2.3. International Harmonization of Finanfial Reporting - IASB and IFRS

Question 1

Why is there a need for harmonisation of accounting standards? (IFRS) and whats IFRS?

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Harmonisation | Definition

Answer 1

• internationalisation of businesses
• integration of financial markets
• easier understanding, helpful with international investments and events, more comparable
• single set of high quality global accounting rules

Definition: the process of increasing the comparability of accounting practices (by setting bounds to their degree of variation)

Question 2

What are reasons in favor of accounting harmonisation?

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Answer 2

• better for investors (greater transparency /comparability for investment purposes)
• better for companies (reduction in cost of capital if accounting becomes more transparent & reliable)
• Advantages for companies willing to list in foreign exchanges and cost savings for multinationals
• Easier mobility for accounting employees

Question 3

What are obstacles to accounting harmonisation? Why do they differ around the world?

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Financial reporting is designed to serve the needs of the national standard, so why change it? What would be an alternative to harmonisation?

Answer 3

• cultural
• economic
• tax-related differences
  -> attempting to harmonise practices is hard on a global scale!

Alternative solution: following two sets of rules, one for domestic purposes and one for international comparison purposes

Question 4

Definition of IFRS

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Answer 4

• international financial reporting standards
• a set of high quality, principles-based financial reporting standards issued by the IASB
• list of individual IASs and IFRSs
• IFRS addresses key issues like information disclosure, presentation, asset valuation and profit measurement

Question 5

What is the main thing IFRS deals with?

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Answer 5

• what information should be disclosed?
• how should information be presented?
• how should assets be valued?
• how should profit be measured?

Question 6

IASB | Definition

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Answer 6

• international accounting standards board
• independent standard setting body, located in London
• produces the IFRS, which are quickly becoming the globally accepted set of accounting standards

Question 7

History about IASB and IASC (= International Accounting standards committee)

• 1973?
• main aim?
• how many IASs exist?
• 1980s
• 2000
• 2001

Answer 7

• 1973 IASC founded by accounting bodies of 9 countries
• aim: publish accounting standards and promote their worldwide acceptance
• 41 standards IASs published until 2001
• 1980: agreement between IASB and international organisation of securities commossions (IOSCO)
• 2000: IOSCO endorses the IASB standard, for use by foreign registrant and EU proposes IASs adoption from 2005
• since 1st april 2001 IASB replaced IASC as an independent body

Question 8

Whats the IFRS standard setting process? (Hint: similar to many national standard setters) (IMPORTANT)

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Answer 8

1. Agenda, project planning
2. exposure for comment of discussion paper and exposure draft
3. revision and publication of IFRS
4. follow up process after publication about practical issues of implementation
5. controversy over influence of various national standard setters, especially in relation to agenda setting and delegation of work

Question 9

There are around 174 jurisdictions for domestic listed companies.

Where is IFRS not permitted in? And for how many countries is IFRs required (for some, permitted, for all)?

Answer 9

• USA, iran, Cuba, pakistan, tunisia, thailand (total: 23)
• 131

Question 10

Whats the GAAP?
How has accounting transformed over time?

Answer 10

• GAAP= generally accepted accounting principles
• traditionally, each country had its own accounting standards body that produced the local accounting standards
• thus there would exist different local accounting rules, e.g. UK GAAP, German GAAP, US GAAP

Question 11

Over time, differences in IFRS practices due to nationall incentives or traditions are expected….

Answer 11

…. to diminish as IFRS options become more restricted and interpretations stricter

Question 12

IFRS aims to…

Answer 12

… enhance transparency, accountability, and efficiency in global financial markets, reducing the information gap between capital providers and management and improving international comparability of financial information.