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International Convergence of Financial Reporting
Transcript of International Convergence of Financial Reporting
and Haley Leaks International Convergence of
Financial Reporting Convergence To put in place one set of accounting standards internationally. This is the main objective of IASB. Harmonization Reference List PROS CONS speed up the integration of the global capital markets and make it easier for cross-listing of securities Reduces financial reporting costs Reduces the investor's uncertainty and the cost of capital Multinational companies will be able to transfer accounting staff to other countries There is an enormous political costs to eliminate differences between standards Not being able to over come "Nationalism" There are significant differences in the current standards (cc) photo by theaucitron on Flickr Might not provide the significant benefits Some believe keeping diverse standards are acceptable for diverse places Developing countries will be able to easily adopt high-quality standards with minimum cost and effort Would help facilitate international mergers and acquisitions Could cause "standard overload" for some companies IASB Framework Framework is needed to develop accounting standards systematically.
Enhances public confidence in financial reports.
Can be used by preparers and auditors as a reference when dealing with an accounting issue that is not specifically spelled out in the standards.
Objective of Framework: To establish the concepts underlying the preparation and presentation of IFRS- based financial statements.
Purpose of Framework: To assist the IASB in developing future standards and revising existing standards. Objective of Financial Statements and Underlying Assumptions Qualitative Characteristics of Financial Statements Elements of Financial Statements: Definition, Recognition, and Measurement Concepts of capital and capital maintenance To provide information useful in decision making Understandability
Reliability Financial capital maintenance
Physical capital maintenance Assets
Other elements Revision of the Conceptual Framework Joint agreement of phases between IASB and FASB A. Objectives and qualitative characteristics
B. Elements and recognition
D. Reporting Entity
E. Presentation and disclosure
F. Purpose and status
G. Application to not-for-profit entities
H. Finalization IAS 1 - Presentation of Financial Statements - Guidance in the following areas: Purpose of financial Statements - To provide information for decision making Components: Balance sheet
Statements of income
Changes in equity
Notes to the financial statements Overriding principle of fair presentation Present fairly:
Cash flows of entity Compliance with IFRS generally ensures fair presentation Accounting policies Comply with all IASB standards and interpretations.
When guidance is lacking:
Use standards dealing with similar issues
Definition, recognition, and measurement criteria set out in IASB Framework Basic principles and assumptions Reiterates:
Going concern assumptions
Found in Framework Structure and content of financial statements Current/noncurrent distinction
Items presented on financial statements
Items to be disclosed in the notes Adopting entity must comply with all IFRS IFRS 1 Requires entity to prepare an "opening IFRS balance sheet" In specific areas where costs to comply>benefits, IFRS provides exemptions Provides requirements for adopting IFRS and preparing set of IFRS financial statements IFRS 1 - First Time Adoption of IFRS Convergence Issues Complicated nature of certain standards - financial instruments and fair value accounting
Tax-driven nature of the national accounting regime
Disagreement with IFRS - financial statements and fair value accounting
Insufficient guidance on first-time adoption of IFRS
Limited capital markets resulting in little benefit of using IFRS
Satisfaction with national accounting standards among investors
Language translation The Norwalk Agreement Agreement between FASB and IASB in 2002 to do their best effort:
To make their existing standards compatible
To ensure compatibility is maintained once achieved Joint projects Involve sharing staff resources and working on similar time schedule. Major topics:
Review of conceptual framework Short-term convergence project Main objective is to remove a variety of differences between IFRS and U.S. GAAP Limited to differences in which convergence is likely to be achieved in the short-term. Liaison IASB Member Full-time IASB member located at FASB offices Monitoring of IASB projects FASB monitors IASB projects by level of interest in the topic Convergence research project Project to identify the major differences between IFRS and U.S. GAAP Convergence potential All topics considered for addition to the FASB's agenda are assessed for potential cooperation with the IASB EU's 2005 decision to require domestic listed companies to use IFRS for consolidated accounts Support for IFRS IFAC supports IASB in global standard-setting efforts IFRS is adopted by Japan, Canada, India, Brazil, and Korea in 2011 Endorsed by IOSCO for cross-listing Support and Use of IFRS http://www.iasplus.com/en/resources/resource34
Doupnik, T., & Perera, H. (2011). International Accouting. Mcgraw-Hill. The process in reduction of alternatives while retaining a high degree of flexibility in accounting practices.
Allows different countries to utilize different standards as long as the standards do not conflict with each other. Harmonization of accounting regulations/standards may not result in the harmonization
of accounting practices the ultimate goal is international harmonization efforts to increase the agreement in actual accounting practices Two levels of Harmonization Harmonization of accounting practices IASB Perspective Has a principles-based approach in developing accounting standards instead of a rule- based approach.
Principles based approach focuses establishing accounting standards that are a part of the IASB Framework.
IFRS limits guidance for applying the general principles to classic transactions and encourages using professional judgement in applying the general principles to transactions that are specific to entities and industries. Organizations involved International Federation of Accountants
(IFAC) International Accounting Standards Board
(IASB) European Union
(EU) United Nations
(UN) Association of South East Asian Nations
(ASEAN) International Organization of Securities Commissions
(IOSCO) International Accounting Standards Committee
(IASC) Harmonization Effort international equivalent to FASB International equivalent to the SEC Similar to the American Institute of Certified Public Accountants (AICPA) Dissolved in 2001 works to facilitate cross-border listings Aim to achieve improved market regulation internationally Promoter for developing and adopting a single set of high quality accounting standards preceded
the IASC works toward making international standards
of auditing, ethics, and education. started the International Forum on
Accountancy Development in emerging
countries to enhance the accounting profession. developed the Forum of
Firms to raise global standards of accounting and auditing. Harmonize accounting standards with
two directives. Fourth directives is a set of comprehensive accounting
rules founded on the principle of fair and true
valuation rules, disclosure and format. Seventh directive. It requires consolidated financial
statements for company groups of a certain size. Major
Initiatives developed in 1973 worked towards the convergence of accounting standards sole responsibility of establishing International Financial Reporting Standards Comparability Project
(from IASC) begun in 1989 IOSCO Agreement Established a core set of 30 accounting standards standards agreed upon by IOSCO and IASC In depth review of existing IAS eliminated most of the choices permitted under IAS