international accounting chap 003

7/25/2019 international accounting Chap 003

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McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc !ll

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Chapter 3


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3-2

International Convergence ofFinancial Reporting

Chapter Topics

Harmonization and convergence Evolution of the International Accounting Standards

Board (IASB)

Other organizations involved in harmonization

IASB framework and IFS !se of and su""ort for IFS

#rinci"les$%ased vs& rules$%ased accounting

'onvergence of IAS and !&S& AA#


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3-3


Learning Objectives

1. E"lain the differences %etween harmonization and

convergence&

2. Identif* the arguments for and against

international harmonization of accounting standards&

3.+iscuss ma,or harmonization efforts&

4. E"lain the "rinci"les$%ased a""roach used %* the

International Accounting Standards Board (IASB)&


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3-4


Learning Objectives

5.+escri%e the "ro"osed changes to the IASB-sFramework&

6.+iscuss the IASB-s Standards related to IFS and the

"resentation of financial statements&

7. +escri%e the su""ort for and the use of IFS across

countries&

8. Eamine the issues related to international convergence&

9. +escri%e the IASB.FASB convergence "ro,ect&

10. E"lain the meaning of /Anglo$Saon0 accounting&


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Harmonization andConvergence

Harmonization$$ the "rocess of increasing thelevel of agreement in accounting standards and

"ractices %etween countries&

Convergence $$the ado"tion of one set ofstandards internationall*& 1his is the main

o%,ective of the IASB&

2earning O%,ective 3


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3-6

Harmonization

The to !"eve"s# o$ har%oni&ation

Harmonization in accounting standards4 which isincreased agreement in accounting rules

Harmonization in "ractice4 which is increased

agreement in actual accounting "ractices

Harmonization in standards ma* or ma* notresult in harmonization in "ractice&



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Harmonization

Is different from standardization Harmonization allows for different standards in

different countries as long as there are not

logical conflicts&

Standardization involves using the samestandards in different countries&



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Harmonization: The Pros andCons

'ros( E"edite the integration of glo%al ca"ital markets

and make easier the cross$listing of securities& Facilitate international mergers and ac5uisitions& educe investor uncertaint* and the cost of ca"ital& educe financial re"orting costs&Allow for eas* and cost effective ado"tion of high$

5ualit* standards %* develo"ing countries& Easier to transfer accounting staff internationall*



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Harmonization: The Pros andCons

Cons( Significant differences in standards currentl* eist& 1he "olitical cost of eliminating differences Overcoming /7ationalism0 and traditions #erha"s it will not "rovide significant %enefits& 8ill cause /Standards Overload0 for some firms +iverse standards for diverse "laces is acce"ta%le&



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Harmonization Eorts

Organi&ations invo"ve)

Association of South East Asian 7ations(ASEA7)

!nited 7ations (!7) Euro"ean !nion (E!)

International Organization of Securities'ommissions (IOS'O)

International Federation of Accountants (IFA') IASB and FASB



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Harmonization Eorts

Organi&ations invo"ve)

IOS'O : is essentiall* the internationale5uivalent of the !&S& Securities and Echange

'ommission (SE')& IFA' : is similar4 at the international level4 to the

American Institute of 'ertified #u%licAccountants (AI'#A)&

IASB : is essentiall* the international e5uivalent

of FASB&2earning O%,ective 9


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Harmonization Eorts

*O+CO

8orks to achieve im"roved market regulationinternationall*

8orks to facilitate cross$%order listingsAdvocates for the develo"ment and ado"tion of

a single$set of high 5ualit* accounting standards



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Harmonization Eorts

*,-C

8orks to develo" international standards ofauditing4 ethics4 and education

Began International Forum on Accountanc*

+evelo"ment (IFA+) to enhance the accounting

"rofession in emerging countries Started the Forum of Firms to raise glo%al

standards of accounting and auditing



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Harmonization Eorts

/

Has worked to harmonize accounting standardswithin the E!4 "rimaril* %* wa* of two directives

Fourth +irective : a set of com"rehensive

accounting rules %uilt on the "rinci"le of a /true

and fair view&0 Seventh +irective : re5uires consolidated

financial statements for com"an* grou"s of a

certain size&2earning O%,ective 9


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Harmonization Eorts

*-+

#receded %* the IAS' (International AccountingStandards 'ommittee)&

8orks toward convergence of national and

international accounting standards

IAS' was esta%lished in 3;


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Harmonization Eorts

*-+

'om"rised of 3= mem%ers (36 full4 6 "art$time) < mem%ers are liaisons with a national %oard& Standard develo"ment "rocess is o"en& Standards are "rinci"les$%ased&

Since esta%lishment of IASB4 focus is on glo%alstandard$setting rather than harmonizationper

se.



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Harmonization Eorts

*-+ ajor *nitiatives

"#$C# %greement Esta%lishment of a core set of 9? accounting

standards Standards agreed u"on %* IOS'O and IAS'



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Harmonization Eorts

*-+ evise) +trctre

1he restructured IASB is overseen %* the IAS'Foundation which also oversees@ 1he International Financial e"orting

Inter"retation 'ommittee (IFI')&

1he Standards Advisor* 'ouncil (SA')&Also4 IFS are su%,ect to due "rocess and the

IAS' Foundation now "eriodicall* reviews its

constitution&2earning O%,ective 9


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Principles-Based pproach tocco!nting "tandard "etting

*-+ 'erspective

IASB attem"ts to follow a "rinci"les$%aseda""roach to standard setting&

As such4 accounting standards are grounded in

the IASB Framework.

2earning O%,ective =


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Principles-Based pproach tocco!nting "tandard "etting

- princip"esbase) approach

e"resents a contrast to a rules$%aseda""roach

Attem"ts to limit additional accounting guidance

(e&g&4 FASB4 EI1Fs4 FASB Inter"retations)

Is designed to encourage "rofessional ,udgmentand discourage over$reliance on detailed rules

2earning O%,ective =


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I"B Frame#or$ and IFR"

*-+ ,ra%eor

'reated to develo" accounting standardss*stematicall*

#rovides the %asis for financial statements

"resented in accordance with IFSSimilar to the relationshi" %etween !&S&

AA# financial statements and the FASB

'once"tual Framework2earning O%,ective


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*-+ ,ra%eor

1he o%,ective and underl*ing assum"tions offinancial statements

ualitative characteristics of information +efinition4 recognition4 and measurement of

elements in financial statements 'once"ts of ca"ital and ca"ital maintenance

2earning O%,ective


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*-+ ,ra%eor

#rimar* o%,ective is to "rovide informationuseful to decision making&

!nderl*ing assum"tions include accrual$%asis

and going concern&

2earning O%,ective


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a"itative characteristics o$ in$or%ation

&n'er(tan'ability: should %e understanda%leto "eo"le with reasona%le financial knowledge&

Comparability: allows for meaningful

com"arisons to financial statements of "revious

"eriods and other com"anies&

2earning O%,ective


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a"itative characteristics o$ in$or%ation

)elevance: useful for making "redictions andconfirming eisting e"ectations& )eliability: free from %ias (neutral) and

re"resents that which it claims to re"resent

(re"resentational faithfulness)&

2earning O%,ective


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"e%ents o$ ,inancia" +tate%ents

*e+inition: assets4 lia%ilities4 and otherfinancial statement elements are defined& )ecognition: guidelines as to when to

recognize revenues and e"enses&

,ea(rement: various %ases are allowed@historical cost4 current cost4 realiza%le value4

and "resent value&

2earning O%,ective


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Concepts o$ capita" %aintenance

Financial ca"ital maintenance #h*sical ca"ital maintenance

2earning O%,ective


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Proposed Changes to I"BFrame#or$ %& I"B and F"B

'hases( O%,ectives and 5ualitative characteristics Elements and recognition Ceasurement e"orting entit*

#resentation and disclosure #ur"ose and statusA""lication to not$for$"rofits Finalization2earning O%,ective


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Proposed Changes to I"BFrame#or$ %& I"B and F"B

'ropose) Changes( +ecision$useful o%,ective encom"assing information relevant to

assessing stewardshi" (actuall* two "arallel o%,ectives withdifferent em"hases) Stakeholder a""roach (vs& !&S& frameworkDshareholder

a""roach)$$users other than ca"ital "roviders e"licitl*acknowledged

Asset of an entit*"resent economic resource to which4

through an enforcea%le right or other means4 entit* has accessor can limit others- access

Em"hasis on fair value measurements in IFSDeit "rice asmeasurement %ase4 or4 if notDdevelo" additional guidance

2earning O%,ective


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Presentation of Financial"tatements 'I" ()

This stan)ar) provi)es gi)ance in the

$o""oing areas rpo(e o+ +inancial (tatement(: to "rovidedecision$useful information&

Component( o+ +inancial (tatement(:

%alance sheet4 statements of income4 cashflows4 changes in e5uit*4 and notes to the

financial statements&

2earning O%,ective


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.air pre(entation: the overriding "rinci"le of financial

statement "resentation&

%cconting policie( Should %e consistent with all IASB standards& 8hen s"ecific guidance is lacking4 use standards on

similar issues4 and definitions of the financial

statement elements&

2earning O%,ective


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/a(ic principle( an' a((mption( eiteration of underl*ing assum"tions&

Accrual %asis.going concern.com"ara%ilit*&

$trctre an' Content o+ .inancial $tatement( #rovides information on "resentation format@

'urrent.noncurrent&Items to %e included on face of financial

statements&'ontent of notes&

2earning O%,ective


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First Time doptions of IFR"'IFR" ()

#rovides guidance for first time ado"tion& Cuch used in 6??4 "articularl* in E!& e5uires com"liance with all effective IFS&Allows eem"tions when costs deemed to

outweigh %enefits&

2earning O%,ective


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*se of IFR"

vi)ence o$ spport $or *,+Ado"tion %* the E! : "u%lic com"anies in the E! were

re5uired to %egin using IFS in 6??& IOS'O has endorsed IFS for cross$listings& Can* develo"ing nations have ado"ted IFS& Some countries disallow IFS for domestic firms %ut

allow foreign com"anies to use them& !&S& and a"an4 for eam"le will allow foreign countrieslisting on their res"ective echanges to file financials"re"ared in accordance with IFS without reconciliationto !&S& or a"anese AA#&

2earning O%,ective


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I"B+F"B Convergence

The ora" -gree%ent

eached in 6??6 Between the IASB and FASB 1o work toward accounting standards

convergence

2earning O%,ective ;


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I"B+F"B Convergence

,-+:s e; initiatives in the ora" -gree%ent

oint pro!ect(: %oards will work together to address some issues(e&g&4 revenue recognition)&

$hort-term convergence: to remove differences %etween IFSand !&S& AA# for issues where convergence is deemed mostlikel*&

"%$/ liai(on: IASB mem%er in residence at FASB&

,onitoring "%$/ pro!ect(: FASB monitors IASB "ro,ects of mostinterest&

Convergence re(earch pro!ect: identification of all ma,ordifferences %etween IFS and !&S& AA#&

Convergence potential: FASB assesses agenda items for"ossi%le coo"eration with IASB&

2earning O%,ective ;


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nglo-"a,on cco!nting

'ountries include !&S&4 !&G&4 'anada4 Australiaand 7ew ealand

Accounting s*stems not identical %ut sharefundamental features@ Cicro orientation (firm level) with em"hasis on

"rofessional rules and self$regulation

Investor orientationD"rimar* aim is efficiento"eration of ca"ital markets (ver* trans"arent) 2ess em"hasis on "rudence and measurement of

taa%le income or distri%uta%le incomeDsu%stanceover form

2 i O%, ti 3?

international accounting chap 003

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