REGULATION
Cpt 1
IASB IFRS
Reasons for Regulation
Motivation for Accounting
• IASB = international Standards Board
• The objective of general purpose financial
reporting is to provide financial information
about the reporting entity that is useful to
existing and potential investors, lenders and
other creditors in making a decision about
providing resources to the entity.
• Those decisions involve buying, selling or holding
equity and debt instruments, and providing or
settling loans and other forms of credit.
Definition
• Financial accounting is a process which is
undertaken with the ultimate aim of
1. Identifying
2. Measuring
3. Communicating
• Information to the users in order to allow
them to make informed decisions.
1. Identify
• Book-keeping
• Transactions are identified and recorded
2. Measure
• Statement of Profit and Loss
• Statement of Financial Position
3. Communicate
• Financial Statements
• Communicating to wide variety of users
– Managers, suppliers, financial institutions
• Different information needs
– Profits, cashflow etc
• Management Accounting Vs Financial
Accounting
• Different Regulatory Environments
Management Accounting
• Providing detailed information to
management
• Current performance
• Future performance – Projections
• Up-to-date
• Strategic
• Internal
Financial Accounting
• Preparing financial information for financial
statements.
– Statement of comprehensive income
– Statement of Financial position
– Statement of cashflow
• Useful to external users
• Annual
• Historical in nature
Management Accounting Regulation
• Accepted formats and methods
• No obligation to follow the format
Financial Accounting Regulation
Single body of regulation both professional and statutory
Prescribes the preparation and disclosure of accounting
information
Important for the following reasons:
• Fair and accurate representation of the financial
position
• Allows for better understanding by users
• Makes it easier to compare information across
companies
• Enables better / easier decision making
Regulation
Regulatory Framework
Professional Regulation
Internation
al
Domestic
Company
Law
EU Law
Stock
Exchange
Regulations
Domestic
Directives
Listing
Rules
International Regulation
IASB - IFRS
• International Accounting Standards Board
• International Financial Reporting Standards
IASC
IASB
Monitoring
Board
IFRS Foundation
Interpretation
committee
Advisory Council
SME
Implementation
Group
IFRS Support
Operations
Next
IASC
• Replaced in 2001 by IASB
Home
IASB
• International Accounting Standards Board
• Develop a single set of high quality,
understandable, enforceable and globally
accepted financial reporting standards
– Open participatory due process
– Engagement with investors, regulators, business
leaders and global accountancy profession
– Collaborate with worldwide standard setting
community – IASB and IFRS, FASB
• 9 IFRSs
• 29 IASs
Home
IASB Monitoring Board
• The Trustees have established a formal public
accountability link to a Monitoring Board of
public capital market authorities.
• The Monitoring Board's main responsibilities
are to ensure that the Trustees continue to
discharge their duties as defined by the IFRS
Foundation Constitution, as well as approving
the appointment or reappointment of
Trustees.
Home
IFRS Foundation
• NOT involved in technical matters – do no
development of standards etc
• 21 trustees appointed by and report to the monitoring
board
• Appoint members to the IASB, IFRS Advisory council
and the IFRS Interpretation Committee
• Over see work of IASB – structure, strategy and
effectiveness
• Consideration of IASB agenda
• Establish and amend operating procedures of the IASB,
Advisory council and interpretations committee
Home
• Establish and maintain financing arrangements
IFRS Interpretation Committee
• 14 Members
• Review on a timely basis widespread
accounting issues that have arisen within the
context of current IFRSs
• IFRIC interpretations – published agreements
on the treatment of issues
– Cover new reporting issues not dealt with in IFRSs
– Issues where conflicting interpretations have
arisen
Home
IFRS Advisory Council
• Forum for participation by organisations and
individuals: 30+ members from national
standards setters, preparers, financial
analyses, academics, auditors, regulators,
investor groups etc
• Advise IASB on technical agenda, priorities
and timetable
• Advise IASB on major standard setting projects
• Promotion and adoption of IFRSs
Home
SME Implementation Group - SMEIG
• Support the international adoption of the IFRS
for small and medium sized entities = a
standard issued in 2009 for the needs of
smaller organisations
Home
IFRS Support Operations
• Promotes the IFRS
– Creation of XBRL taxonomy = standardised
formats and labels which enable the electronic
use and exchange and comparability of financial
data across companies
– Production of training material, workshops and
conferences on IFRSs
– Promote IFRS brand and global convergence
Home
IFRS – Standard Setting Process
1 Set
Agenda
• 6 Steps
6 Review of
standards
2 Plan
Project
5 Standard
3
Discussion
paper
4 Exposure
Draft
Next
1 Setting the Agenda
• Area of financial accounting to be addressed
through a standard
• IASB consider:
–
–
–
–
–
The relevance of the information to users
The reliability of the information provided
Existing guidance on the area
The quality of the standard developed
Whether the new item increases the possibility of
convergence
– Resource constraints
• Consults with IFRS Advisory Council
Back
2 Project Planning
• May work alone or with other standard setter
eg UK ASB or USA FASB
• Project team assembled
• May request companies to field test a
proposed standard
• Get feedback and suggestions on alternative
treatments of financial transactions
Back
3 Discussion Paper
• Detailed overview of the issue
• Presentation of different potential approaches
• Preliminary views of IASB on dealing with
issue
• Invitation to comment
Back
4 Draft Standard
• Exposure draft – sets out specific proposal for
dealing with an issue.
• Based on consideration of comments received
on discussion paper, research and suggestions
Back
5 Standard
• Revision of draft in light of feedback
• May go through second exposed draft – eg
leasing
• Conclusion on treatment of issue
• Pre-ballot draft
• IFRIC review
• IASB ballot
• IFRS issued
Back
6 Review of Standard
• Meetings with interested parties to examine
issues relating to practical application of a
standard
• Alternative interpretations may arise
• Revisions may be necessary
Back
How they Develop Standards
Domestic Regulation
Four Main Sources of IRISH GAAP
1.
2.
3.
4.
Professional Regulation
Company Law
EU Directives
Stock Exchange Regulation
GAAP – Generally Accepted Accounting Practices
1. Professional Regulation
• Pre 1970s - Institute of chartered accountants in
UK – issued accounting guidance - principles to
members.
• 1970s ASC setup to self regulate – issued
Statements of Standard Accounting PracticeSSAPs
• Accounting Standards Board ASB replaced ASC
1990s
• Issued Financial Reporting Standards-FRSs
UK & Ireland
• ASB - Accounting Standards Board
• SSAPs - Statements of Standard Accounting
Practice
• FRSs - Financial Reporting Standards
• SORPs – Statement of Recommended Practice
(For specialist industries such as charities,
pensions, insurance, banking etc)
• UITF - Urgent Issue Task Force Statements
• (Quick guidance on a specific transaction where
there is confusion)
UK & Ireland
• GAAP similar in both
• Guidance on contentious accounting issues
• Outline the recommended treatment and disclosure of
a particular item
• Eg inventory – standard details when it should be
recognised and the information that should be
disclosed
• Legal differences do arise – Company legislation – EU
directives
• Growth in International trade brought the need for
international regulation
2. Company Law
• Company Acts
– Setup
– Presentation of Financial Information
– Disclosure
– Filing in Co Registration Office
Company Law - Ireland
Size
Small
Medium
Large
Statement of
Financial Position
total up to:
€1,904,607
€7,618,428
>€7,618,428
Turnover up to
€3,809,214
€15,236,856
>€15,236,856
Average number of
employees
50
250
>250
An entity will require that 2 of the 3 criteria
be met for 2 consecetive years to fall within
a category
Disclosure
Company Type
Content of Financial Statements
Small private company limited
by shares
Auditors report (if applicable) and an
abridge/abbreviated Statement of Financial
Position
Medium private company
limited by shares
Auditors report, directors report, a Statement of
Comprehensive Income (starting at Gross Profit)
and a Statement of Financial Position
Large Private Company limited
by shares
Auditors report, directors report, a Statement of
Comprehensive Income and a Statement of
Financial Position
Public company limited by
shares
Auditors report, directors report, a Statement of
Comprehensive Income, a Statement of
Financial Position and a Corporate Governance
Statement
3. EU Directives
3. EU Directives
• Attempted harmonisation across states in 80s
and 90s
• Time consuming and costly
• Now support IASB standards
EU Directive
• 2002 – companies listed on a regulated
market – stock exchange to prepare
consolidated financial statements in
accordance with international accounting
standards by 2005
• Unlisted private companies – SMEs – member
states either require or allow them to prepare
financial statements in line with international
standards
EU
• EU Adopts IASB standards
• Franked for use by EU listed entities
• Essential for promoting cross border trade and
investment
Significance
• Largest Capital Markets in USA and UK –
companies in neighbouring countries prepare
financial statements under same accounting rules
and regulations, likely to attract investment
• Similarly, EU countries preparing financial
statements under same regulation should
increase cross border trade
• Reduced burden on multinational to produce
several financial statements to meet different
regulations. Reduces cost and increases trade.
4. Stock Exchange Regulations
4. Stock Exchange Regulations
• Apply to companies seeking to float on a
regulated market.
• Public Limited Companies who issue shares
and have shares traded by the public on the
stock exchange
4. Stock Exchange Regulations
• Regulations are listed in the Stock Exchange
Listing Regulations and its Admission of
Securities to Listing
• Many now contained and expanded upon by
professional and statutory requirements
• Still contain some important regulations eg
Disclosure of price sensitive information to all
shareholders at the same time – to eliminate
insider trading
Purpose of Regulation
Fair & True View
• Purpose of Accounting and Auditing
Regulation is to ensure that financial
statements produced and relied upon present
a “True and Fair” view of:
1. Financial performance: -Statement of
Comprehensive Income
2. Financial position – Statement of Financial
position
3. Cash flows – Statement of Cash flow
True & Fair
• “Fair & True” interpreted as complying with
both financial reporting standards and
company law
• International financial accounting standards
refer to a “fair presentation”
• “True and Fair Override” is a rare circumstance
where an entity doesn’t comply with
standards because it would not result in a fair
presentation
Standards and Law
• Financial Reporting Standards tend to deal with
how the various figures in the financial
statements should be calculated
• Company law tends to focus on how the
information should be presented to users
Standards and Law work together to set standards
for Financial statements are true and fair and can
be relied upon by users for making economic
decisions