Chapter 1 - Financial Reporting Context

Question 1

The IFRS Foundation

Answer 1

• Known as the IASC Foundation prior to 1 July 2010
• Was founded in June 1973
• Responsible for the governance and funding of the IASB (International Accounting Standards Board)

Question 2

The International Accounting Standards Board (IASB)

Answer 2

• The independent, accounting standard-setting body of the IFRS Foundation.
• Founded on 1 April 2001 as the successor to the International Accounting Standards Committee (IASC).
• Is responsible for developing International Financial Reporting Standards (IFRS).
• The standards issued by the IASC, prior to the founding of the IASB, are known as International Accounting Standards (IAS) and all of these standards were adopted by the IASB

Question 3

The International Organisation of Securities Commissions (IOSCO)

Answer 3

• An international body of security commissions, each of which is responsible for regulating investment markets in its own country
• Reached an agreement with the IASB in 1995, which committed the IASB to the completion of revisions to the standards that IOSCO deemed essential if it was to permit IAS-based financial reporting in the securities markets under its members’ control
• As a result, the IASB, known then as IASC, embarked on a mission to complete what had been defined as the ‘comprehensive core set of standards’.

Question 4

The FASB - The Norwalk Agreement

Answer 4

• A Memorandum of Understanding entered into by the FASB (the Financial Accounting Standards Board) and the IASB in October 2002.
• A significant step towards the US formalizing its commitment to the convergence of US and international accounting standards.
• Set out a number of initiatives: a move to eliminate minor differences between US and international standards; a decision to align the two Boards’ future work programmes; a commitment to work together on joint projects.

Question 5

The FASB - Formal Memorandum of Understanding

Answer 5

• Published in February 2006 and set out a number of goals:
• Short-term convergence - major differences in a number of specific areas (impairment, income tax, joint ventures and fair value, among others) should be eliminated.
• Other joint projects - progress should have been made in a number of other areas where one of the Boards has identified the need for improvement (business combinations, consolidation, performance reporting and revenue recognition, among others).

Question 6

The FASB - reconciliation requirement removal

Answer 6

In November 2007 the SEC agreed to remove with immediate effect the requirement for non-US entities reporting under IFRS to reconcile their financial statement to US GAAP.

Question 7

EU Regulation

Answer 7

• The European Commission published an EU Regulation in June 2002 that required the adoption of IFRS in member states for the preparation of the consolidated financial statements of listed entities.
• Applied to financial periods beginning on or after 1 January 2005.
• It immediately had the force of law in member states.

Question 8

EU Regulation - Roundtable on Consistent Application of IFRSs’

Answer 8

• Formed by the European Commission in February 2006
• Formed so that ‘common concerns’ of application of IFRS are identified and where necessary referred to the IFRS Interpretations Committee. (‘Common concerns’ are described as where application of standards is divergent, significant and widespread.)
• Gathers views from audit firms, standards setters and other interested bodies in each member state.
• Has no authority to issue interpretations, instead it is a vehicle used to identify and discuss differences in interpretation across the EU.

Question 9

EU Regulation - Accounting Regulation Committee (ARC)

Answer 9

• An endorsement mechanism set up by the European Commission to assess new accounting standards and approve them for use in the EU.
• It is a statutory body composed of representatives of member states and chaired by a member of the European Commission.

Question 10

EU Regulation - European Financial Reporting Advisory Group (EFRAG)

Answer 10

• Provides technical accounting views to ARC
• A group composed of accounting experts from the private sector, including preparers, users, members of the accounting profession and national standard setters.
• Consists of a Technical Expert Group and a S

Question 11

EU Regulation - Enforcement

Answer 11

• The European Commission in conjunction with the European Securities and Markets Authority (ESMA) has set up a common approach to enforcement, which is based on a number of principles covering key areas such as the definition of enforcement, the selection techniques for the financial statements to be examined and the powers of the enforcers.

Question 12

IASB - Objectives

Answer 12

• Develop a single set of high quality, understandable and enforceable global accounting standards.
• Promote the use and rigorous application of those standards.
• Work with national standard-setters to bring about convergence of national accounting standards and IFRSs
• Comprised of 15 board members including the Chairman, with each member having 1 vote.
• 9 votes required for publication of a new Standard, Exposure Draft or Interpretation.
• Appointment is for a 5 year term, renewable once.

Question 13

IASB - IFRS Advisory Council

Answer 13

• Role includes advising on priorities within the IASB’s work programme, and the IASB is required to consult with the IFRS Advisory Council in advance of any board decisions on major projects that it wishes to add to its agenda.
• Members are appointed by the IFRS Foundation

Question 14

IASB - IFRS Interpretations Committee

Answer 14

• Successor to the former Standing Interpretations Committee (SIC)
• Prepares interpretations of how specific issues should be accounted for under the application of IFRS where the standards do not include specific authoritative guidance and there is a risk of divergent and unacceptable accounting practices
• 14 members plus a non-voting chair