IA2: THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)

In this unit, we shall discuss International Accounting Standards Board. We will discuss issues relating to how the International Accounting Standards Board evolved. Similarly, other issues such as objectives of the IASB, features of the IASB structure, the IASB due process, and the argument for and against accounting standards were discussed.

THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)

BRIEF HISTORY OF THE INTERNATIONAL ACCOUNTING STANDARDS BOARD

In 1973, the International Accounting Standards Committee (IASC) was established to develop and issue accounting standards that should guide the preparation and presentation of financial statements, globally. The IAS was in existence until 2001 by which time it had issued forty-one International Accounting Standards (IASs).

Because of differences in interpreting the accounting standards issued by the IASC, a new body called Standard Interpretation Committee (SIC) was established by the IASC in 1997. As at 2001, the SIC had issued 32 interpretations, some of which are still applicable to financial statements issued today.

In 2001, there were fundamental changes in the global standard setting body which resulted in the establishment of a new body called International Accounting Standards Board (IASB), to take over the responsibilities of the IASC with effect from 1st April, 2001. The IASB now issues International

Financial Reporting Standards (IFRS) in place of International Accounting Standards (IAS) issued by the IASC.

SELF ASSESSMENT EXERCISE

Describe the brief history of the International accounting Standard Board.

OBJECTIVES OF THE IASB

Article 2 of the IASB constitution sets out the objectives of the IASC foundation, as follows:

(a) To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in world’ capital markets and other users make economic decisions;

(b) To promote the use and rigorous application of those standards;

(c) To fulfil the objectives associated with (a) and (b) above, to take account of, as appropriate, the special needs of small and medium-sized entities and emerging economics; and

(d) To bring about convergence of national accounting standards and international financial reporting standards to high quality resolutions.

SELF ASSESSMENT EXERCISE

What are the objectives of the International Accounting Standard Committee?

STRUCTURE OF THE IASB

In accordance with Article 18 of its Constitution, “The International Accounting Standards Board is an independent, privately-funded accounting standard-setter based in London, U.K. The Board members come from nine countries and have a variety of functional backgrounds”.

The IASB structure has the following main features.

(a) Trustees. The trustees are not involved in the standard process of the IASB, but have responsibility for strategic operational issues such as budgets, operational procedures of the IASB and appointment of members of the Board IFRIC and SAC.

(b) The Board. The Board consists of 12 full-time members and 2 part-time members who are appointed by the Trustees, based on their technical skills and other experience. These members are responsible for the standard setting activities of the IASB.

(c) Standards Advisory Council (SAC). The SAC provides a forum for the IASB to consult with a range of individuals and organizations affected by the IASB’s work. The SAC also advises the IASB on a wide range of issues including the IASB’s agenda and IASB’s project priorities and time table.

(d) International Financial Reporting Interpretations Committee (IFRIC). The IFRIC assists the IASB in improving financial reporting by providing timely guidance and interpretation of international financial reporting standards.

SELF ASSESSMENT EXERCISE

What are the features of the International Accounting Standard Board?

THE IASB DUE PROCESS

As with SASs, the development of IFRSs follows a due process which comprises the following six stages, according to the IASB’s Due Process Handbook.

Stage 1: Setting the agenda;

Stage 2: Project planning;

Stage 3: Development and publication of a discussion paper;

Stage 4: Development and publication of an exposure draft;

Stage 5: Development and publication of an IFRS;

Stage 6: Procedures after an IFRS is issued.

SELF ASSESSMENT EXERCISE

Outline the due process of the International Accounting Standard Board.

ARGUMENTS FOR AND AGAINST STANDARDS

Arguments for are:

(a) They give accountants and auditors some protection from those who may try to pressurize them into using improper methods and. Therefore, ensure their independence.

(b) They ensure that all stakeholders make contributions into the standard formulation and as such enriches the quality;

(c) They usually conform with international accounting standards;

(d) They usually conform with all existing law and regulation requirements; for example CAMA

2004, BOFIA 1991, Insurance Act 2003;

(e) The Standards are reviewed periodically to conform with the latest economic and social  developments; and

(f) The enactment of the NASB Act, 2003, gives it power to enforce compliance with standard.

Arguments against may be discussed, as follows:

(a) They inhibit initiative as decisions have already been made;

(b) They rarely take account of peculiarities of the individual businesses, and

(c) Standards may be ‘watered-down’, due to exposure to interested parties or intended users.

SELF ASSESSMENT EXERCISE

What are the arguments against and for accounting standards?

CONCLUSION

The IASC or the accountancy profession does not have the power to enforce international agreement or to require compliance with international accounting standards.

The success of IASC’s effort is dependent upon recognition and support for its work from many different interested groups acting within the limits of their own jurisdiction. Recognition of IASC’s work comes from groups such as the international bodies representing financial institutions, financial executives, trade unions, employers, stock exchanges, lawyers, securities commissions and financial analysts involved in the Board and consultative group. Others include the United Nations (UN), the Organization for Economic Cooperation and Development (OECD) and the International Federation of Accountants.

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