1.2: Standard Setting Flashcards
Why are accounting standards necessary?
Accounting standards are necessary to reduce the problem of information asymmetry in financial reporting.
They ensure that transactions and events are recognized, measured, presented, and disclosed in a standardized way, making it easier for users to compare financial information across different companies.
What are generally accepted accounting principles (GAAP)?
GAAP refers to a common set of accounting principles and standards that are widely accepted and used universally to ensure consistency, reliability, and comparability in financial reporting.
These principles have been developed over time and are recognized as authoritative for preparing financial statements.
What are the objectives of the Canadian Accounting Standards Board (AcSB)?
- Establish financial reporting standards that improve the quality of information reported by Canadian entities.
- Facilitate the capital allocation process by providing useful financial information to users.
- Participate with other standard setters in the development of international standards.
- Support the implementation of financial reporting standards and resolve emerging issues.
What is the role of the International Accounting Standards Board (IASB)?
The IASB is responsible for developing IFRS standards to promote transparency, accountability, and efficiency in global financial markets.
It aims to harmonize accounting standards across countries to improve the comparability of financial statements internationally.
How does the due process system affect the setting of financial accounting standards?
The due process system ensures that the setting of financial standards is transparent and involves the views of all stakeholders.
It allows interested parties to participate in the development of standards by providing feedback during public consultations and through various stages of the standard-setting process.
What are the International Financial Reporting Standards (IFRS)?
IFRS are global accounting standards developed by the IASB that aim to bring consistency, transparency, and comparability to financial statements across international borders.
IFRS standards are used by public companies in many countries.
What is the process for developing or revising an IFRS standard?
Agenda Consultation: Public request for information to identify key issues (3–5 year plan).
Research Program: Research, discussion papers, public comment, and agenda proposal.
Standards Development: Exposure draft, public comment, final IFRS standard.
Implementation: Interpretation, post-implementation review, amendments if necessary.
What is the role of provincial securities commissions in Canada?
Provincial securities commissions oversee and monitor capital markets to ensure that financial reporting is fair and transparent.
They set requirements for public companies to follow IFRS or GAAP and** ensure that these companies provide accurate and reliable** financial information to protect investors.
How do standard-setting bodies influence GAAP for Canadian entities?
AcSB: Sets GAAP for Canadian private enterprises, referred to as ASPE (Accounting Standards for Private Enterprises).
IASB: Sets IFRS for public companies, which became mandatory for periods beginning on or after January 1, 2011.
FASB: Sets U.S. GAAP, which some Canadian companies may choose to follow if they are listed on U.S. exchanges.
Securities Commissions: Ensure public companies provide necessary disclosures and comply with GAAP or IFRS standards.
