“There is overwhelming demand for high quality accounting standards that are internationally accepted. It is of the utmost importance that the IASB delivers these as quickly as possible.”
a) Outline the current structure of the IASB, highlighting the major influences and controls on it. (30%)
b) Explain the main advantages of high quality, internationally accepted accounting standards and the main challenges the IASB faces in developing them. (50%)
c) Comment on the quotation above and give a conclusion on its validity. (20%)
a) The International Accounting Standards Board (hereafter “IASB”) replaced the International Accounting Standards Committee on April 1 2001. This represented the culmination of a restructuring project based on the recommendations of the report Recommendations on Shaping IASC for the Future. The IASB, which is based in London, is constituted by fourteen board members drawn from nine different countries, of whom twelve are full-time and 3 are part-time.
The composition of the membership is as follows: a minimum of five former auditors, three former users of accounts, three former preparers of accounts, and one academic. The remaining two can be drawn from any of these backgrounds or from a different background.
The IASB is entrusted with the responsibility to establish International Financial Reporting Standards (IFRS) and its goal is to create conformity and compatibility around the world. Its mission statement is to provide “high quality, understandable and enforceable global accounting standards”. This is a substantial task, given that the accounting principles generally accepted in each individual country can in practice differ significantly between national jurisdictions.
If you need assistance with writing your essay, our professional essay writing service is here to help!Essay Writing Service
The IASB is organised on the following lines. Its parental body, the IASC Foundation is an independent entity having two main arms, namely, the Trustees and the IASB, and in addition it incorporates the International Financial Reporting Interpretations Committee and a Standards Advisory Council. The 22 Foundation Trustees of the IASC are empowered to appoint members to the IASB, to exercise general oversight and administrative and managerial supervision, and to generate the funds needed to finance the operation. However it should be stressed that the IASB has sole and exclusive responsibility for establishing accounting standards.
The focus of the IASB is on the pursuit of a rolling work plan. The work plan is determined and updated at regular IASB meetings and reflects the objectives and broad timetable of the Memorandum of Understanding between the IASB and the US Financial Accounting Standards Board (hereafter “FASB”) which lays down the so-called Roadmap for Convergence between IFRSs and US GAAP between 2006 and 2008. The Memorandum of Understanding establishes goals that the IASB and FASB have agreed to achieve so as to facilitate the convergence of accounting standard-setting. The long-term strategic priority of both the IASB and FASB remains the establishment of a common set of high quality global standards.
b) The overarching goal of the IASB is the creation and maintenance of a set of understandable, enforceable and effective accounting standards for consistent application around the world. The object of this exercise is to attempt to guarantee both equivalence and transparency in certain universal financial statements compiled in different national jurisdictions across the globe by engineering a commensurate and smooth convergence of previously diverse national standards of accounting reporting..
It is manifest that the achievement of such an end would facilitate international business and investment, reduce commercial risk and increase transparency, and improve the general quality of financial reporting around the world. The IASB has resolved that if consistently reliable and effective financial reporting infrastructure is to be established it must both embody and reflect four essential characteristics:
1. It is deemed essential that settled accounting standards are consistent, comprehensive and founded on a transparent set of general principles which strive to guarantee that financial reports fairly and accurately reflect all background and underlying financial realities.
2. Functional mechanisms must be put in place to ensure the adoption of efficient and effective corporate governance practices, and that in turn these should incorporate a condition for strict systems of internal control which serve to apply common accounting standards.
3. Auditing practices must be established in which the diverse users and prepares of accounts in the outside world can invest confidence and trust, and which categorically establish that undertakings produce reports which represent a true and fair view of their economic performance and overall financial state.
4. It is necessary to implement a cogent surveillance and enforcement regime which ensures that the fundamental rules and principles as determined by the universally prevailing auditing and accounting standards are both respected and applied..
The ‘Framework for the Preparation and Presentation of Financial Statements‘ was published by the IASB’s predecessor, the International Accounting Standards Committee in 1989. Popularly known as the Conceptual Framework, this document lays down the essential concepts to be adhered to in the production of financial statements for external appraisal and usage. The Framework deals with such matters as: qualitative characteristics of financial information; fundamental assumptions; objectives of financial statements; elements of financial statements; core components of financial statements; measurement of the items of financial statements; capital maintenance issues.
That said, it is worth emphasising that the Conceptual Framework is not accorded the full status of an accounting standard. The same can be said of the Statement of Principles of the UK Accounting Standards Board. This obviously constitutes a practical challenge because it renders application less certain and can result in a dilution of the principles it endeavours to entrench.
Despite this difficulty, the Framework guides the current work of the IASB in its development of contemplated International Financial Reporting Standards and it influences the IASB’s rolling review of established International Accounting Standards.. It is submitted that this modus operandi should encourage the harmonisation of accounting standards, and hone those procedures and regulations relevant to the presentation and substance of financial statements by setting down an underlying conceptual rationale for reducing the number of different accounting treatments allowed under international standards.
The IASB faces a huge challenge in catering for the all the different classes of users of financial statements, who may seek to use those financial statements for a wide number of purposes. Given that users may include classes as diverse as, suppliers, lenders, trade creditors, investors (current and potential), employees, customers (current and potential), the general public and Government agencies, it is clear that the IASB has to take a vast array of different and sometimes competing interests into account in determining the appropriate rules of accounting.
c) It is very hard to argue with the quote under review, because there is manifestly considerable demand among, in particular accounts users, who rely upon accounts to guide a multiplicity of business and investment decisions, for high quality accounting standards that are both internationally accepted and respected and universally applied. Given that unarguable truth the second part of the quote is also clearly well founded. Of course it would be desirable to deliver improvements to accounting standards as soon as possible. This commentator can conceive of no reason to delay the introduction of what would represent a significant improvement in conditions of finance and trade, in particular given the increasing globalisation of business and commerce and the relative growth in the number of international transactions as opposed to national transactions with each passing year. In simple words, business is becoming ever more global and accounting standards must consolidate to reflect that new environment and practice.
The demand and determination to achieve high quality and internationally accepted accounting standards is perhaps best evidenced by the focused cooperation between accounting standard setting bodies witnessed in recent years. In 2004 the IASB started work on a project in partnership with the US FASB which is aimed at the development of a so-called common conceptual framework, in the hope of that such would facilitate the convergence and refinement of the existing frameworks of both accounting standards Boards.
Demand for tighter and more consistent accounting standards has also been fuelled by analysis of the high profile corporate collapses of companies like Enron and WorldCom in recent years. Accountants were widely criticised for auditing errors in these cases, which have already proved the catalysts for a raft of new corporate governance regulations.. These huge corporate collapses and others of their ilk have not only given rise to increased demand for accounting standard improvement and consolidation but also underline the very real need for concerted action in this field.
In sum, it is submitted that the quote under review is well founded in both its primary assertions..
WORD COUNT: 1574 (excluding footnotes) BIBLIOGRAPHY
Recommendations on Shaping IASC for the Future: A Report of the International Accounting Standards Committee’s Strategy Working Party, Recommendations to the IASC Board, 30 November 1999: http://www.iasb.org/uploaded_files/documents/8_210_swp_rep.pdf
Mirza and Epstein, IFRS: Interpretation and Application of International Accounting Standards, (2006) Wiley
Horngren, “Uses and Limitations of a Conceptual Framework,” Journal of Accountancy, April 1981
Framework for the Preparation and Presentation of Financial Statements, http://www.iasplus.com/standard/framewk.htm.
Alfredson et al., Applying International Accounting Standards, (2005) Wiley.
Lewis and Pendrill, Advanced Financial Accounting, (2004) Prentice Hall
International Accounting Standards Board website: http://www.iasb.org/Home.htm
Inman, UK accounting firms enjoy £1bn bonanza in wake of Enron, The Guardian, 28 June 2006.
Memorandum of Understanding between the FASB and the IASB 27 February 2006: http://www.iasb..co.uk/.
The IASB Conceptual Framework – An Introduction, Dr Philip Dunn, AccountingWeb, 9 May 2005:
International Accounting Standards Committee (IASC) (1998); “Shaping IASC for the Future”, Discussion Paper, December, 1998
 Recommendations on Shaping IASC for the Future: A Report of the International Accounting Standards Committee’s Strategy Working Party, Recommendations to the IASC Board, 30 November 1999: http://www.iasb.org/uploaded_files/documents/8_210_swp_rep.pdf. And see: International Accounting Standards Committee (IASC) (1998); “Shaping IASC for the Future”, Discussion Paper, December, 1998.
 See: http://www.iasb.org/Home.htm.
 Memorandum of Understanding between the FASB and the IASB 27 February 2006: http://www.iasb.co.uk/.
 See: http://www.iasb.co.uk/.
 Statement of Sir David Tweedie, Chairman of the IASB, Before the Committee on Banking, Housing and Urban Affairs of the United States Senate, Washington DC, 9 September 2004: http://www.iasb.org/uploaded_files/documents/8_129_040909-dpt.pdf.
 See: Framework for the Preparation and Presentation of Financial Statements, http://www.iasplus.com/standard/framewk.htm.
 The IASB Conceptual Framework – An Introduction, Dr Philip Dunn, AccountingWeb, 9 May 2005: http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=140805&d=448&h=0&f=0.
Cite This Work
To export a reference to this article please select a referencing stye below:
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: