As mentioned in Section 7.11.3, some countries have accounting standards that pre-date IFRSs and whereas most have adjusted their standards in an attempt to converge with IFRSs, some have made no attempt. Others that may not pre-date IFRSs have decided to develop their own standards and make no real attempt to comply with IFRSs. Examples in this category include Jamaica, China and Colombia, although China has now decided to develop new accounting standards that are in harmony with IFRSs.
7.12 Summary
Having completed this chapter, you should be able to discuss briefl y the need for the regu- lation of published accounts and identify the reasons why regulatory regimes vary. You should be able to explain the objectives, role and structure of the IASC Foundation and its various bodies and describe the relationship that IASC has with both IOSCO and the national regulatory bodies. In addition, you can now explain the IASBs standard-setting process and describe different ways that countries use IFRSs.
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Question 1
A committee of the International Accounting Standards Board (IASB) is known as the IFRIC.
What does IFRIC stand for?
(A) International Financial Reporting Issues Committee
(B) International Financial Recommendations and Interpretations Committee (C) International Financial Reporting Interpretations Committee
(D) International Financial Reporting Issues Council (2 marks)
Question 2
Which of the following is NOT a function of the International Accounting Standards Board?
(A) Issuing accounting standards (B) Withdrawing accounting standards (C) Developing accounting standards
(D) Enforcing accounting standards (2 marks)
Question 3
The international accounting standards committee foundation (IASC foundation) has two main bodies:
(i) International Accounting Standards Board
(ii) International fi nancial reporting interpretations committee (iii) Standards advisory council
(iv) Trustees
The two committees reporting to the IASC foundation are: (A) (i) and (ii)
(B) (i) and (iv) (C) (ii) and (iii)
(D) (iii)and (iv) (2 marks)
Revision Questions
THE IASC AND THE ST
ANDARD-SETTING PROCESS
Question 4
Which of the following would not normally be expected to be included in the elements of a regulatory framework for published accounts:
(A) Local law that applies to entities (B) Local taxation regulations (C) Local stock exchange regulations
(D) A conceptual framework for accounting (2 marks)
Question 5
List three ways in which IFRSs can be implemented in a country. (3 marks)
Question 6
The existing procedures for setting international accounting standards are now well established.
Requirement
(a) Explain the roles of the following in relation to International Accounting Standards: (i) The International Accounting Standards Committee (IASC) Foundation; (ii) The International Accounting Standards Board (IASB);
(iii) The International Financial Reporting Interpretations Committee (IFRIC).
(5 marks)
Question 7
Explain how the standard-setting authority approaches the task of producing a standard, with particular reference to the ways in which comment or feedback from interested par-
ties is obtained. (5 marks)
Question 8
The Technical Committee of the International Organisation of Securities Commissions (IOSCO) and the IASC agree that there is a compelling need for high-quality, comprehen- sive international accounting standards.
Requirement
Discuss briefl y why the development of international accounting standards is considered
to be important. (5 marks)
Question 9
Explain the role that IOSCO has played in the development and promotion of interna-
THE IASC AND THE ST
ANDARD-SETTING PROCESS
Question 10
The setting of International Accounting Standards is carried out by co-operation between a number of committees and boards, which include:
(i) International Accounting Standards Committee Foundation (IASC Foundation) (ii) Standards Advisory Council (SAC)
(iii) International Financial Reporting Interpretations Committee (IFRIC)
Which of the above reports to, or advises, the International Accounting Standards Board (IASB)?
Reports to Advises: (A) (i) and (iii) (ii) (B) (i) and (ii) (iii) (C) (iii) (ii)
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Solution 1
The correct answer is (C), see Section 7.6.4.
Solution 2
The correct answer is (D), see Section 7.6.3.
Solution 3
The correct answer is (B), see Section 7.6.1.
Solution 4
The correct answer is (B), see Section 7.4.
Solution 5
Three ways in which IFRSs can be implemented are: 1. adoption as local GAAP
2. model for local GAAP
3. persuasive infl uence in formulating local GAAP See Section 7.11.
Solution 6
(i) The IASC Foundation
The IASC Foundation is an independent organisation having two main bodies: the Trustees and the IASB. The Trustees hold the responsibility for governance and fundraising and will publish an annual report on IASC’s activities, including audited fi nancial statements and priorities for the coming year. They will review annually the strategy of the IASC and its effectiveness and approve the annual budget and deter- mine the basis of funding.
Solutions to
THE IASC AND THE ST
ANDARD-SETTING PROCESS
The Trustees also appoint the members of the IASB, the Standards Advisory
Council and the International Financial Reporting Interpretations Committee. Although the Trustees will decide on the operating procedures of the committees in the IASC family, they will be excluded from involvement in technical matters relating to accounting standards.
(ii) The IASB
The Board has complete responsibility for all IASC technical matters, including the preparation and issuing of International Financial Reporting Standards and Exposure Drafts, and fi nal approval of Interpretations by the International Financial Reporting Interpretations Committee. Some of the full-time members of staff are responsible for liaising with national standard-setters in order to promote the convergence of accounting standards.
IASB publishes its standards in a series of pronouncements called International Financial Reporting Standards (IFRSs). It has also adopted the standards issued by the board of the International Accounting Standards Committee.
The Board may form advisory committees or other specialist technical groups to advise on major projects and outsource detailed research or other work to national standard-setters.
(iii) The International Financial Reporting Interpretations Committee (IFRIC)
The IFRIC provides timely guidance on the application and interpretation of IFRSs, normally dealing with complex accounting issues that could, in the absence of guidance, produce wide-ranging or unacceptable accounting treatments, see Sections 7.6.2 to 7.6.4.
Solution 7
The process for the development of a standard involves the following steps:
● During the early stages of a project, the IASB may establish an Advisory Committee to
advise on the issues arising in the project. Consultation with this committee and the Standards Advisory Council occurs throughout the project.
● The IASB may develop and publish Discussion Documents for public comment.
● Following receipt and review of comments, the IASB develops and publishes an
Exposure Draft for public comment.
● Following the receipt and review of comments, the IASB issues a fi nal International
Financial Reporting Standard.
When the IASB publishes a standard, it also publishes a Basis of Conclusions to explain publicly how it reached its conclusions and to provide background information that may help users apply the standard in practice.
Each IASB member has one vote on technical matters and the publication of a Standard, Exposure Draft, or fi nal IFRIC Interpretation requires approval by eight of the Board’s 14 members. Other decisions including agenda decisions and the issue of a Discussion Paper, require a simple majority of the Board members present at a meeting, provided that the meeting is attended by at least 50 per cent of the members.
Meetings of the IASB, SAC and IFRIC are open to public observation. Where the IASB issues Exposure Drafts, Discussion Documents and other documents for public com- ment, the usual comment period is 90 days. Draft IFRIC Interpretations are exposed for a 60-day comment period, see Section 7.10.
THE IASC AND THE ST
ANDARD-SETTING PROCESS
Solution 8
Investment decisions are largely based on fi nancial information and analysis. Financial reports, which are prepared for shareholders, potential shareholders and other users are, however, based on principles and rules that vary from country to country. This makes com- parability and transparency of fi nancial information diffi cult. Some multinationals may have to prepare reports on activities on several bases for use in different countries and this can cause an unnecessary fi nancial burden and damage the credibility of fi nancial reports.
The increasing levels of cross-border fi nancing transactions and securities trading have highlighted the need for fi nancial information to be based on a single set of rules and principles.
An internationally accepted accounting framework is also benefi cial to developing countries that cannot bear the cost of establishing a national standard-setting body, see Section 7.3.1.
Solution 9
Worldwide acceptance of IFRSs will be dependent to some extent on other recognised bod- ies accepting and promoting their use. IOSCO is looking to the IASC to provide mutually acceptable international accounting standards for use in multinational securities markets.
In 1995, IASC agreed with IOSCO to develop a core set of standards. The standards were identifi ed and, if completed to a satisfactory level, IOSCO would consider endorsing the core standards for cross-border capital-raising and listings in all global markets.
The IASC completed the core standards by 1999 and presented them for technical review by IOSCO. IOSCO had commented on the drafts as they progressed.
In May 2000, IOSCO recommended that its members permit incoming multinational users to use these standards to prepare their fi nancial statements for cross-border trad- ing and listings. There are a number of outstanding issues that are to be addressed by the IASC, but this was considered to be a signifi cant development in gaining acceptance of IFRSs, see Section 7.8.