Professional Documents
Culture Documents
Introduction to International
Financial Reporting Standards
(IFRS) and Framework
Comparability
Reduce financial reporting costs
Reduce cost of capital
Raise the quality level of accounting practices
Increase credibility of financial information
Allow developing nations to have highly
qualified standard setters
Easier to transfer accounting staff
internationally
Regional Organizations
European Union
Investors
International Organization of Securities
Commissions (IOSCO)
Governments
European Union - common framework of law, taxation,
and financial resources
27 European countries currently
Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Romania, Slovakia, Slovenia, Spain,
Sweden, and United Kingdom
Euro currency - used by 16 countries including Austria, Belgium,
Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia,
and Spain
MAJOR EXCEPTIONS: Denmark, Sweden, and the U.K.
European Union
Goal is to have comparable, reliable financial information
provided by all E.U. companies
As of 2007, ALL E.U. listed (publicly-held) companies
must follow International Acct. Standards
International Accounting
Standards Committee (IASC)
Formed June 29, 1973 by representative
bodies from 9 countries including:
Australia, Canada, France, Germany, Japan,
Mexico, Netherlands, U.K./Ireland, and U.S
Board Restructuring
Restructured April 1, 2001
New structure
Now called International Accounting Standards Board
(IASB)
IASB is an independent organization with two main
bodies
Trustees
Board
Also has a a Standards Advisory Council (about 50 members),
miscellaneous Advisory Committees and an International
Financial Reporting Interpretations Committee (12 members
appointed by the Foundation)
IFRS
Advisory
Council
IFRS
Foundation
International
Accounting
Standards
Board (IASB)
IFRS
Interpretations
Committee
IFRS
and
IFRS for SMEs
Information provided by www.IFRS.org
Board Restructuring
Trustees
22 highly respected experienced members
Chairman Tommaso Padoa-Schioppa, Former Italian
Minister of Economy and Finance, Italy
Vice Chairman Tsuguoki Fujinuma, Former President
of IFAC, JICPA, and Senior Partner of Ernst & Young
Main duties
Appoint Board, Committee, and Council Members
Exercise oversight of Board
Raise funds
Board Restructuring
Board
Mission Statement
The International Accounting Standards Board is an
independent, privately-funded accounting standard setter
based in London, United Kingdom. Board Members come
from eleven countries and have a variety of functional
backgrounds.
The Board is committed to developing, in the public
interest, a single set of high quality, understandable and
enforceable global accounting standards that require
transparent and comparable information in general purpose
financial statements.
In addition, the Board cooperates with national accounting
standard setters to achieve convergence in accounting
standards around the world.
Research
Discussio
n paper
Input is received from:
(DP)
IFRS Advisory
Council
Working Group
Exposure
draft
International groups
such as analysts,
preparers, audit
technical partners
Special interest
groups
Public
consultation
(ED)
IFRS
Feedback
statement
Public
consultation
Post-implementation meetings
Information provided by www.IFRS.org
Use of IFRS
IFRS is required for all companies in 76 countries.
European Union All listed companies must use IFRS
Some countries allow IFRS for foreign companies only
U.S.
Application of IFRS among the Global 5500 companies
increased from 29 in 2004 to 159 in 2007
AICPAs Governing Council recognizes IFRS as
authoritative for financial reporting for members of
AICPA
Private U.S. domiciled companies may now choose freely
between U.S. GAAP, IFRS, and IFRS for Small, Medium
Enterprises (IFRS SMEs - simpler than IFRS)
Principles-Based Approach
Standards are vague guidelines instead of
step by step rules (as in the U.S.)
Guidance is limited (ON PURPOSE!)
Judgment is encouraged to apply the
standards; over-reliance on detailed rules is
discouraged
True and fair view overrides
If following a standard would be misleading,
you do not have to follow the standard
Rules oriented:
IASB Framework
Investors are primarily the main user group.
Primary objective is to provide information useful for
decision making.
Underlying assumptions include accrual basis and going
concern.
Understandability, relevance, reliability, and comparability
are the main characteristics.
The elements assets, liabilities, income, expenses and
capital are defined.
No one measurement basis is prescribed.
The IASB Framework is being revised with several other
countrys standard setters.
Framework Update
There are eight phases of update: Objectives, Elements,
Measurement, Reporting entity, Presentation and disclose,
Purpose and status, Non-profit sector, Remaining issues
Red = currently working on.
Objective - Provide financial information about the
reporting entity that is useful to existing and potential
investors, lenders, and other creditors in making decisions
about providing resources to the entity.
Framework Update
Fundamental Qualitative Characteristics
Relevance (capable of making a difference)
Faithful representation (replaces reliability)
Enhancing Qualitative Characteristics
Comparability, Verifiability, Timeliness,
Understandability
Pervasive Constraints
Cost
Materiality
No matching
No conservatism/prudence
Framework Update
Working definition of asset:
An asset of an entity is a present economic
resource to which the entity has a right or
other access that others do not have.
Economic resource
Entity has rights or means to access
resource
Rights exist at the financial statement date
Framework Update
Working definition of liability:
A liability of an entity is a present
economic obligation for which the entity is
the obligor.
Framework Update
Measurement still working on this
Reporting Entity circumscribed area of
business activity of interest to some users
Time table:
Acceptance of IAS
FASB/IASB Memorandum of Understanding
MoU (Norwalk Agreement)
Both pledged to use their best efforts to
converge standards
Coordinate future work programs
FASB is increasing its size back to 7.
Originally wanted to converge by June 30,
2011.
Not feasible.
GAAP Convergence
Boards have achieved high-level convergence in
some areas
Business combinations
Share-based payments
Income taxes
Fair value option
EPS
Statement of cash flows
Pensions
GAAP Convergence
In other areas, models are very different:
Debt/equity classification
Derecognition
Consolidation
Impairment of long-lived assets
IFRSs Acceptance
Securities and Exchange Commission (SEC)
As of November 15, 2007, foreign listed companies
using IFRS no longer have to reconcile to U.S. GAAP.
Currently there are around 1,230 foreign private issuers
from more than 57 countries listing with the SEC.
Around 143 companies filed their 2007 20-F with no U.S.
GAAP reconciliation
The SEC staff will consider the extent to which the IASBs governance
(including its Monitoring Board), composition, funding and standard-setting
process continue to promote the reporting of full, fair and reliable financial
information to support investors in their capital allocation decision making.
The SEC staff will consider investor understanding and education regarding
IFRS, including the current familiarity with IFRS, the actions needed to
facilitate further understanding and the time frame to do so.
Impediments to Convergence
Resistance to change
European Union wanted changes in IAS 32
and 39 and forced the IASB to change its
IFRS
No more rigorous than the FASB
U.S. Congress
Impediments to Change
IASB setup Currently 4-U.S., 2, U.K, 1each from
Australia, Brazil, China, France, Germany, India,
Japan, South Africa, and Sweden
Too political?
Still too large?
15 now, expanding to 16 people by July 2012
(4 North America, 4 Europe, 4 Asia/Oceania, 1 Africa, 1
South America, 2 other for geographical balance)
Impediments to Change
Is it really independent?
There is now a MONITORING BOARD for the Trustees
Composed of Emerging Markets and Technical Committees of
IOSCO
Financial Services Agency of Japan
U.S. SEC
Basel Committee on Banking Supervision is an observer.
Websites
IASB (www.iasb.org)
IAS Plus (www.iasplus.com)
Website sponsored by Deloitte
Lists differences between IFRSs and different
countrys GAAP