Many organizations are involved with international convergence activities, inclu

Question

Many organizations are involved with international convergence activities, including the IASB, EU, and IFAC.

Required:

a. Compare and contrast these three organizations in terms of their standard-setting procedures.

b. At what types and sizes of enterprises are their standards primarily directed?

c. Briefly critique the following statement: “Acceptance of international accounting standards (accounting principles, disclosures, and auditing), as far as it has come and is likely to come in the near future, is significantly centered in companies.”

Explanation / Answer

a) Applying internationally accepted standards - the International Financial Reporting Standards (IFRS) – means standardising companies' financial reporting to make financial statements more transparent and comparable. The ultimate aim is for the EU capital market and the single market to operate efficiently. The implementation of IFRS in the EU has had an impact on cross-border transactions, trade, the cost of capital, investor protection, confidence in financial markets and stewardship by management

IFRSs are used in more than 110 jurisdictions and are included in the list of 12 sets of standards that the Financial Stability Board has designated as deserving of priority implementation. Research commissioned by the IFRS Foundation indicates that there are benefits to those jurisdictions that have adopted IFRS, in particular regarding transparency and comparability.

b. The IAS Regulation states that the IFRS must be applied to the consolidated financial statements of EU companies whose securities are traded on a regulated EU market. EU countries may extend the application of IFRS to annual financial statements and non-listed companies. IFAC believes that it is appropriate to permit national governments to extend the application of IFRS as noted above, in line with the relevant circumstances of each individual jurisdiction.

Making the preparation of financial statements using IFRS optional for entities other than those listed on regulated markets may assist entities that are seeking to go public in the future; allowing them to develop requisite expertise and to demonstrate a history of relevant reporting prior to listing.

c. Applying internationally accepted standards - the International Financial Reporting Standards (IFRS) – means standardising companies' financial reporting to make financial statements more transparent and comparable. The ultimate aim is for the EU capital market and the single market to operate efficiently.Globally accepted, high-quality financial reporting standards are arguably necessary for, and of benefit to, the EU—permitting the EU and organizations that use the standards to more readily access international capital markets, be competitive, and attract foreign investment. Ultimately, this enhances confidence in European financial markets.

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