1Regulatory Framework
ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
REGULATORY FRAMEWORK
Financial Reporting
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RF ensure the relevant and reliable financial reporting
• a body overall responsible for producing financial reporting standards (the IASB) and• A frame work of general principles within which reporting standards can be produced
To enforce compliance with GAAP there need to be
Regulatory Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
REGULATORY FRAMEWORK
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FRAMEWORKPrinciples-based versus rules-based
systems
Principles-based System
• - Works within a laid down principles
Framework provides with background of principles within which standards can be developed
This ensure that standards produced should not be in conflict with each other
Any departure from standards can be judged whether / not it is in keeping with principles set out in framework
Rules-based System
• - Regulates for issue as they arise
Used in the absence of reporting framework
Leads to the development of large no. of regulations for every eventuality
Regulatory Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
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Out of date
• Produced in 1989 by IASC & adopted by IASB in 2001• Is in danger of out of date due to constant changes taking place in Financial Reporting• e.g. FV concept is not referred in this framework• IFRS are running ahead of framework
Continuous process of review
• Some machinery should be setup for review & updating of framework & and to deal with issues which arise between reviews
IASB and FASB are now working to produce a joint framework which should combine the best of both approaches
Regulatory Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
FRAMEWORKProblems of a principles-based system
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IASB
Introduction & Struct
ure
Other International bodies
EC
UN
IFAC
OECD
IASB & A/c
Standards
IASB &
FASB
EC & IFRS
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
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Introduction
• Independent• Privately funded• Accounting standard setting body• Based in London
IASC Foundation (2001)
• Not for profit corporation formed in USA is the parent entity of IASB
Structure
14 members (12 fulltime & 2 part time) from nine countries include
• Auditors• Preparer of F/s• Users of F/s• academics
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB
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•To develop, in public interest, a single set of•high quality, understandable enforceable global accounting standards•That require high quality, transparent and comparable information in general purpose F/s.
•To provide the use and vigorous application of these standards•To work actively with national a/c standards setters to bring convergence of national a/c standards and IFRS
Objectives
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB - Objectives
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IASC Foundation
• Have two main bodies – Trustees and IASB• Trustees appoint IASB members, exercise oversight and raise funds needed
IASB – sole responsible for setting standards
Two further bodies are SAC and IFRIC
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB - Structure
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IASC Foundation - Trustees
• 22 individuals• Appoint the members of Board, IFRIC and SAC• Initially - 6 trustees from North America
• 6 from Europe• 4 from Asia pacific• 3 from any other areas• Geographic balance should be maintained
IFAC Suggestion
• Ask candidates to fill 5 of 19 trustee seats• International organization of preparers, users and academics each suggested 1
candidate
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB - Structure
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SAC
• Give advice to board and trustees• Comprises of 50 members• Meets at least 3 times a year• Consulted by IASB on all projects• Meetings open to public• Advise IASB on prioritization of its work and on• Implication of proposed standards
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB - Structure
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IFRIC
• Provide guidance on application and interpretation of IFRS• Deals with newly identified FR issues not addressed in IFRS or• Issues where unsatisfactory or conflicting interpretation have
developed or likely to develop
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB - Structure
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•EC acknowledged the IASB role of harmonizing accounting rules•EC representative attend board meeting & joined steering committee setting IFRS•Setup a committee to investigate the conflict b/w EU norms and IASs•IASB used EU directivesEC•Has Commission and Centre on Transnational Reporting Corporation – gather the information concerning the activities and reporting of MNCsUN
•Private sector body established in 1977•Issues International Standards on Auditing, management accounting, ethics, education and training•Organizes world accounting congress (WAC) held every 5 years•IASB is affiliated with IFAC
IFAC Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ;
www.ifrsmultiplyer.com
IASB – International influences
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•Organization for Economic Co-operation and Development•Established in 19609by govt. of 21 countries.•Support the work of IASB•Undertake its own researchOECD•IASC issued 41 IASs•IASB adopted all these standards•Issued its own IFRS•8 IFRS issued to-date
Current IASs
•Financial Accounting Standards Board•IASB & FASB developing a conceptual framework•Aim-Future standards should be principle based & internationally convergedFASB
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IASB – International influences
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IFRS
Due process
Co-ordination with nationa
l standar
ds
IASB liaison
members
Current IASs/IFR
S
Benchmark &
AAT
Interpretation
of IFRS
World
wide effect
Criticism
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management
15 Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ;
www.ifrsmultiplyer.com
IFRS – Due Process – The agenda initially set by discussion with SAC
Step 4• F
ollowing receipt & review of comments, IASB issue final IFRS
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Close co-ordination b/w IASB due process and due process of national standard setter is important
• Co-ordination of work plan with national standard setter (NSS)• IASB continue to publish ED & other documents for public comment• NSS publish their ED at the same time & seek comment on significant divergence b/w two• NSS follow their own full due process
IASB is exploring the following procedure
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IFRS – Co-ordination with National standard setters
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7 of full time members of IASB have formal liaison responsibilities
• With NSS to promote the convergence of NASs & IASs
Countries with these liaison members are
• Australia and New Zealand, Canada, France, Germany, Japan, UK and USA
Many countries are represented on SAC
• IASB members have contact responsibilities with NSS not having liaison members
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IFRS – Liaison members
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Benchmark & AAT
• Many alternatives are removed the only standard which has AAT is IAS 23
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IFRS
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Interpretation of IFRS
• In 1996 IASC Board approve the formation of SIC- standing interpretation committee• Renamed as IFRIC under IASB
Duties of IFRIC are
• Interpretation of IFRS• Timely guidance on FR issues not addressed in IFRS• Work actively with NSS for convergence of NAS & IFRS• To publish draft interpretation for public comment• Report & take approval for final interpretation
Working of IFRIC
• 12-person IFRIC work with similar national committees• If no more than 3 members vote against interpretation , IFRIC ask board to approve the interpretation• 3 quarters of Board must vote in favour of interpretation• Interpretation published after the approval of board
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
IFRS
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Europe
• CFS of MNCs are prepared as per national requirement, EC directives & IFRS
Japan
• Japanese MOF setup a working committee to consider whether to bring national requirement in line with IFRS• TSE has accepted FS from foreign issuers that conform with home country standards
America
• SEC agreed in 1993 allowing foreign issuers to follow IFRS treatment on certain issues including cash flow statements under IAS 7• SEC is supporting IASB to attract foreign listing
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
World-wide effect of IFRS & IASB
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Europe
• CFS of MNCs are prepared as per national requirement, EC directives & IFRS
Japan
• Japanese MOF setup a working committee to consider whether to bring national requirement in line with IFRS• TSE has accepted FS from foreign issuers that conform with home country standards
America
• SEC agreed in 1993 allowing foreign issuers to follow IFRS treatment on certain issues including cash flow statements under IAS 7• SEC is supporting IASB to attract foreign listing
Conceptual Framework ACCA – Paper F 7 Financial Reporting – by SBM : School of Business and Management ; www.ifrsmultiplyer.com
World-wide effect of IFRS & IASB
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