IFRS Accounting Standards

Contents Page

Cover Sheet ………………………………………………………………….……..…. 1

Front Page …………………………………………………………………….………. 2

Contents Page ……………………………………………………………..….………. 3

Bibliography ……………………………………………………………..…….…..…. 4

Section 1 ……………………………………………………………………..….……. 5

Monitoring Board ………………………………………………….…….…… 5

Trustees of the Foundation ………………………………………………..….. 6

International Accounting Standards Board ………………………………..…. 6

Interpretations Committee ………………………………………………….… 7

Advisory Council …………………………………………………………..…. 7

Comments ………………………………………………………………….…. 7

Section 2 ………………………………………………………………………..….…. 8

Benefits ………………………………………………………….……..….….. 8

Challenges …………………………………………………………………….. 9

Criticisms ……………………………………………………………………… 9

Conclusions ……………………………………………………………………. 10

Section 3 ……………………………………………………………………………….. 11

Purpose of the IFRS Framework ………………………………………………. 11

Investor Decisions ……………………………………………………………… 12

Conclusions …………………………………………………………………….. 13

References …………………………………………………………………...…………. 14

Section 1 ………………………...……………………………………..……….. 14

Section 2 ……………………………………………………...……..………….. 14

Section 3 ………………………………………………………………………… 15

Jason Cates Accounting Regulation

Bibliography

Section 1

IASB

IFRS

The International Organization of Securities Commissions

Section 2

Beddington. J. and Song. E.

Stokdyk. J.

Section 3

Alexander, D. and Britton, A.

Deloitte IAS Plus

IASCF

IFRS

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IFRS

International Financial Reporting Standards Foundation

The independent IFRS Foundation is a private not-for-profit organisation which aims

to;

Develop a unilateral set of international financial reporting standards (IFRSs) that are

globally accepted and are understandable to users. The Foundation looks for these

standards to be globally enforceable through the IASB,(IFRS, 2011),

The foundation seeks the promotion of the rigorous application of these international

standards,(IFRS, 2011),

To take into account the requirements of emerging economies as well as small to

medium-sized enterprises when setting international standards,(IFRS, 2011)

To promote the convergence of national financial reporting standards.(IFRS, 2011)

Monitoring Board

It is through the Monitoring Board that capital market authorities that use the IFRS’s

can more effectively carry out their regulatory roles. This includes protecting investors,

capital formation and ensuring market integrity.(IOSCO, 2012)

The Monitoring Board was established to ensure the Trustees carry out their duties as

stated by the Foundations Constitution. This includes approving the appointment and

reappointment of Trustees to whom it is expected they meet at least once a year. However, it

is often the case they meet on a more regular basis when appropriate.(IOSCO, 2012)

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Trustees of the IFRS Foundation

The Trustees aim to promote the rigorous application of the international accounting

standards, but are generally not concerned with the day-to-day technicalities of the IFRS

standards.(IFRS, 2011)

Trustees are appointed every three years and are able to serve multiple terms. Trustees

are expected to understand how global concerns relate to the success of an organisation such

as the IFRS Foundation. This includes being responsible for developing global accounting

standards that can be used by varies users such as the world’s capital markets.(IFRS, 2011)

There are 22 trustees at any one time made up as follows (IFRS, 2011);

6 from the Asia/Oceania region,

6 from the North American,

6 from Europe,

1 from Africa,

1 from the South America and

2 from the rest of the world.

International Accounting Standards Board

The board was founded on April 1st 2001 and consists of 15 full-time members and is

the successor to the International Accounting Standards Committee. (IASB, 2005)

The IASB is responsible for developing and promoting the IFRS’s. The IASB aims to

do this by engaging with varies stakeholders, including analysts, investors, regulators and

accounting professionals. All IASB meetings are held in public to enhance transparency of

the organisation.(IFRS, 2011)

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Interpretations Committee

The role of the Committee is to regularly review and provide guidance on accounting

issues in relation to the IFRS standards.(IFRS, 2011)

The IFRS Interpretations Committee consists of 14 Trustee appointed voting

members. The Committee members range in professions and nationalities. Like the IASB,

meetings are publically held to enhance the transparency of the organisation and works

closely with comparative national committees.(IFRS, 2011)

Advisory Council

The Advisory council is the body that advisories the IASB and the IFRS Trustees.

It is made up of representatives from a wide-range of areas. This includes financial

analysts, regulators, auditors and investor groups as well as many more that are affected by

the IASB’s work. The Advisory Council is appointed by the IFRS Trustees. The Advisory

Council meets three times a year in which they advice the IASB on broad issues as well on

individual projects. In these meetings, there is an emphasis implementation and on practical

application of the IFRS standards.

Comments

It can be viewed that this structure offers a well rounded perspective. This includes

taking into account varies stakeholders and users or financial reports. However it can also be

viewed that the current system is complicated and should be simplified. This includes having

entities carrying out some roles already carried out by other entities. An example includes the

Trustees and the IASB both, to some degree, promote the IFRS standards.

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The International Financial Reporting Standards:

The Benefits and Challenges

This report will analyse the benefits and challenges of conforming to the International

Financial Reporting Standards.

Standards can vary dramatically between countries, creating complications for entities

involved in the preparation, audit and interpretation of financial statements. Also, the highly

integrated relationship between internal financial controls and the development of published

accounts further complicate these issues.

This report will consider the European Union’s implementation of IFRS’s. This will

include analysing the benefits and challenges faced by EU during the process of conforming

to international standards.

Benefits

The benefits of implementing a system of common international standards, relating to

the EU, include taking a step towards a common European market, which has been an aim of

the EU.

A benefit of common international standards includes companies being more able to

obtain foreign investment from varies member states. This results in cheaper more efficient

options available to European companies relating to raising capital investment. Therefore,

providing companies with a competitive advantage and supporting future growth which has

been an issue of concern in recent years.

These standards also allow for more cross-border trading and merger/acquisition

activity.(Stokdyk. J,2010)This allows companies to become more cost efficient due to

economics of scale and allows for greater profit levels due to increase market share and

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possible tax gains. This will provide companies using the standards with a competitive

advantage compared to other international companies currently in non-compliance.

Challenges

The main motivation of accounting standards harmonisation across the EU as stated in

the treaty establishing the EEC(Article 54) is to “reach an economic equal level playing field

within the Community”.(Beddington and Song, 2005) This harmonisation is achieved

through directives which member states are obliged to incorporate into their legal systems.

(Beddington and Song, 2005)

A challenge that arose during the EU implementation process was the reluctance of

member states to compromise. This reluctance was due to both political reasons and the

scepticism of the financial markets.(Beddington and Song, 2005) There was also the issue

that each member state had different systems concerning financial reporting, income and tax

levels.(Beddington and Song, 2005) These differences are considered a result of the different

models used by member states. This includes the Anglo-Saxon model used in the UK and

Ireland, and the continental model used on continental Europe. (Beddington. J. and Song. E,

2005)

Criticisms

Criticisms of IFRS’s include the complexity of these standards and the strain they

place on companies.

It is considered that the IFRS’s are unsuitable for SME’s who also do not require the

cross-border comparability.(Stokdyk,2010) Imposing these standards onto SME’s increases

their costs of preparing and auditing their accounts. Also, greater disclosure requirements

give companies adopting less stringent rules a competitive advantage.(Stokdyk,2010)

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The concerns of banks relate to the volatility these standards may cause in relation to

hedge ineffectiveness and demand deposits.(Beddington and Song, 2005) Demand deposits

are considered vital to banks and the IASB argues their maturity should be based on their

contractual on-call maturity rather than their expected maturity.(Beddington and Song, 2005)

This volatility arises from the inability of banks to use “Fair value hedge accounting” in

relation to risk exposure.(Beddington and Song, 2005) Resulting in banks being required to

adopt “cash-flow hedging “, which causes false volatility in bank equity levels.(Beddington

and Song, 2005)

Conclusions

To conclude, the benefits of the IFRS’s can be considered to be more related to

international enterprises, whereas the challenges are considered to be faced more by SME’s.

Therefore, which organisations the IFRS’s apply to is crucial. In relation to the EU, this

report concludes that the IRFS’s are beneficial enough to incorporate into national standards

across the union. However, the motivation of the EU adopting these standards comes from its

aim of having a unified monetary union not currently shared by non-EU countries. IFRS’s

will therefore, be less beneficial for non-EU countries to implement. Even taking this into

account, this report concludes that the benefits of implementing IFRS’s outweigh any

challenges that may arise.

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Summarise the purpose of the IFRS Framework for the Preparation and Presentation

of Financial Statements. Evaluate how the qualitative characteristics in the Framework

contribute to the decisions made by investors.

Purpose of the IFRS Framework

The IFRS Framework outlines core concepts concerning the final presentation of key

financial statements as well as their initial preparation considering varies users. This

Framework acts as a guide for the development of Future IFRS’s and helps resolve issues not

directly addressed by a current standard or interpretation.(Deloitte IAS Plus, 2010)

The framework is designed to address a number of issues. These include:

The aims and objectives relating to financial reporting,

The varies reporting entities,

Concept(s) of capital and capital maintenance,

Qualitative characteristics of material financial information and

How principle elements of financial statements are defined, recognised and measured.

(Deloitte IAS Plus, 2010)

These provide a foundation for internationally converged accounting standards that are

consistent and based upon core principles.(IFRS, 2010)

This fundamental purpose provides guidance to a number of stakeholders involved in

the preparation and presentation of financial statements. This guidance is provided through-

out the financial reporting process, from the initial development of standards up until the final

interpretation of financial statements.

This guidance starts at the development and reviewing process of International

Accounting Standards, as well being used in the absence of an applicable standard or

interpretation. This carries onto how national regulators implement international standards

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and the providing of support to the preparers and auditors of financial statements. The

purpose of this is to better inform users of financial statements alongside providing support

on their interpretation.

Investor Decisions

This report will now discuss how the qualitative characteristics of the IFRS

Framework shown below support the decision making process for investors.

(Deloitte IAS Plus, 2010)

A recent revision to the qualitative characteristics addresses the issues of materiality and

faithful representation. Faithful representation means the financial statements are complete,

neutral and free from material error, providing a well-rounded and accurate picture of the

economic state of affairs at the organisation.

Each of the characteristics listed above relate to investor decisions. Reliability gives

users confidence in the information that is presented to them. Although, this does not

necessarily mean that the information presented to them is completely accurate, but merely

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Qualitative Characteristics

Original 4 Recent Revision

RelevanceUnderstand-

abilityComparability Reliability

MaterialityFaithful

RepresentationTimeliness

Objectivity

Completeness


credible.(Alexander and Britton, 2004) Information should also be objective and free from

biased opinion. This is to ensure the continued reliability of the information provided.

(Alexander and Britton, 2001)

Completeness means giving a total and well-rounded picture of the organisations

economic activities. However, this may come into conflict with understandability due to

complex calculations being required.(Alexander and Britton, 2001) Information should be

provided in time for use to be made of it. This may require completeness of information to be

compromised in order to maintain its usefulness.(Alexander and Britton, 2004)

Information should be understandable by varies users who have different levels of

accounting ability. Therefore, a balance should be struck between experts who require

detailed reports and simplicity for non-specialists.(Alexander and Britton, 2001) Relating to

relevance, it should be considered who reports are for and what they require from financial

statements. These user-groups range from investors, governments, analysts and many more

who will all have their individual needs.(Alexander and Britton, 2004)

Finally, the information provided should be comparable. This is to allow performance

to be compared to past and/or competitor performance. Therefore, treatment and application

of accepted standards should remain consistent.(Alexander and Britton, 2004)

Conclusions

To conclude, it can be viewed that these characteristics do aid decision making, but

not necessarily aid accurate decision making. This is due to investors perhaps making

“wrong” decisions as a result of the information provided. However, this would largely be

due to inappropriate analysis of information, rather than the quality of information provided.

Therefore, it is concluded that these qualitative standards do provide a sound basis for

investor decisions.

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References

Section 1

The International Accounting Standards Board (2005) History. Available at

http://archive.iasb.org.uk/about/history.asp [Accessed: 5th February, 2011]

The International Financial reporting standards (2011) The Organisation, Trustees. Available

at http://www.ifrs.org/The+organisation/Trustees/Trustees.htm [Accessed: 5th February,

2011]

The International Financial reporting standards (2011) The Organisation, About the IFRS

Foundation and the IASB. Available at

http://www.ifrs.org/The+organisation/IASCF+and+IASB.htm [Accessed: 5th February, 2011]

The International Organization of Securities Commissions (2011) Monitoring Board of the

International Financial Reporting Standards Foundation. Available at

http://www.iosco.org/monitoring_board/ [Accessed: 5th February, 2011]

Section 2

Beddington. J. and Song. E. (2005) ‘The adaption of IFRS in the EU and New Zealand.’

[Online]. Available at:

http://www.europe.canterbury.ac.nz/research/pdf/finance_nz_prelim_report.pdf [Accessed:

10th February, 2011]

Stokdyk. J. (2010) EU uncovers resistance to IFRS for SMEs. Available at:

http://www.accountingweb.co.uk/topic/financial-reporting/eu-uncovers-resistance-ifrs-smes/

429509 [Accessed: 10th February, 2011]

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http://www.accountingweb.co.uk/topic/financial-reporting/eu-uncovers-resistance-ifrs-smes/429509

http://www.accountingweb.co.uk/topic/financial-reporting/eu-uncovers-resistance-ifrs-smes/429509

http://www.europe.canterbury.ac.nz/research/pdf/finance_nz_prelim_report.pdf

http://www.iosco.org/monitoring_board/

http://www.ifrs.org/The+organisation/IASCF+and+IASB.htm

http://www.ifrs.org/The+organisation/Trustees/Trustees.htm

http://archive.iasb.org.uk/about/history.asp


Section 3

Alexander, D. and Britton, A. (2001) Financial Reporting. 6th edn, London: Thomson

Learning.

Alexander, D. and Britton, A. (2004) Financial Reporting. 7th edn, London: Thomson

Learning.

Deloitte IAS Plus (2010) Summaries of International Financial Reporting Standards.

Available at: http://www.iasplus.com/standard/framewk.htm [Accessed: 15th February, 2011]

IASCF (1989) Framework for the Preparation and Presentation of Financial

Statements [B1709].

IFRS (2010) Work Plans for the IFRS: Conceptual Framework. Available at:

http://www.ifrs.org/Current+Projects/IASB+Projects/Conceptual+Framework/

Conceptual+Framework.htm [Accessed: 15th February]

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http://www.ifrs.org/Current+Projects/IASB+Projects/Conceptual+Framework/Conceptual+Framework.htm

http://www.ifrs.org/Current+Projects/IASB+Projects/Conceptual+Framework/Conceptual+Framework.htm

http://www.iasplus.com/standard/framewk.htm

Economy & Finance

IFRS Accounting Standards