1.7 International financial reporting standards

Question 1

Who developed the IFRS?

Answer 1

The International Accounting Standards Board

Question 2

What is the goal of the IFRS?

Answer 2

To achieve comparable cross-border accounting.

Question 3

How many countries have adopted IFRS as a framework for accounting statements?

Answer 3

Over 120

Question 4

What matters does the IFRS conceptual framework of reporting cover?

Answer 4

1. objectives of financial reporting
2. underlying assumptions
3. qualitative characteristics
4. elements of financial statements
5. the recognition & derecognition of the elements
6. the measurement of the elements
7. the concepts of capital and capital maintenance.

Question 5

What are some advantages to adopting IFRS?

Answer 5

1. global comparisons are easier
2. facilitates cross-border listing
3. multinationals can use a common, company-wide accounting language between countries
4. foreign companies are more easily appraised for mergers/takeovers

Question 6

How can multinational companies benefit from adopting IFRS?

Answer 6

1. Preparation of group accounts may be easier;
2. A reduction in audit costs might be achieved;
3. Management control would be improved; and
4. Transfer of accounting knowledge & expertise across national borders is easier.

Question 7

What are some disadvantages to adopting IFRS?

Answer 7

1. cost of implementation
2. lower level of detail compared to other standards
3. IFRS is principles-based, leading to subjectivity, which is not desirable in ligation-heavy nations such as the USA.
4. cultural differences between countries.

Question 8

What are the challenges in adopting IFRS in emerging economies?

Answer 8

1. The economic environment;
2. Incompatible legal & regulatory environments
3. Concern around SMEs;
4. Level of preparedness; and
5. Education needs of auditors

Question 9

What are the two approaches standard setters use to develop standards & reduce accounting differences?

Answer 9

1. Standardisation
2. Harmonisation

Question 10

What is meant by “standardisation”?

Answer 10

Process by which rules are developed to set standards for similar items on a global basis.

Question 11

What is meant by “harmonisation”?

Answer 11

Reconciling national differences and achieving a common set of accounting principles.

Question 12

What is the Norwalk Agreement?

Answer 12

1. The IASB and the US Financial Accounting Standards Board (FASB) signed the Norwalk Agreement in September 2002 to start a project to converge their respective sets of financial reporting standards.
2. They commit to develop high-quality, compatible accounting standards suitable for both domestic & cross-border financial reporting.

Question 13

What role does the European Commission play in the accounting profession?

Answer 13

Promotes quality, comparability and transparency of company reporting, particularly through adoption of IFRS.

Question 14

What role does the UK GAAP play in the accounting profession?

Answer 14

This is the overall body of regulation establishing how accounts must be prepared in the UK. This includes requirements of CA2006 and other regulations such as EU law.

Question 15

What role does the US GAAP play in the accounting profession?

Answer 15

1. A set of accounting standards to help prepare & present financial reports for a range of entities, including public & private enterprises, non-profit organisations, and governmental departments.
2. Takes a rule-based approach to financial reporting.
3. The Financial Accounting Standards Board (FASB) is responsible for the US GAAP.
4. US has still not come on board adopting IFRS but is making slow progress towards convergence with the IASB.