INTERNATIONAL FINANCIAL

REPORTING STANDARDS
Chapter one: The regulatory framework
OBJECTIVES
• list the main sources of accounting regulations and explain the need
for regulationAdd your second bullet point here
• explain the term "generally accepted accounting practice" (GAAP)
• outline the structure and functions of the International Accounting
Standards Board (IASB®) and its associated bodies.
• explain the purpose of an accounting standard and list the main
steps in the standard setting process adopted by the IASB.
• outline the structure of an international financial reporting standard
or international accounting standard.
• explain the main features of IFRS1 First-time Adoption of International
Financial Reporting Standards.
THE NEED OF REGULATION
• Companies are owned by shareholders but managed by
directors.
• Most shareholders of larger companies have no day-to-day
involvement with the company.
• Shareholders rely upon financial reports for information to help
them make important decisions.
• Regulations try to ensure that financial reports provide a
faithful representation.
• Similarly, creditors and other user groups may rely heavily on
financial reports for information.
SOURCE OF REGULATION
• Regulatory Framework: The rules and regulations which apply to
financial reporting.
• Components of regulatory framework:
(a) Legislation.
Most of the developed countries of the world have enacted
legislation which governs financial reporting by limited bodies.
e.g.: Capital Market Authority, Saudi Arabian Monetary Agency,
Ministry of Commerce.
(b) Accounting standards.
Many of the developed countries of the world have their own
standard-setting bodies, each of which is responsible for devising and
publishing accounting standards for use in the country concerned.
e.g. SOCPA
GENERALLY ACCEPTED ACCOUNTING PRACTICE
• GAAP is the complete set of accounting regulations (from all
sources) and accounting conventions that apply in a certain
jurisdiction e.g. UK GAAP, US GAAP etc.

• The term "international GAAP" refers to the standards issued by

the IASB and the principles on which those standards are
based.
 INTERNATIONAL ACCOUNTING STANDARDS BOARD
(IASB)
IFRS Foundation
advise

IFRS
IFRS Advisory advise IASB interprets interpretations
Council
committee

Develop and publish IFRS

THE STANDARD-SETTING PROCESS
• Identification of the topic area
• Application of the Conceptual Framework
• Consultation with national standard-setters, the IFRS
Foundation and IFRS Advisory Council
• Publication of discussion document and consideration of
comments
• Publication of exposure draft and consideration of comments
• Approval and publication of standard
STRUCTURE OF AN INTRANATIONAL STANDARD
• Introduction
• Objectives and scope
• Definitions
• Body of the standard
• Effective date and transitional provisions
• Formal approval by the IASB and any dissenting opinions
• Basis for conclusions
• Application/implementation guidance and/or illustrative examples
PURPOSE OF ACCOUNTING STANDARDS
(a) Faithful representation. If the preparers of financial statements are
obliged to comply with a set of accounting standards, then it is more
likely that the information given in the statements will provide a faithful
representation of the financial performance and financial position of the
organisation concerned. Accounting standards help to ensure that
financial reporting is free from bias and that "creative accounting"
practices are outlawed.
(b) Comparability. It is important that users should be able to compare
the financial statements of an organisation over time so as to identify
trends in its financial performance and position. It is also important that
users should be able to compare the financial statements of different
organisations and assess their relative strengths and weaknesses. Such
comparisons will not be meaningful unless all of the financial statements
concerned have been drawn up on a consistent basis.
WORLDWIDE USE OF IFRS STANDARDS
• Required for listed companies in over 140 countries (including
all EU countries).
• Permitted for listed companies in several other countries.
• USA has not yet adopted IFRS Standards but the US FASB and
the IASB have worked together on convergence projects.
• Over 80 countries have adopted the IFRS for SMEs Standard
(unlisted companies).
FIRST TIME ADAPTION OF IFRS
• Frist IFRS financial statements (the first financial statements in which
the entity adopts international standards).
• First IFRS reporting period(the reporting period covered by the first
IFRS financial statements).
• Date of transition (international standards is defined as the
beginning of the earliest period for which an entity presents
comparative information in its first IFRS financial statements).
• Need to prepare an opening IFRS statement of financial position as
at the date of transition.
• Must use the same accounting policies in the opening IFRS
statement of financial position and in all periods presented in the first
IFRS financial statements; these policies must comply with all
international standards in force at the end of the first IFRS reporting
period.
• Certain reconciliations are required.