flows often evaluated through the determination of impairment losses while GASB strictly concentrates on asset’s service utility. Overall, management analysis and discussions of both institutions present varying financial scenarios worth observing. First, financial statements of FASB do not have consistent requirements unlike GASB that derives satisfaction from public colleges through presentation of financial statements in form of charts, tables, and graphs. Capitalization of investments in regards to software means FASB develops in-house resources while GASB concentrates on intangible assets (Griff, 2014). According to an advisory committee, the latter offers guidance in the independent institutions through recommendations unlike FASB that focusses on divergent systems. In summary, while both institutions enforce standard reporting on financial accounting, they heavily differ on financial accounting standards. References Anderson, G. (2009). The Future of Public Employee Retirement Systems. New Jersey, NJ: OUP. Fischer, P. et al (2011). Advanced Accounting. New York, NY: SAGE. Griff, M. (2014). Professional Accounting Essays and Assignments. New Jersey, NJ: SAGE. Kieso, D. et al (2011). Intermediate Accounting. Mason, OH: Springer. Weil, R. et al (2012). Financial Accounting: An Introduction to Concepts, Methods and Uses. Mason, OH: Cenegage Learning. Read More