Financial Statements, International Accounting Standards - Assignment Example

Topic: financial ments (international accounting standards board) a) Outline the structure and functions of the IASB (International Accounting Standards Board). Since the globalisation of the capital markets and their enlarging horizon becoming complimentary at speedy rate, the International Accounting Standards Committee (IASC) and other allies have felt the need for an all-inclusive top-rated quality accounting standards to match with the speedy functioning of international capital markets. In May 2000, a blue-print of a newly structured IASC was named the International Accounting Standards Board (IASB). The restructuring of the IASB was achieved via a group of trustees, headed by erstwhile U.S. Federal Reserve Chairman Paul Volcker. Sir David Tweedie, earlier Chairman of the U.K. Accounting Standards Board, was made head of a 14 member IASB. Leading accounting professionals of many countries are members of this body, and will be working for the realisation of a unique all-inclusive quality accounting standards with a vision for the future. The newly structured International Accounting Standards Board (IASB) would function under a new International Accounting Standards Committee Foundation (IASCF), which is a not-for-Profit Corporation made according to the laws of the State of Delaware, United States of America, on 8 March 2001. The trustees of the IASC Foundation, after completing the 2003-05 Constitution Review and agreeing on a wide ambit of Changes to the Constitution, made those Changes effective from 1 July 2005. Parts of the new structure are: International Accounting Standards Board – has exclusive responsibility for setting International Financial Reporting Standards (IFRSs). IASC Foundation – supervises the work of the IASB -- its structure, and strategy as well, besides creating funds. International Financial Reporting Interpretations Committee (IFRIC) –shapes interpretations to be accepted by the IASB. Standards Advisory Council (SAC) –counsels the IASB and the IASCF. Working Groups – professionals for individual agenda projects. Functions of IASB-The primary functions of the IASB are to: Develop and issue International Financial Reporting Standards and Exposure Drafts; Approve Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC). IASB staff follows Due process steps for all mandatory functions like studying national accounting requirements and practices and discussions with national standard setters on topics of importance. It is the staff job to recognise and revise the items related to a topic and zero-in the completion of the Framework of the topic. It confers with the Standards Advisory Council about the suitability of listing the topic to the IASB’s schedule. It frames an Advisory group – called more often a ‘working group’ to counsel the IASB and members on the project. Among a long list of IASB functions, comes the duty of publishing an exposure draft for mass opinion, okayed by nine votes of the IASB members, including opposing views of IASB members. Staff deliberates all opinions on discussion documents and exposure drafts, received within the comment period. A standard gets Okayed by a minimum of nine votes of the IASB, and it is recorded in the published standard of any opposing opinions. It also explains reasons for not following non-mandatory steps the like of publishing basis for conclusions, justifying the steps in the IASB’s due process and how it reciprocates the public comments on the exposure drafts. b) “Now that all EU listed companies must comply with international accounting standards, investors will have no problems making comparisons between sets of accounts” Evaluate this statement, highlighting and explaining any problems which still remain No doubt, after the reorganization of IASB, it has become mandatory to develop a unitary acceptable international accounting standard of practices agreed upon by all stake holders but the path leading to the smooth functioning of IASB is not that easy as could be said. The practice of holding round table conferences to bring about the necessary proposals and suggestions to the IASB has paid good returns in the sense that controversial issues have been raised within EU member countries and outside where there is lack of unitary accounting practices or there is difference of opinion on the accounting practices and investors find it hard to do business due to different principles in practice. The European Commission has aroused concerns at the meeting of Accounting Regulatory Committee (ARC) in the matter of consistent IFRS application. Through round table conferences, a competent forum of accounting professionals has diagnosed the emerging and not-in-line accounting practices associated with consistent application. Now, it has become easy to develop related infrastructure, helping in the consistent application of IFRS. Audit firms, standard setters and other stake holders – investors – have raised their differences of opinion on non-consistent accounting practices, making their job uneasy. EU nationals, by their statutory working rules, can enforce financial information within CESR/EECS, taken under the Transparency and Prospectus Directives in conjunction with financial reporting based on IFRS, as there have been time-tested traditions in accounting practices among EU nations including France, Germany, and the UK According to the 27 November 2006 meeting of members from CESR, BUSINESSEUROPE, and accounting professionals, IFRIC has cancelled notes of financial reporting in Europe. The topic of discussion has been on the accounting change – whether it is rectification of a mistake or change in accounting policy. The way of restatement is the same as it is in IAS 8 – it is based on IAS 8.5 and followed further in IAS 8.14, (changes in accounting policy) and IAS 8.42 (correction of an error). Legal results of both changes might vary according to the regulatory environment. There is no unanimous opinion among investors on the different possibilities of IFRS conditions. Some feel that it is a transitional phase, and as soon as, investors get accustomed to the meanings and applications of IFRS, differences will disappear. You can’t avoid them in an environment of principle-based standards. As rejection notes are not part of IFRS’s, they are not backed by European Commission. They don’t have any official ranking within Europe as they are not checked by EFRAG. SEC has also reviewed the accounting statements of European listed companies in the US. There was focus on difference in presentation and disclosure of routine information besides the information given in cash-flow statements. Issues raised by SEC need to be settled regarding particularly reconciliation of accounting statements made employing IFRS “as adopted in …..” to full IFRS. Some other issues raised on 26 January 2007 meeting of the round table are: 1) Regulatory Assets and Liabilities, 2) IAS 17 Leases – exercise of renewal/extension options, 3) IAS 32 - Classification of a financial instrument as liability or equity. They have been recommended for technical opinion of related experts. The EU members, including the EP and member states expect IASB to clarify its stance as early as possible; otherwise the political environment in Europe could become charged in the lack of clear-cut answers to the issues raised. Member countries and their investors are in no mood to wait for years for clearing of their doubts over international accounting standard principles. References: Appendix A – Structure and History of the IASB. (2004) ] [Online] Written Statement of Sir David Tweedie Chairman, International Accounting Standards Board, To the Committee on Economic and Monetary Affairs of the European Parliament Brussels, Belgium– 22 September 2004. Available from http://www.iasb.org/NR/rdonlyres/1F937D96-4481-47E2-8881-3072FB008E47/0/TweedieBrusselsSeptember2004.pdf. [Accessed 25 October 2007] CONCLUSIONS ON IFRIC REJECTION NOTES: Summary Note of Meeting 27 November 2006 between delegations from CESR, BUSINESSEUROPE and FEE 25 January 2007. Available from http://ec.europa.eu/internal_market/accounting/docs/ias/roundtable/070125_conclusions_ifric_rejection_notes_en.pdf. [Accessed 25 October 2007] IAS PLUS. [Homepage of The IAS Structure] [Online] (2007) Available from http://www.iasplus.com/restruct/restruct.htm [Accessed 25 October 2007] Johnson Manuel H. (2000) From the 2000 Annual Report of the Financial Accounting Foundation. Available from http://www.iasplus.com/restruct/restfasb.htm [Accessed 25 October 2007] Roundtable for the consistent application of IFRS: Summary Meeting Report 20 September 2006 Available from http://ec.europa.eu/internal_market/accounting/docs/ias/roundtable/070125_conclusions_ifric_rejection_notes_en.pdf. [Accessed 25 October 2007] Roundtable for the consistent application of IFRS: Summary Meeting Report 26 January 2007 (2007). Available from http://ec.europa.eu/internal_market/accounting/docs/ias/roundtable/070126_summary_en.pdf. [Accessed 25 October 2007] Read More