9/29/2023

INTERNATIONAL ACCOUNTING
STANDARD BOARD (IASB)

Anis CHARIRI

INTRODUCTION
1. What is IASB and what is the purpose of establishing
IASB?
2. Explain the roles of the International Financial
Reporting Interpretations Committee (IFRIC) and
Standards Advisory Council (SAC)?
3. What is IFRS and How is IFRS formulated?
4. What are benefits and pitfalls of IFRS?
5. How does accounting standard harmonization differ
from accounting standard convergence?

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Some Abbreviation
 IFRIC = International Financial Reporting
Interpretations Committee
 IASB = International Accounting Standards Board
 IASC = International Accounting Standards
Committee
 IAS = International Accounting Standards
 IFRS = International Financial Reporting Standard
 SAC = Standards Advisory Council

What is IASB?
 The IASB (International Accounting Standards
Board):
 an independent standard-setting board,
 appointed and overseen by a geographically and
professionally diverse group of Trustees of the IFRS
Foundation
 who are accountable to the public interest.

 Basic objective: to develop a single set of high

quality, understandable, and enforceable global
accounting standards

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High Quality Accounting Standards

 Enhancing financial statement users’ ability to make

decisions
 provide recognition and measurement guidance that
replicate the “economics” of the underlying transaction or
event
 Written in a clear, understandable manner, and their
principles should be operational to apply
 Narrows alternative accounting choices and improves
comparability
 Consistent with conceptual framework
 Disclosures should be limited to key significant data
 Benefits of implementation outweigh the cost to comply

Brief History
International Accounting Standards
Committee (IASC) started 1973:
 Volunteer, part-time, met 3X/year
 Issued IASs 1-41 + interpretations
Restructured 2001 with new name IASB:
 Full-time IASB based in London
 16 members (13 full time + 3 part time)
 Issues IFRSs
 Old IASs (most revised by IASB) remain in force

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IASB Structure

The International Accounting Standards Board

(IASB)

 IASB is supported by:

 Standard Advisory Council (SAC)
 Internationl Financial Reporting Interpretations
Committee (IFRIC)
 The Trustees appoint 16 member: 13 full and 3 part-
time (from 9 countries with a variety of functional
backgrounds)
 Adopt Super-majority voting to pass new standards:
9 out of 15 or fewer members, or
 10 out of 16 members)

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The IASB’s Role

 Responsibility for all technical matters

including:
• full discretion in developing and pursuing
its technical agenda  exposure drafts of new
standards
• the preparation and issuing of IFRSs (other than
Interpretations)
• the approval and issuing of Interpretations
developed by the IFRIC

Trustees of the IFRS (IASC) Foundation

 Consist of 22 members (renewable term of 3

years)
6 Asia/Oceania region, 6 Europe, 6 North America,
and 4 any region
 Responsible for governance, oversight & funding
 Promote the work IASB and the rigorous
application of IFRSs.
 Not involved in any technical matters relating to
the standards

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International Financial Reporting

Interpretations Committee (IFRIC)

 IFRIC = the interpretative body of the IASB

 comprises 14 voting members, appointed by the
Trustees of the IFRS Foundation
 Duty:
 To review widespread accounting issues that
have arisen within the context of current IFRS
 aimed at reaching consensus on the appropriate
accounting treatment (IFRIC Interpretations) and
providing authoritative guidance on those issues.

Standards Advisory Council (SAC)

 The Standards Advisory Council (SAC):

 a forum for IASB
 to consult a wide range of representatives
from user groups, preparers, financial
analysts, academics, auditors, regulators
and professional accounting bodies
 that are affected by and interested in the
IASB's work.

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What is IFRS?

 IFRS = International Financial Reporting Standards

(previous name = International Accounting
Standards-IAS)
 IFRS is Single set of standards developed by the
IASB stating how particular types of transactions and
other events should be reported in financial statements.
 Includes: Standards and Interpretations issued by
IASB
 All IASs (old standards) are still implemented as long
as there is no revision on the standards (release of
new IFRS)

What is IFRS?

 IFRSs  general principles for recognition,

measurements, and reporting requirements for
transactions
 IFRS is a less extensive body of knowledge
than U.S. GAAP:
 More principles‐based
 Less detailed implementation guidance

 Less extensive industry guidance

 IFRS requires greater exercise of professional

judgment

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Principles VS Rules-Based

Principles: Drive safely

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Rule: 55 MPH Limit

Ideal structure of a principle-based

standard

the removal of a
previously
recognized
financial asset
or liability from
an entity's
balance sheet

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Structure of IFRSs

Concepts underlying IFRSs

 Objectives of general purpose financial
statements
 Qualitative characteristics
 Elements
 Recognition and measurement
 Presentation and disclosure

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What are the advantages of IFRS??

 Increased comparability and transparency

 Increased access to foreign capital markets

 Increased efficiency through a more

streamlined financial reporting process

 Increased judgments which could prevent
financial abuses that have occurred under U.S.
GAAP.

What are the disadvantages of IFRS?

 Reduction in the quality of financial reporting

standards
 Ensuring consistent application and
interpretation of IFRS
 Increased judgment which may lead to abuses

 Reduced comparability and increased

complexity
 Implementation costs

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How are standards developed?

The IASB due process

1. Independent standard-setting board;

2. Thorough and systematic process for
developing standards;
3. Engagement with investors, regulators,
business leaders, and the global accountancy
profession at every stage of the process; and
4. Collaborative efforts with the worldwide
standard- setting community.

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Six Stages of Standard Setting

 Stage 1: Setting the agenda

 Stage 2: Project planning
 Stage 3: Development and publication of a
discussion paper
 Stage 4: Development and publication of an
exposure draft
 Stage 5: Development and publication of an IFRS
 Stage 6: Procedures after an IFRS is issued

Stage 1: Setting the agenda

 The relevance to users of the information involved

and the reliability of information that could be
provided
 Existing guidance available
 The possibility of increasing convergence
 The quality of the standards to be developed
 Resource constraints.

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Stage 2: Project planning

 Decides whether to conduct the project alone, or

jointly with another standard-setter.
 The IASB may establish a working group at this
stage.

Stage 3: Development and publication of a

discussion paper

 A discussion paper is not a mandatory step

 Normally publishes a discussion paper as its first
publication:
 to explain the issue and solicit early comment from
constituents.
 A discussion paper includes:
 a comprehensive overview of the issue,
 possible approaches in addressing the issue,
 the preliminary views of its authors or the IASB,
 an invitation to comment.

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Stage 4: Development and publication of an

exposure draft

 Publication of an exposure draft is a

mandatory step in due process
 The development of an exposure draft begins
with the IASB considering issues on the basis of:
 staff research and recommendations
 comments received on any discussion paper

 suggestions made by the SAC, working groups and

accounting standard-setters and arising from public
education sessions.

Stage 5: Development and publication of an

IFRS

 After the due process is completed:

 alloutstanding issues are resolved
 the IASB members have balloted in favour of
publication,
 the IFRS is issued.

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Stage 6: Procedures after an IFRS is

issued
 the staff and the IASB members hold regular
meetings with interested parties, including other
standard-setting bodies, to help understand
unanticipated issues related to the practical
implementation and potential impact of its
proposals.
 The IFRS Foundation also fosters educational
activities to ensure consistency in the application of
IFRSs.

What is Convergence ?

 Convergence means to achieve harmony with IFRSs:

 “to design and maintain national accounting standards in
a way that financial statements prepared in accordance with
national accounting standards draw unreserved statement
of compliance with IFRSs
 But convergence doesn’t mean that IFRS should be
adopted word by word:
 e.g., replacing the term ‘true & fair’ for ‘present fairly’, in
IAS 1, ‘Presentation of Financial Statements’. Such changes do
not lead to non-convergence with IFRS

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Harmonization vs Convergence

 HARMONIZATION: the elimination of

differences between existing accounting
standards
 Reduction of alternatives while maintaining a
high degree of flexibility in accounting practices
 CONVERGENCE: Enforcement of single set of
accepted standards by several regulatory
bodies
 might involve coming up with a new accounting
treatment not in any current standards

HARMONIZATION
 Harmonization  two ways:
 Harmonization of accounting regulations and
standards
 Harmonization of accounting practice
 Ultimate goal of international harmonization efforts
 Harmonization of standards may or may not
result in harmonization of practice
 Different from standardization
 Standardization involves using the same standards
in different countries

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8Arguments for Convergence

 Facilitate better comparability of financial

statements
 Easier evaluation of companies
 Facilitate international mergers and
acquisitions
 Reduce financial reporting costs
 Cost-listing
would allow access to less
expensive capital
 Reduce investor uncertainty and the cost of
capital

Arguments for Convergence

 Reduce cost of preparing worldwide
consolidated financial statements
 Simplify auditing
 Easy transfer of accounting staff
internationally
 Raise the quality level of accounting
practices internationally
 Increasecredibility of financial information
 Enable developing countries to adopt a ready-
made set of high-quality standards with
minimum cost and effort

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Arguments against Convergence

 Significant differences in existing standards

 Enormous political cost of eliminating differences
 Nationalism and traditions
 Arriving at universally accepted principles is difficult
 Need for common standards is not universally
accepted
 Well-developed global capital market exists already
 May cause standards overload
 Differences in accounting across countries might be
necessary

International Convergence Issues

 The complicated nature of standards such as
financial instruments and fair value accounting
 The tax-driven nature of the national accounting
regime
 Disagreement with significant IFRS, such as financial
statements and fair value accounting
 Insufficient guidance on first time application of IFRS
 Limited capital markets are less beneficial
 Investor satisfaction with national accounting
standards
 IFRS difficulties in language translation

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ADOPTION OF IFRS

1. Replace national GAAP with IFRS.

2. Require parent companies to use IFRS in
preparing consolidated financial statements.
3. Require stock exchange listed companies to
use IFRS in preparing consolidated financial
statements.
4. Require foreign companies listed on a
domestic stock exchange to use IFRS.
5. Require domestic companies listing on a
foreign stock exchange to use IFRS.

Progress towards global standards

https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/

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Geographical coverage of IFRSs

IFRS Standards are required for domestic

public companies https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-
by-jurisdiction/

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IFRS Standards are permitted but not

required for domestic public companies

Switzerland Japan
Iraq
Guatemala
Nicaragua
Panama Suriname

Timor-Leste
Madagascar
Paraguay

IFRS Standards are required or permitted for

listings by foreign companies

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The IFRS for SMEs Standard is required or

permitted

The IFRS for SMEs Standard is under

consideration

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Use of IFRS Standards around the world

(2018)

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CONCLUSION

 IASB is an independent, private-sector body that

develops and approves IFRS.
 operates under the oversight of
the IFRS Foundation.
 formed in 2001 to replace the International
Accounting Standards Committee (IASC).
 IFRS is a single set of standards developed by
the IASB stating how particular types of
transactions and other events should be
reported in financial statements.

CONCLUSION

Bring transparency by Strengthen accountability by contribute to economic

• enhancing the reducing the information gap
international between the providers of
comparability and capital and the people to
quality of financial whom they have entrusted
information, their money
• enabling investors and • provide information
other market needed to hold
participants to make management to account.
informed economic • vital importance to
decisions. regulators around the
world.
efficiency by helping
investors to identify
opportunities and risks
across the world, thus
improving capital
allocation.
the use of a single, trusted
accounting language
lowers the cost of capital
and reduces international
reporting cost

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THE END

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