Introduction
The Financial Accounting Standards Board(FASB) has strived for sustainable success since its inception by focusing on the development of corporate and business relationships with its customers. The banking institute has tried to evolve a healthy relationship with its partners based on mutual trust and understanding. The FASB understands its responsibilities and has tried to accomplish its objectives and goals through the recognition of its role as a financial intermediary. The banking institute has introduced certain amendments and reforms into its policies as well as attempted to broaden the scope of its services.
During the 1900s the banking institute was heavily focused on services for the wealthy class. During that era, the economic wealth was concentrated among the wealthy elite. Due to the concentration of wealth the upper class was encouraged to become involved in various schemes aimed at creating increased opportunities for the wealthy to generate income. With the acceleration of economic activates during the current century, the economic opportunities expanded for all economic levels causing the concentration of wealth to expand rather than becoming more concentrated. The FASB, therefore, adopted a policy that was aimed at increasing their level of adaptability towards economic progression. The economic expansion and rapid circulation of wealth intensified the activities of the banking sector and the FASB was able to broaden the horizon of its banking facilities.
Executive Summary
The need for an organization with the capabilities of the FASB has been understood by both the federal government and the financial community since the financial unrest of the early 1920s and 1930’s. This organization is responsible for the establishment, updates, clarifications and publishing of both the principles and practices that create the acceptable actions of private-sector accounting. While the FASB is an independent organization their policies are supplemented by other governmental agencies such as the Governmental Accounting Standards Board (GASB) and the Securities and Exchange Commission (SEC).
The FASB has undertaken measures designed to change the negative perception of the public to a more positive image. This has been accomplished through programs designed to improve the communities in which the organization operates as well as various environmental projects including a forestry program and a ban against testing products on animals.
The FASB has also undertaken the concept of Enterprise Resource Planning system (ERP). The ERP system refers to the system formulated for enterprise-wide resources. The domain of the ERP is based upon the fundamental operations of the organization; the relevance is irrespective of the nature of activity practiced by the organization. This system decreases operating costs in many business areas such as payroll and accounting.
In conclusion the FASB has over the course of its history adapted to the changes in their business environment In the late 1900’s they created financial accountability among the financial sector while in the early years of the year 2000 focusing on creating sustainable business practices.
Strategic Initiatives: Requirements against Public Corporations
When the requirements and expectations of consumers underwent a revolution, the banking sector was compelled to adopt a modified plan that focused primarily on the lending services. Although the disposition activities gained momentum, the regarded contribution was primarily from the wealthy population. The lending services were sought by various industries and the average consumer. Before the banking institute had an increase in the number of consumers utilizing their services they were initially reluctant to adopt the concept of accountability and transparency. As the population of consumers grew the banks were forced to ensure that accountability and transparency were practiced in their entirety. While the FASB was able to expand its services due to the economic expansion other financial institutions were also strengthened and able to take advantage of the same economic upswing. The FASB, therefore, had to intensify the implementation of its plan due to and the rising competition. The FASB strategy was designed around the technological revolution. Instead of focusing on the areas where the community sought financial assistance and the safekeeping of their valuables, the FASB increased the amount of various financial projects available to consumers to assist them in improving the qualitative and quantitative standards of living.
FASB and Investment Community
The FASB has acknowledged its responsibility in the allocation of capital to businesses and individuals. Presently, the FASB has deviated from its past practices and has played a responsible and crucial role in the promotion of the ‘best corporate practice’ (Scholte, 2002). The element of responsibility has been materialized through ‘integrated environmental, social and ethical considerations into its risk engagement process’ (Sriramesh, 2003). The strategy was responsible for the satisfaction of clients who previously faced similar challenges and opportunities relating to sustainability, unfortunately the banking institute was unable and unmotivated to work toward the resolution of the issue; thereby leaving it neglected and unexplored. Presently, under the current economic setup, the FASB has successfully played its role in the allocation of capital to worthy and capable performers, as well as those who have reflected potential within their limited capacity, at both the personal and administrative levels.
The banking institute has adopted the crucial role of assisting ‘in the reduction of the fundamental risks underlying the selected client portfolios and transactions creating more sustainable long-term business relationships’ (Sriramesh, 2003). Observation concludes that the priorities of the FASB have emerged with the passage of time, and in this regard, the FASB has tried to evolve business relationships to be strong, cordial, and consistent. The idea of long-term association was never practiced in previous years because it was believed that the increased profit based on their association was not large enough to justify the association. In a change from previous policies, the current setup of the FASB encourages the concept of long-term relationships based on the existence of cordial affiliation, regardless of the yield. The prospects of life term affiliations are brighter because both the FASB and the consumer are interested in the benefits of a long-term association. The FASB is consistent in allowing continuous and uninterrupted support, whereas the client is concerned with receiving the optimum return from their investments. The nature of the relationship creates the frame of the activity and prospects associated with the activity, therefore the FASB has realized and reaffirmed its commitment to broaden and strengthen the scope of the relationship. In this regard, more opportunities are being explored and reviewed (Benink, 2000).
The FASB ‘has taken a prudent, holistic and professional approach to manage the risks inherent in the financial industry. These risks include credit risk; environmental, social and ethical risk; country risk; market risk; operational risk; and risk to the reputation of the FASB’. Their approach incorporates the separation of risk management from the ‘commercial lines of business to ensure balanced and independent decision-making’. In the past, risk policies were neglected, and the FASB was reluctant to invest in projects that were anticipated to have unacceptable levels of risk. Currently the ‘policy development has provided an opportunity to the FASB for resolution of the environmental, social and ethical risks in their engagements, protect the interests of their stakeholders, understand best practices for particular sectors, and promote sustainable development (Brentani, 2003).
In recent years, the FASB has taken the initiative of launching a forestry policy, the objective of which is to govern business correspondence with customers and projects. The FASB has given primary importance to environment-related projects, which was never practiced in the past. In addition, the FASB has developed an understanding with the consortium, and has ‘developed an animal testing position statement and a Business and Energy Risk Paper’ (Scholte, 2002). The public perception with reference to the FASB has gradually changed. The current perception popular among the public is that the FASB has a clear and constructive role in society by actively contributing to those communities in which they operate (Benink, 2000).
While undertaking the steps to change the public’s perception of the environmental impact of the FASB the organization has also worked on improving its understanding of the prevailing conditions in their regions of operations. The public had previously condemned the FASB for its ignorance towards the conditions prevailing in the surrounding regions of its operation. For this reason, the FASB created a ‘structure and framework for community investment efforts’ (Duska, 2003). The previous negative connotation about the FASB was based on the public perception of the FASB was based on the full contact between the FASB and the wealthy, while the needs of the middle and low-class population were ignored. Due to the lack of involvement by the FASB with the middle and lower classes the negative perception increased unchecked. To improve the perception of these individuals the FASB has focused on sustainable livelihoods aimed at proving that there are opportunities to ‘sustain their lives and build their futures’ (Benink, 2000). In this regard, the FASB has focused on three major components including education, income generation and environmental protection.
The public perception of the FASB focused primarily on profit-making, but it has since been realized that the FASB is involved in a wide range of projects aimed at higher levels of sustainability. In this regard, the FASB played a crucial part in the achievement of the objectives associated with the United Nations Millennium Development Goals and Global Compact. The FASB has evolved to better coordination with the government by supporting local communities, the objective of which has been materialized through community investment programs. Corporate social responsibility is another area that has assisted in the transformed image of the FASB.
The FASB has adopted different techniques in which the worldwide community will complement each other, and regardless of the level, the ‘community investment required thorough and transparent assessment and decision-making processes which ensured fairness and apply the highest selection standards. The FASB is considered to be an ever-growing business in which there is a constant inflow and outflow of people due to acquisitions, divestitures and restructuring programs. Such a pluralistic and diversified environment did not exist prior to this century. A series of reforms have been adopted in order to minimize the splits within the different units of the organization (Hamel, 2000).
Investment Avenues
The bond market risk is associated with the occurrences when the agents allocate the funds towards the bond market without any evaluation and analysis of the purchasing and selling price of the bond afterward. Such concerns are imminent because asset markets are considered to be incomplete and segmented. FASB has estimated the risk within the bond market based on the supply of the bonds is experienced when the agents and dealers are willing to invest their resources in the trade market. The buyers are the expected beneficiaries when the bond-supply shock is positive, the positive effect is based on the lower prices of the bond as compared to the expected prices, and when the expected rate of return has been crossed. Therefore within the bond market business, the dealers are expected to make good fortune, and ‘any real consequences are distributional because the shock has favored some agents at the expense of others. The expansion and growth of the bond market are expected to determine the time period associated with the downgrade within the bond market. The time is considered to be a major dimension, and the expansion of the bond market is based on the ‘relationship between the indicators and the downgrade’. This all has been possible through proactive role undertaken by FASB.
In the case of banks, the relation between the market indicators which include rating changes, abnormal stock returns, and the proportion of equity owned by institutional investors and bank insiders and supervisory information have failed to explain the supervisory assessments and bond ratings. For this purpose the equity indicators have been ignored. It was reported that the ‘bond spreads with particularly poor supervisory assessments reducing spreads and vice versa, therefore the market is based on the market discipline i.e. supervisory assessments. It was investigated by John (2004) that market prices incorporate additional information as compared with the accounting variables, and therefore influence the ratings of the respective bonds. There is no variance in the future prospects and worth of the bond, it is the debt market indicators that have predictive power to influence the performance and operations of the bond market.
In normal practices the dealers offer successful bids ‘in the course of their direct interactions with the New York Fed’, as per the terms and conditions of the Treasury department are entitled to be announced as successful bidder, and the bonds are issued within the period of three days. It is expected that in the bond market, some depository institutions, brokers and agents are expected to pay towards their successful bid on the date of issuance of the bonds, however, there is an allowance, and some of the dealers and agents can pay at the time of ‘submission and are either refunded excess balances or called upon to remit additional funds based upon the final auction price and security allocations’. Boyan (2001) identified that the supply risk associated with the bond market is associated with residual supply risk. In cases where there is heavy demand of the Treasury Bills in the bond market, the demand in many of the cases is expected to surge due to the interests of the ‘foreign financial institutions and international monetary authorities regarding whether to roll over their substantial and various holdings of bonds, such decisions are expected to influence the residual supply which is provided to the ‘remaining traders because they count against the issue quantity stated in the auction announcement’.
Initiatives Undertaken by FASB
FASB has seriously undertaken the concept of Enterprise Resource Planning system (ERP). The ERP system refers to the system formulated for the enterprise-wide resources. The domain of the ERP is based upon the fundamental operations of the organization; the relevance is irrespective of the nature of activity practiced by the organization. Thomas (2002) confirmed that the ERP is practiced and conducted by ‘business, non-profit organizations, non-governmental organizations, governments, and other large entities’. The software package is required for the timely execution of the ERP system, which is able to provide functionality in a single package, from technical perspective the software package shall incorporate features relevant to the payroll and accounting functions. The usage of the external interface is not relevant for the implementation of the ERP system, which has provided improved characteristics based upon standardization and lower maintenance.
The implementation of the ERP system is expected to result in the best practices, for this purpose the organization has to select between ‘customizing the software or modifying their business processes as per the standards of the best practices. The extent of the implementation of the ERP system, and the subsequent exercise of the best practices are applicable to the large organizations, in particular those organizations where the IFRS, Sarbanes-Oxley, or Basel II have been adopted. The adoption is for the reason being that features of the ERP system are coherent with the legislative or commodity content. The ERP system is however considered to be complex, and is responsible for the imposition of the major changes on the work practices of the employees. According to Doug (2006) The ERP system has been successful in the achievement of the cost-effective project.
Summary of Benefits
Both the government and the private accounting sector have understood the need for an organization that has the ability to provide updates, clarifications and publishing both the principles and practices that create the acceptable actions of private-sector accounting. This organization is the FASB which has evolved over the years beginning with the financial unrest of the early 1920s and 1930s to the collapse of large companies such as Enron and Arthur Anderson. Each era of accounting has created more rules and regulations as well as increased the understanding of accounting practices by the general public. While other governmental agencies assist in supplementing the information provided by the FASB such as the SEC the majority of the information comes from the FASB.
As the organization has evolved over the years its concern for having a positive image has increased. In order to change the negative public image of an organization more concerned with money rather than communities or the environment, the FASB has undertaken measures designed to change the perception of the organization to a more positive image. This has been accomplished through programs designed to improve the communities in which the organization operates as well as various environmental projects including a forestry program and a ban against testing products on animals.
The FASB has also undertaken the concept of Enterprise Resource Planning system (ERP). The ERP system refers to the system formulated for enterprise-wide resources. The domain of the ERP is based upon the fundamental operations of the organization; the relevance is irrespective of the nature of activity practiced by the organization. This system decreases operating costs in many business areas such as payroll and accounting.
Conclusion
The accounting board has incorporated the required objectives and plans which has prevented the company from any major financial debacle, the success of the company is therefore entirely based upon the efficient strategy, thorough analysis and exemplary implementation which has brought laurels to the accounting board, not only on the domestic front, but the accounting board has emerged as major success in the international market. The adherence to the corporate social responsibility can be attributed to the success of the company, which received enthusiastic responses in different parts of the world, the strategy of the company has been surely modified, and the amendments are responsible for the successive achievements of the auditing institute.