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International Accounting Standards
Formerly, International Accounting Standards (IASs) were issued by the IASC from the years 1973 through 2000. Then an International Accounting Standards Board came up that replaced the IASC in 2001. From that time, the IASB has done some amendments to some IASs and there is still a proposition to continue with the amendments to other IASs.
There have been some replacements on some IASs with new International Financial Reporting Standards (IFRSs), and there has been an adoption and propositions for IFRSs to handle certain new on topics which were not previously on IAS. By use of committees, the IASB and IAS have issued each an interpretation of standards. Financial statements may lack categorization as complying with IFRSs in anticipation of fully compliance with all of the required elements of each suitable standard and each associated interpretation. This was the finale of a reorganization based on the recommendations of the report on recommendations suggesting the Shaping of the IASC in the Future.
The IASB configuration has the following main features: the IASC Foundation is a self-governing organization having two main arms, the Trustees and the IASB, as well as a Standards Advisory Council and the International Financial Reporting Interpretations Committee. The IASC Foundation Trustees choose the IASB members, exercise exclusion and elevate the resources required, but the IASB has private responsibility for putting in place IFRS (international accounting standards).
The UK had to adopt the financial standards because these standards set a common base for use in the reporting cases of their financial standards. Being a base and an international organization; the United Kingdom companies would have had to adopt these standards in order to comply with stated international financial reporting standards. Many countries feel that complying internationally might help them recognized in getting international standards that serves them a favour of expressing themselves as internationally recognized companies. This to many of them will create the image that a company that has adopted international standards is a world-class company that can therefore ensure its expansion therefore to other countries overseas
In addition to these suggestions, the International Accounts Service Board has formulated each International Financial Reporting Standard and its corresponding date it takes effect. In the next section, I am going to take explorations on the IFRSs and their recommended effective dates as stipulated by the IASBs.
The International Financial Reporting Standards IFRS 1-First time Adoption of these financial reporting standards that was originally issued in the year 2003 would start to take its effect in the beginning of the next financial period starting on or after first of January 2004. This standard was later amended in relation to its corresponding Standard six on a re vision in 2005 and its effect would have taken place on or after the first of January the following financial year. Another yet revisit on the standard was carried out in May two thousand and eight in relation n to cost of any investment on its first time adoption. It was required to take effect on or at the beginning of the year two thousand and nine. All these applications of the standards welcomed any earlier effective dates with companies willing to adopt these standards.
On the International Financial Reporting Standard number two, that is IFRS Two, there was a first announcement or the first issuance in the year two thousand and four with effective dates given as from or after the beginning of the following year. Later, it was revised in the year two thousand and eight with an amendment in relation to vesting conditions and cancellations and the proposed period of the effective dates were given as from or the period after the beginning of the year two thousand and nine.
On IFRS 3, that is, the principle of business combinations, it was first issued in the year two thousand and four with an effective date set to periods beginning or periods after the thirty first of March of the same year. There was a later revisit to this standard with an amendment done in relation to any acquisition method in the year 2008 and thereafter, effective dates issued from the periods beginning on or after the first of July the same year.
Another Standard that was issued in the year two thousand and four is the Standard on the Insurance Contracts that was classified as IRFS standard number four. The standard was designed to take effect from the beginning of the following year and was later amended in the August of two thousand and five.
Then came the defined number five IFRS standard stating the principle on the non-current assets held for sale and discontinued operations. This standard was clearly stated by the IASB in March of two thousand and four and had to bee effective by the beginning of the year two thousand and five. A later amendment was carried out on this and then was later expected to take effect as from May of two thousand and eight.
The international standard number six was started in the year two thousand and four. This standard provides for the discovery and evaluation of mineral resources. This standard permits a commercial body to develop a bookkeeping policy for examination and evaluation of assets without orientation to the IASs numbers eleven and twelve respectively.
On the other hand, the European Union had endorsed these standards and therefore the U.K companies had little choice but to adopt the IRFS because of this. Any company which forms part of an E-U listed Group had to adopt this transition requiring it to change the financial reporting standards from GAAP to IASB's IRFS.This is because after the announcement of these standards, the E-U started an endorsement program requiring all companies in its listed group to adapt to these changes.
Also in 2004, there was an enforcement of Accounting standard in Europe by the Committee of European Securities Regulators because it had adopted new standard containing 21 principles which are aimed at developing and implementing a common approach to the enforcement of International Financial Reporting Standards (IFRS) throughout the EU countries.
Any company which offers share options to employees as an employment benefit, a charge is made for share options issued at market value. Under IFRS, a just value must be considered and a charge made for the time from award of the choice to the vesting date. A company that had taken benefit of the transitional provisions of IFRS 2 in reverence of equity-settled awards and had applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not been vested on or before the end of December 2004.
The charge previously made relating to UITF 17 (Revised 2003) 'Employee Share Schemes' has been overturned, as it is substituted by the IFRS 2 charge. It also forces these companies to calculate their tax based on the estimated tax subtraction on exercise of the options judged against to the bookkeeping charge on grant of the alternative. Under IFRS, income tax relating to items recognised directly in equity is recognised in equity and not in the income statement, resulting in a movement between the tax charge under UK GAAP and equity under IFRS.
From another approach, the IASB offices being located in London doesn't necessarily mean that this body is or will come up with standards that favour businesses that originate from this locale .The International Accounts Standards Board is an independent body that seeks to regulate the way in which firms register and present their financial records at the end of each financial year. So in an own opinion, the geographical location of this organisation doe not translate to economic favours to companies within its radius, hence the outcry from these companies.
These companies originating from the United Kingdom is business entities whose main purpose is to conduct business and at the end of the financial year realise a profit. Therefore any changes in the ways they are used to that seem to have negative impacts will certainly give the Directors and management boards of these companies nervous times.
The reasons why these companies were actually upset is because the impact these recording standards had on the financial records at the end of a fiscal year were affective. It was accounted that some of the proposals did not offer adequately reliable and fully relevant information to the preferred user of their financial statements. The proposal and their rationale were rather confusing as they seem to separate recognition and measurement for what they are currently known as contingent liabilities and these can not be readily separated in practice.
Also in their current form, it was had to implement these proposals by these companies to a necessary high degree of achievement. These companies also raised anxiety on the proposed changes to IFRS. Reports in the UK accounting press suggested that companies had mainly put a great effort for the transition, directors have failed to comprehend the new standards, companies had along way to go in improving consistency and comparability and there was resistance to IFRS for smaller companies. Academics at the University of Lancaster were due to study the impact of IFRS across Europe but the results would not be known until the four year project was completed! Therefore then was probably a good time to look back on the convergence process in the UK and the rest of the world..
In the UK, for organisations and groups adopting IFRS in the year 2005, new requirements in the Companies Act 1985 were effected in respect of companies' financial years which began on or after 1 January 2005. The amended legislation gave individual companies and groups a choice between preparing accounts under UK GAAP and IFRS. Mother companies whose shares were fully listed and who were obliged to prepare consolidated accounts, had to adopt IFRS for 2005. For financial years beginning on or after 1 January 2005, all UK companies have had the option to adopt IFRS as a choice to UK accounting standards. This includes small and medium sized entities as well as big unlisted business organisation. For unlisted companies, the first choice between UK indigenous and IFRS was likely to wait a intentional option for a number of years.
Opposition to International Financial reporting standards
Recently in the United Kingdom, a cross-party faction of MPs called the International Financial Reporting Standard 8 "completely undesirable" and launched a debate in resistance to the standard. IFRS 8 addresses the coverage of operating segments by worldwide corporations. Led by the Labour MP Austin Mitchell, the group said that IFRS 8 gives company directors too a great deal alternatives about what they reveal and the way they do it.
The motion claimed that IFRS 8 eliminates earlier requests for geographical revelation and allows unlike accounting rules to be useful to segment information from that used in the rest of a company's fiscal statements. Both the government and the European Commission were urged by the motion to carry out their own assessment of the standard. Lately, the European assembly stunned many by proposing a motion that would compel the European Commission to alter its plans to approve IFRS 8. The intrusion by the European legislature in the subject is broadly perceived as an extensive setback to the IASB. This actually shows how much.
There a number of issues arising from the adoption of these standards in the Asian continent southern of Australia. In a submission to the IAS board and the AAS Board there was issued a comment on the IFRS that were proposed for small and medium enterprises. These were as a result of the CPA's findings on this topic. That CPA had given support to the publication rather as separate volume rather than thee added sections to the current standards. Resistance to the heading of the standard was also expressed in the compliance.
It was recommended it be altered to IFRS for personal entities. Because the region is of diverse cultural backgrounds, problems of translation were encountered for the indigenous businesses to fully adopt these standards. Although there is an optional translational project for these standards, still many languages within this locality were not under consideration by the standards body for translation the specific languages. This posed a major issue to business companies in this region that have not adopted the English language. Another issue that arose from the implementation of the standards is the issue of the lack of understanding of the usage of thee standards.
For the management to fully adjust to these standards then there should be a thorough teaching on the usage of the standards or else these standards will just be read and as a result be misunderstood, misinterpreted and therefore applied wrongly. This is because the material that this body comes up with is of large volumes and therefore puts some pressure on the available resources of these companies to the respective accounting standards group that puts them down. Another very prominent problem that emerged in this region is the application of these standards to small and average enterprises because it is such a complex way of reporting for these small enterprises to adopt.
By using these standards, the small and medium businesses will be forced to adopt a complicated way of presenting the fiscal records at the end off the specified financial year. Further there was some demand by the companies from the locale for the consideration of a waiver of the fee which is normally applied to the printing costs. These companies requested that this wa8ver be applied so that they can reduce their expenses to be incurred in preparation for the end of the year records.
These issues raised by various companies in the Australian region, that is, the relevance of these standards to some of the these standards, the level of hardness in trying to apply these standards to individual small and moderate organisations, the real perception of the sector neutral reporting, the real and consistent interpretation of the standards at the required time by the involved organisations, the major challenge of influencing the Australian body governing the financial standards, that is the “Finance Accounting Standards Board” given that this body is on a very high focus to converge the standards with the IASB and whether the removal of options to provide for additional indigenous guidance on these matters converge with this international body and therefore can allow comparability were all forwarded to this international body for consideration. These issues had been presented tom the IASB for consideration of doing some revisions or appropriate amendments.
Most of the cases discussed above are naturalistic because these cases are occurring as a natural reaction to the effort the international company is trying to put into the enforcement of these standards. It is natural from the philosophy of naturalism that the there often is a natural selected path of reaction to the kind of action that is going to be exhibited either by an organism or an institution as a response. Here these companies that are crying foul of the implementations of these standards have actually chosen which clauses r which specific parts that are affecting them the most and hence they decide to show some kind of resistance to these parts or recommendations.
Many people might try to argue this from the perspective of a scientist on grounds that since the companies have shown some reaction then it becomes automatically a case of an action and reaction theory but I would like to give a clearer explanation that this process or showing some reaction is actually selective hence naturalistic because everything that is happening is taking place within the defined spatio. For a scientific reaction there is normally a law that governs the kind of motion or reaction that we are going to experience and hence the future is predictable based on this kind of law.
Normally under the kind of conditions defined the same kind of response is exhibited. Although in this case the same kind of response might be exhibited if the same standards were applied in the same countries and specifically to the same companies, there is a given reason as to why these kinds of feedback are exhibited. These reasons contribute to the nature of the responses. This is unlike in the scientific notions that require a specific law to be followed even when the reasons why the laws are applicable are actually not self explanatory.
This, however, is judged as naturalism because not all small and medium companies will have come up with such kind of resistance as in the case of scientific responding where all the exposed victims have to give the same kind of response each time the action is applied. Some managers at some companies may be so willing to adopt the new changes without having to deeply consider the implications of the changes to their organisation in the future.
They decide to just adopt these changes because they are internationally recognised and acceptable and or because they have been presented and are to be enforced. These kinds of managers feel obliged to quickly adopt these changes in order to comply with international standards without first examining the kind of impact theses standards are going to put on them.. This therefore leads to a case of exclusion- a principle that would have otherwise been a scientific one.
A positive theory is an expression of a statement- the way things are. It is just all about an expression of a statement, for example if someone says this, “This Company is underperforming”, implies that this person is highly positive about the company's performance. A positive statement is a statement expressing 'what is' without going into the details acceptance or disapproval. Note that this statement is only a statement, which can be either true or false, and therefore can be subject to validation. In validation, the truth in this statement will have to be verified. When an expression is simply put in a statement form then it qualifies in the category of positive theory'. Therefore, a positive theory can apply to any situation in any industry or even in conversations.
In the accounting history, positive theory has been linked with the characteristic view of the advancement of guidelines in broad terms. This specific view has made an observation that a normative theory may be used in the same sense for advocacy the same way this theory can be used as for the case of illumination. This has put on a clear indication that, the perpetrating changes in the regulations field are therefore a very important accelerator for the demand of such normative theories.
As for the case of these revised international reporting standards for small and medium enterprises as actually pushed for the call of strong normative theories because their interests here are at stake. Because positive theory seeks to explain what is practised, observations made, and normally generating proposition, it strongly lays a firm foundation on testing in order to verify the current situations. This way companies can verify impacts of the kind of changes are going to be effected as a result of adopting or bringing in some new different regulations
For example, the impacts of the sudden adoption of the internationally set standards of financial recording were felt by the affected companies after they prepared their financial records using their usual methods of recording and then compared the results with the newly set international standards. The implication were reported down and later presented to this main body on the effects the recommendations have had on the affected companies. This helps in identifying specific areas where pronounced effects have been felt.
As a result, the IASB was advised accordingly that these small and moderate businesses were actually unnecessarily affected by their recommendations and therefore it is advised accordingly .to take measures to reduce the effect on these businesses. This is a clear indication that positive theory helps to realise correction as suggested after the exhaustive process of testing and verification then an explanation provided. This rational justification helps in the appreciation of the real world as it is. This normally adds up when we are trying to understand the challenges (Guy Thomas & Andrew Smith).
From the discussion above, the issues that arose from the adoption of IFRSs were positively stated and hence it was easier for the IAS Board to act in precision in response to the complains made by the affected businesses in different localities all over the world. For example, the cases of complains made by the small and medium sized entities in the adoption of
Models derived from observed performance may aid enhanced predictions than normative representation
During one of the IASB's annual meeting the board entered a registry in the concerns that the second phase of the IASB's plan on business joining was likely going to meet significant resistance. This made the Board to be highly worried as to whether the IASB were conscious of the significant hostility to its proposals that remained in spite of the IASB proposing two preferences for the valuation of the non-controlling concern. They also noted that addition of the second choice in order to value non-controlling interests at its balanced interest in the acquiree's particular net assets at the attainment date destabilized the entity model that the IASB hoped to give an application to. The Board was also disturbed to learn that the IASB proposed to issue the IFRS Without a notification of the changes it intended to establish.
For a concept to be accepted as normative, it should represent a desirable or an undesirable which is normally a representation of an opinion. A normative account expresses a ruling about whether a position is sought-after or unwelcome. For example, someone put up a statement like 'The world economy would be the strongest if there were no physical barriers" is a normative testimonial because it expresses a verdict about what should be. This statement is however hard to disapprove. If you hail a different opinion on this, you have no sure way of influencing someone who believes the statement that he is mistaken.
There is a view that observes that a normative theory may be oriented as much for support as for explanation. Changes in guideline, actual or threatened, are therefore an important stimulant of demand for normative theories. For example, proposals to revise accounting standards for pension costs lead to demand for normative theories which support particular interests. Recourse to normative theory provides a more effective lobbying strategy than simple declarations of self-interest. Different theories are demanded by different vested interests. This demand for normative theories to support particular interests constitutes one side of what has been called the market for excuses. Given the demand which regulation creates for normative theories, where does the supply come from? Practitioners have an obvious incentive to supply theories which support the interests of their clients or employers.
Academics are also a source of normative theories; they have little direct incentive to meet the needs of vested interests, although by doing so they may increase their chances of enjoying industry research funding and other indirect benefits (such as being widely quoted, or greater ease of publication in professional journals).
These observations need not impugn the motives of either practitioners or academics: both may produce their theories purely for intellectual motives, with no regard for vested interests. However, the tendency of vested interests to quote theories which support their positions produces a survival bias: theories which are adopted by vested interests are more effectively disseminated than those which are not.
This theory does have other uses apart from providing the market for justifications. It helps to standardise practice, for a case in point by codifying pension endowment techniques. It also has a educational role, in that it smoothens the progress of the instruction of practice in a more logical manner. (For example, the syllabus content for the later professional examinations consists largely of normative theory.)
Guy Thomas & Andrew Smith; Positive theory,
Robert Schenk, Positive and Normative theories, http://ngrimayne.com/econ/Introduction/Normativ.html