IFRS - Chapter 1

Question 1

Why the push for convergence to International Financial Reporting Standards?

Answer 1

1. World markets are becoming increasingly intertwined
2. Investors are able to engage in financial transactions across national borders
3. A single set of international standards is important

Question 2

True or False:

IFRS tends to be simpler and more flexible in its accounting and disclosure requirements.

Answer 2

True

Question 3

True or False:

U.S. GAAP is more detailed in its accounting and disclosure requirements.

Answer 3

True

Question 4

What standard setting body is deemed as “principles-based”?

Answer 4

IFRS

Question 5

What standard setting body is deemed as “rules-based”?

Answer 5

U.S. GAAP

Question 6

What are the two major standard-setting bodies?

Answer 6

IASB and FASB

Question 7

Identify the International Standard-Setting Structure

Answer 7

Question 8

U.S. Standard Setting structure

Answer 8

• Financial Accounting Foundation (FAF)
• Financial Accounting Standards Board (FASB)
• Financial Accounting Standards Advisory Council (FASAC)
• Emerging Issues Task Force (EITF)

Question 9

Give ISAB Background

Answer 9

• Formed in 2001
• Membership
  
  • Consists of 14 members
  • 12 are full-time
• Autonomy
  
  • Not part of any other profession
• Independence
  
  • Sever ties from previous employers
  • Selected based on expertise
• Voting
  
  • 9 of 14 are needed to issue new IFRS

Question 10

What is the due process for the IASB in establishing a financial accounting standard?

Answer 10

Question 11

Give FASB Background

Answer 11

• Formed in 1973
• Membership
  
  • 7 full-time; can serve up to 2 5-year terms
• Autonomy
  
  • not part of any other organization
• Independence
  
  • sever all ties from past employer
• Voting
  
  • “majority”; 4 of 7

Question 12

What is the hierarchy of IFRS?

Answer 12

Companies first look to:

• International Financial Reporting Standards;
• International Accounting Standards; and
• Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC)

In the absence of the above:

• Other standards or interpretations
• Conceptual Framework
• Other pronouncements, other accounting literature, or accepted business practices

Question 13

What is the Memorandum of Understanding (MOU)?

Answer 13

2002 Agreement between IASB and FASB

• Committed to improve IFRSs and U.S. GAAP and to achieving their convergence
• Also known as the “Norwalk Agreement”

Question 14

What are the 3 Objectives of Securities Regulation?

Answer 14

• protecting investors;
• ensuring that markets are fair, efficient and transparent;
• reducing systemic risk

Question 15

What are the 4 Regulatory Bodies?

Answer 15

• Securities and Exchange Commission (SEC)
• European Commission (EC)
• European Securities Committee (ESC)
• International Organization of Securities Commissions (IOSCO)