The International Financial Reporting standards (FASB) are a set of standards used to establish a uniform global accounting standards. FASB also assumes the role of working hand and hand with the International Accounting Standards Board (IASB) to converge International Financial Reporting Standards and generally Accepted Accounting Principles in the United States. Essentially the FASB is working to make the two sets of accounting standards increasingly similar in order for the standards to transfer across the world according to the Center for Audit Quality. The standards are then broken down into different Statement of Financial Accounting Standards (SFAS).
Statements of Financial Accounting Standards (SFAS) or considered formal documents issued that detail accounting standards and guidance on selected accounting policies set out by FASB. These Statements of financial accounting standard are issued, with expectations that all reporting companies listed on American stock exchanges will adhere to them. The standards are created to ensure a higher level of corporate transparency. New SFAS releases can have a huge affect on the bottom line of a business. An example of this can be seen when look at FAS123 which can increase a company's expenses by billions of dollars dramatically according to Investopedia. However the particular standard that I will be focusing on and analyzing is SFAS 151.
According to the Financial Accounting Standard Boards' (FASB) Website the SFAS 151 standard was implanted as a result of a broader effort by the FASB to improve the comparability of cross-border financial reporting. Through working with the IASB mentioned previously they identified opportunities to improve financial reporting by elimination certain narrow difference between the existing accounting standards. The accounting for inventory cost, In particular, abnormal amounts of idle facility that the FASB decided to address by issuing this particular statement. The statement itself single handedly eliminates chapter 4 as it is worded in ARB 43 a term that was not defined and whose' application could lead to unnecessary noncomparablility of financial reporting according to the Financial Accounting Standard Boards Website. This implementation of the Statement overall improved Financial Reporting by amending ARB 43, Chapter 4, to clarify the abnormal amounts of costs should be recognized as period costs. The amending language was to promote consistent application of those standards also according to the Financial Accounting Standard Boards Website.
An example of the SFAS151 being implemented could be found in the "Variances, Incentives, and SFAS 151" article found in the CPA journal written by Timothy B. Biggart and Thomas A. Carnes. The article opens by showing how SFAS 151 is a recent example of the global convergence of the world integrating its economies. It continues by stating how SFAS 151 has the potential to inject the production-level concerns into external reporting decisions despite the FASB providing much of the information companies need to consider applying the standard. SFAS 151 continues to be brought up with descriptions by the FASB as one example where two boards see an opportunity to improve standards by elimination certain narrow differences. However with the issues that the article was discussing with 'Abnormal' Inventory Costs in led to concerns of the SFAS 151 to provide explicit enough guidance as to the form of the current period's expenses. These concerns were then met by the SFAS 151 by realizing that its implementation could help illuminate the complexities of the issue at hand.
The article then mentioned SFAS 151 during discussing the Capacity of the integration of global standards. It stated how SFAS 151 considers normal capacity as a range, not as a single point. It describes normal capacity as a range of production levels expected to be achieved over multiple periods or seasons, and it adds that variation in production levels across periods is expected and determines the range of normal capacity. Once again it talks about SFAS 151 during the Capacity sections by pointing out how it requires to be recognized as current-period costs. Throughout the rest of the article it discusses the positives and the negatives of the implementation of SFAS 151 during talking about "Fixed Manufacturing Overhead Production Volume Variance," "Incentive Issues" and lastly the "Significance for Financial Statement Users" which may be the most important section of the article where it is mentioned. In this closing section in mentions how SFAS 151 is to ensure that financial statements provide information useful to investors and creditors in their decision-making which was also stated previously. It also stated that though they do not expect SFAS 151 to have a material effect it may result in some companies producing excess inventory and other increasing current period expenses.
Through the research I have determined the analyzed importance of Statements of Financial Accounting Standard 151 but of all the Statements of Financial Accounting Standards and also the International Financial Reporting standards as a whole. Through the analysis I he concluded that they have become a necessary due to the globalization area that the world is going into. I have realized how they will indirectly and directly affect my career as a possible CPA.
