International Accounting Standards Board[1]
Learning Objectives· Outline to participants on the role of International Accounting Standards Board (IASB).
· Explaining to the role of IASB on harmonization of accounting regulations.
Important Terms
· Accounting standard.
International accounting standards board (IASB)
Started its operations in 2001 with the following objectives:
· Develop, in the public interest, a single set of high quality understandable and enforceable global accounting standards that require high quality transparent and capable information in financial statements and other financial reporting to help the participants in the various capital markets of the world and other users of the information to make economic decisions.
· Promote the use and rigorous application of those standards.
· Work actively with national standards-setters to bring convergence of national accounting standards and International Financial Reporting Standards (IFRS) to high quality solution.
IFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit-oriented entities. These entities include those engaged in commercial, industrial, financial and similar activities, whether organized in corporate or other forms.
IASB replaced the old regime of International Accounting Standards Committee (IASC) in standard setting. The IASC was issuing International Accounting Standards (IAS). So far there were forty one IAS which had been issue before IASB replaced IASC in 2001. As one of the major weaknesses of IASC was that the standards it was issuing contained many objectives thereby defeating the purpose of consistency in recognition, measurement and presentation of transactions. IASB intends to limit such choice of accounting treatments.
Structure of IASB
1. Trustees
Comprises of nineteen individual from all geographical regions of the world who at least five should each represent the accounting profession, and international organization of preparers, users and academic.
The duties of the trustees include:
o Monitor the effectiveness of IASB.
o Raise funds for IASB.
o Approve IASB, s budget.
o Have the responsibility of changing the constitution of IASB.
o Appoint members of IASB, and Standards Advisory Council and International Financial Reporting Interpretation Committee.
o Establish and amend operating procedures of IASB, the International Financial Reporting Interpretation Committee and the Standard Advisory Council.
2. The IASB
Consists of fourteen individuals (twelve full time member and two part-time members) and has the sole responsibility of setting accounting standards.
Responsibilities include:
o Issue International Financial Reporting Standards. ( IFRS)
o Solicit public opinion on current and proposed accounting standards.
o Work in liaison with other national standards setting bodies.
o Publish the final copies of standards, Exposure drafts, or final IFRIC interpretation.
o Organize seminars to discuss technical accounting issues.
o Work towards harmonization by working hand in hand with other regulatory bodies like International Organization on security Commission. (IOSCO).
3. Standards Advisory Council (SAC)
This is another body of experts from different geographical regions and functional back grounds with expertise required to contribute to the formulation of accounting standards. There are about fifty members of the council.
The SAC is responsible for:
o Giving advice to the IASB on priorities in the IASB’s work.
o Informing the IASB of the implications of proposed standards for users and preparers of financial statements, and
o Giving other advice to the IASB or the trustees.
4. International Financial Reporting Interpretations Committee (IFRIC)
This is a committee of the IASB that assist the IASB in establishing and improving standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements.
The IFRIC assists the IASB in achieving international convergence of accounting standards by working with similar groups sponsored by national standard-setters to reach similar conclusions on issues where underlying standards are substantially similar.
The IFRIC is responsible for:
o Interpret the application on International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) and provide timely guidance on financial reporting issues not specifically addressed in IASs and IFRSs, in the context of the IASB Framework, and undertake other tasks at the request of the IASB;
o Carrying out its work under (a) above, have regard to the IASB’s objectives of working actively with national standard-setter to bring about convergence of national accounting standards and IASs and IFRSs to high quality solutions;
o Publish after clearance by the IASB Draft Interpretations for public comment and consider comments made within a reasonable period before finalizing an interpretation; and
o Report to the IASB and obtain its approval for the final Interpretations.
Currently the list of applicable International Accounting Standards is as follows:
IAS 1 / Presentation of financial statements
IAS 2 / Inventories
IAS 7 / Cash flow statements
IAS 8 / Net profit or loss for the period, fundamental errors and changes in accounting policies.
IAS 10 / Events after the Balance Sheet date
IAS 11 / Construction contracts
IAS 12 / Income taxes
IAS 14 / Segmental reporting
IAS 16 / Property, plant and equipment
IAS 17 / Leases
IAS 18 / Revenues
IAS 19 / Employees Benefits
IAS 20 / Accounting for government grants and disclosures of government assistance
IAS 21 / The Effects of Changes in Foreign Exchange Rates
IAS 22 / Business combination
IAS 23 / Borrowing costs
IAS 24 / Related party disclosures
IAS 26 / Accounting and reporting by retirement benefits plans
IAS 27 / Consolidated financial statements and accounting for investments in subsidiary
IAS 28 / Accounting for investment in associates
IAS 29 / Financial reporting in hyperinflationary economies
IAS 30 / Disclosure in the financial statements of banks and similar financial institutions
IAS 31 / Financial reporting of interest in joint ventures
IAS 32 / Financial instruments: disclosures and presentation
IAS 33 / Earnings per share
IAS 34 / Interim financial reporting
IAS 35 / Discontinued operations
IAS 36 / Impairment of assets
IAS 37 / Provisions, contingent liabilities and contingent assets
IAS 38 / Intangible assets
IAS 39 / Financial instruments: recognition and measurement
IAS 40 / Investment income
IAS 41 / Agriculture
Harmonisation and Adoption IAS
Harmonisation involves formulation of accounting regulations which in material respect are similar to those of other country. IASB is in the fore front by promoting that all countries world wide should adopt International Accounting Standards as it is the easier way of promoting harmonisation.
Outlined below are some of the advantages resulting from harmonisation.
1. To International Investors
o Ability to make useful and meaningful comparisons of investments portfolios in different countries.
2. To multi national companies
o Easy consolidation of financial statements.
o Better management control would be improved, because harmonisation would aid internal communication of financial information.
o Appraisal of foreign enterprise for take-overs and mergers would be more straightforward.
o It would be easier to comply with the reporting requirements of overseas stock exchanges.
o A reduction in audit costs might be achieved.
o Transfer of accounting staff across national boarders would be easier.
3. Governments and National standard setting bodies
o Countries would save time and money as they can just adopt International Accounting Standards in full.
o Ability to counter transfer pricing by multi national companies as these companies could not ‘hide’ behind foreign accounting practice which are difficult to understand.
o Easy to calculate the tax liability of investors, including multinationals who receive income from overseas sources.
o Ensures availability of high quality and well researched standards to countries which otherwise could not have afforded to issue standards.
o Ensures accountability and transparency of operations of enterprises in different countries.
o Assist governments in attracting international investors as adoption of IAS enables international investors easy monitoring of overseas investments.
4. Regional economic groups ( i.e. COMESA)
o Promotion of trade within the region through common accounting practices.
o Ability to compile meaningful data on the performance of various enterprises within the region.
[1] See: http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page9.htm