Accounting issues over the next three years that should be addressed with FASB - Essay Example

Accounting standards are very crucial to the effective functioning of the economy. This is mainly because most of the decisions pertaining to the allocation of resources rely heavily on credible, concise, transparent, and comprehensible financial information. The FASB develops accounting concepts as well as standards for financial reporting. It also provides guidance on how to implement them. These concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues.

Perhaps the most important issue that the FASB has been working on is to reduce the complexity and to improve the usefulness and transparency of reporting financial information. According to the American Institute of Certified Public Accountants (AICPA) there is a need for comparability of financial statements, need for implementation guidance and a need for an appropriate transition. In 2006, the Financial Accounting Standards Board voted unanimously to revamp rules on lease accounting that allow revising the rules that permit companies to keep certain leases off their balance sheets.

The board agreed to work jointly on the project with the International Accounting Standards Board. However, the FASB Chairman Robert Herz, himself admitted that amendments to FAS 13 may not be finalized till late in 2009. This project is also to be done to coordinate lease accounting standards with the IASB (International Accounting Standards Board) which sets accounting standards for Europe and many other countries. The IASB and the FASB have significant differences in the way they treat leases.

Although both follow the concept of capital and operating leases but FAS 13 (which questions whether the lease term is 75% or more of the economic life, and whether the present value of the rents is 90% or more of the fair value) is not used by the IASB, which prefers a