International Accounting Standards Board (IASB)

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International Accounting Standards Board (IASB)

• ACTG 4570/5570

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International Accounting Standards Committee
(IASC)

• Formed June 29, 1973 by representative bodies
  from 9 countries including
• Australia, Canada, France, Germany, Japan,
  Mexico, Netherlands, U.K./Ireland, and U.S
• Headquartered in London, England
• Representatives from 112 countries and more than
  153 organizations

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Board Restructuring

• Restructured April 1, 2001
• New structure
• Now called International Accounting Standards
  Board (IASB)
• IASB is an independent organization with two main
  bodies
• Trustees
• Board
• Also has a a Standards Advisory Council (about 50
  members), miscellaneous Advisory Committees and
  an International Financial Reporting
  Interpretations Committee (12 members appointed
  by the Foundation)

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Board Restructuring

• Trustees
• 19 highly respected experienced members
• Chairman of trustees is Phil Laskawy, Former
  Chairman and CEO of Ernst Young, New York, USA
• Main duties
• Appoint Board, Committee, and Council Members
• Exercise oversight of Board
• Raise funds

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Board Restructuring

• Board
• Sole responsibility for setting accounting
  standards
• 12 full-time, 2 part-time, paid voting members
• Have best available combination of technical
  skills and international business experience
• First chairman of the new IASC Board
• Sir David Tweetie, former U.K. Accounting
  Standards Board Chairman
• List of members

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Mission Statement

• The International Accounting Standards Board is
  an independent, privately-funded accounting
  standard setter based in London, United Kingdom.
  Board Members come from nine countries and have a
  variety of functional backgrounds.
• The Board is committed to developing, in the
  public interest, a single set of high quality,
  understandable and enforceable global accounting
  standards that require transparent and comparable
  information in general purpose financial
  statements.
• In addition, the Board cooperates with national
  accounting standard setters to achieve
  convergence in accounting standards around the
  world.

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Standard Setting Process

• 1. The Board establishes an Advisory Committee
  to give advice on the issues arising in the
  project. Consultation with the Advisory
  Committee and the Standards Advisory Council
  occurs throughout the project.
• 2. IASB may develop and publish Discussion
  Documents for public comment.
• 3. Following the receipt and review of comments,
  IASB would develop and publish an Exposure Draft
  for public comment

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Standard Setting Process

• 4. Following the receipt and review of comments,
  IASB would issue a final International Financial
  Reporting Standard.
• 5. Publication of a Standard, Exposure Draft, or
  final SIC Interpretation requires approval by 8
  of the 14 members. Other decisions, including
  the issuance of a Draft Statement of Principles
  or a Discussion Paper and agenda decisions,
  requires a simple majority of the Board Members
  present at a meeting attended by 50 or more of
  the board members.

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Need for IAS

• Multinational companies often must prepare
  multiple sets of financial statements for each
  stock exchange on which they list
• Comparability is hindered with the use of
  different sets of standards
• May lower cost of capital and increase global
  mergers
• Very helpful for developing countries that have
  no standard setting bodies

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International Accounting Standards

• Harmonization now called convergence
• IASB Liaison countries Australia/New Zealand,
  Canada, France, Germany, Japan, United Kingdom,
  United States
• Other countries several use IAS exclusively
• IAS now called International Financial
  Reporting Standards (IFRSs)

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Use of IFRS

• European Union All listed companies must use
  IFRS beginning January 1, 2005 (NOW!!!!!)
• Those companies in the E.U. trading in the U.S.
  and now using U.S. GAAP have until 2007 to change
  to IFRS
• Several other countries (over 100 in total) have
  changed to IFRS as well Australia, China, New
  Zealand, Russia, Switzerland, U.S. SUBSIDIARIES
  OF ANY OF THESE COUNTRIES!!!!!
• Even Canada in 2007.

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IFRSs

• IFRS 1 First-Time Adoption of International
  Financial Reporting Standards
• IFRS 2 Share-based Payments
• IFRS 3 Business Combinations
• IFRS 4 Insurance Contracts
• IFRS 5 Non-current Assets Held for Sale and
  Discontinued Operations
• IFRS 6 Exploration for and Evaluation of
  Mineral Resources
• IFRS 7 Financial Instruments Disclosures
• IFRS 8 Operating Segments
• There were 41 International Accounting Standards
  (IAS)
• issued, 29 are still in force after being
  updated
• The IASs have been grandfathered into IFRSs.
• There is a conceptual framework that is being
  updated.

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Updated International Accounting Standards (IAS)

• 1 Presentation of Financial Statements
• 2 Inventories
• 7 Cash Flow Statements
• 8 Accounting Policies, Changes in Accounting
  Estimates and Errors
• 10 Events After Balance Sheet Date
• 11- Construction Contracts
• 12 Income Taxes
• 16 Property, Plant and Equipment
• 17 Leases
• 18 Revenue
• 19 Employee Benefits

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Updated International Accounting Standards (IAS)

• 20 Accounting for Government Grants and
  Disclosure of Government Assistance
• 21- The Effects of Changes in Foreign Exchange
  Rates
• 23 Borrowing Costs
• 24 Related Party Disclosures
• 26 Accounting and Reporting by Retirement
  Benefit Plans
• 27 Consolidated Financial Statements and
  Accounting for Investments in Subsidiaries
• 28 Investments in Associates
• 29 Financial Reporting in Hyperinflationary
  Economies
• 31 Interests in Joint Ventures

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Updated International Accounting Standards (IAS)

• 32 Financial Instruments Presentation
• 33 Earnings per Share
• 34 Interim Financial Reporting
• 36 Impairment of Assets
• 37 Provisions, Contingent Liabilities and
  Contingent Assets
• 38 Intangible Assets
• 39 Financial Instruments Recognition and
  Measurement
• 40 Investment Property
• 41 - Agriculture

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IASB Active Agenda

• Government grants
• Joint ventures
• Impairment
• Income tax
• Investment properties
• Research and development
• Subsequent events
• Business combinations

• Consolidations
• Fair value measurement guidance
• Financial statement presentation
• Revenue recognition
• Post-retirement benefits
• Leases

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Main Differences Between U.S. GAAP and IFRS

• Revaluation of tangible assets allows fair
  market valuation of property, plant and equipment
• Development costs can be capitalized
• Stock options expense of options
• LIFO inventory not permitted
• No extraordinary items allowed

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Differences from U.S. GAAP

• IFRS have no enforceability internationally only
  enforceable by local country adopting them.
• IFRSs deemed less rigorous
• IFRSs do not cover as many issues as FASB
• Board setup
• Too political?
• Still too large?
• Is it really independent?
• Are constituents biased toward their own national
  standards?
• Constituents often appear Anti-U.S.

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Acceptance of IAS

• Securities and Exchange Commission (SEC) still
  requires reconciliation to U.S. GAAP but allows
  following of IFRS for 3 standards
• IAS 7, IAS 21, IAS 29
• SEC Proposal (February 16, 2000)
• SEC Proposal (April 21, 2005)
• FASB/IASB Memorandum of Understanding (Norwalk
  Agreement)
• Both pledged to use their best efforts to
  converge standards
• Coordinate future work programs

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SEC Proposal (2/16/00 and 4/21/05)

• The Securities and Exchange Commission (SEC)
  proposed that foreign companies listing on U.S.
  stock exchanges be allowed to follow IAS in
  preparing their financial statements in lieu of
  using U.S. GAAP.
• Currently there are around 1,230 foreign private
  issuers from more than 57 countries listing with
  the SEC.
• What are the implications of this proposal?

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Issues for U.S. Proposal

• SEC is proposing IAS (IFRSs) for foreign
  registrants only domestic companies must still
  follow U.S. GAAP
• Should foreign registrants get special
  privileges?
• Will this cause U.S. companies to be
  headquartered in a foreign country to take
  advantage of IFRS rules?

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SEC Recent ProposalFirst-time Application of IFRS

• Release 33-8397, March 11, 2004
• Permits two year presentation (relief from
  preparing three comparative years under IFRS)
• Proposal relates to entities that
• Adopt IFRS on or before 1/1/2007
• Comply with all IFRS approved by IASB
• Reconciliation to US GAAP still required but for
  two years
• SEC will evaluate the quality of IFRS financial
  statements.
• SEC Chairman Donaldson gave EU Internal Market
  Commissioner a roadmap for eliminating the US
  GAAP reconciliation between now and 2009 at the
  latest.

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Impediments to Convergence

• Resistance to change
• European Economic Union
• Conceptual frameworks?
• No more rigorous than the FASB
• U.S. Congress

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Websites

• IASB (www.iasb.org)
• IAS Plus (www.iasplus.com)
• Website sponsored by Deloitte
• Lists differences between IFRSs and different
  countrys GAAP