regulatory framework chapter 02

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


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Out of date

• Produced in 1989 by IASC & adopted by IASB in 2001• Is in danger of out of date due to constant changes taking place in Financial Reporting• e.g. FV concept is not referred in this framework• IFRS are running ahead of framework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


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


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


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


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


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


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


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


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


IFRS – Liaison members

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Benchmark & AAT

• Many alternatives are removed the only standard which has AAT is IAS 23


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


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


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


World-wide effect of IFRS & IASB

regulatory framework chapter 02

Economy & Finance

school of business

effect of ifrs iasb

international influences

principlesbased system

national standard setters

liaison members