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International Harmonization of Financial Reporting

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Chapter 3International Harmonization of Financial ReportingSlide 3Slide 4HarmonizationSlide 6Slide 7Harmonization: The Pros and ConsSlide 9Harmonization EffortsSlide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Principles-Based Approach to Accounting Standard SettingSlide 21Slide 22IASB Framework and IFRSsSlide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Presentation of Financial Statements (IAS 1)Slide 32Slide 33First Time Adoptions of IFRSs (IFRS 1)Use of IFRSsIASB/FASB ConvergenceSlide 37Slide 38McGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 3International Harmonization of Financial Reporting3-2International Harmonization of Financial ReportingChapter TopicsHarmonization: Definition, pros and cons, efforts toward.International Accounting Standards Board (IASB).Other organizations involved in Harmonization.Principles-based vs. Rules-based accounting.IASB Framework and IFRSs.Use of and support for IFRSs.Convergence of IAS and U.S. GAAP.3-3International Harmonization of Financial ReportingLearning Objectives1. Explain the meaning of harmonization.2. Identify the arguments for and against international harmonization of accounting standards.3. Discuss major harmonization efforts.4. Explain the principles-based approach used by the International Accounting Standards Board (IASB).3-4International Harmonization of Financial ReportingLearning Objectives5. Discuss the IASB’s Framework and Standards related to the adoption of International Financial Reporting Standards (IFRSs) and presentation of financial statements.6. Examine the support for, and the use of, IFRSs across countries.7. Describe the IASB/FASB convergence project.3-5HarmonizationWhat is harmonization?Harmonization -- the process of increasing the level of agreement in accounting standards and practices between countries.Learning Objective 13-6HarmonizationThe two “levels” of HarmonizationHarmonization in accounting standards, which is increased agreement in accounting rules. Harmonization in practice, which is increased agreement in actual accounting practices.Harmonization in standards may or may not result in harmonization in practice. Learning Objective 13-7HarmonizationHarmonization Is different from Standardization.Harmonization allows for different standards in different countries as long as there are not logical conflicts. Standardization involves using the same standards in different countries.Learning Objective 13-8Harmonization: The Pros and ConsPros:Expedite the integration of global capital markets and make easier the cross-listing of securities.Facilitate international mergers and acquisitions.Reduce investor uncertainty and the cost of capital.Reduce financial reporting costs.Allow for easy adoption of high-quality standards by developing countries.Learning Objective 23-9Harmonization: The Pros and ConsCons: Significant differences in standards currently exist.The political cost of eliminating differences.Overcoming “Nationalism” and traditions.Perhaps it will not provide significant benefits.Will cause “Standards Overload” for some firms.Diverse standards for diverse places is acceptable.Learning Objective 23-10Harmonization EffortsOrganizations involvedAssociation of South East Asian Nations (ASEAN).United Nations (UN) / European Union (EU).International Organization of Securities Commissions (IOSCO).International Federation of Accountants (IFAC).IASB and FASB.Learning Objective 33-11Harmonization EffortsOrganizations involvedIOSCO – is essentially the international equivalent of the U.S. Securities and Exchange Commission (SEC).IFAC – is similar, at the international level, to the American Institute of Certified Public Accountants (AICPA).IASB – is essentially the international equivalent of FASB.Learning Objective 33-12Harmonization EffortsIOSCOWorks to achieve improved market regulation internationally.Works to facilitate cross-border listings.Advocates for the development and adoption of a single-set of high quality accounting standards.Learning Objective 33-13Harmonization EffortsIFACWorks to develop international standards of auditing, ethics, and education.Began International Forum on Accountancy Development (IFAD) to enhance the accounting profession in emerging countries.Started the Forum of Firms to raise global standards of accounting and auditing.Learning Objective 33-14Harmonization EffortsEUHas worked to harmonize accounting standards within the EU, primarily by way of two directives.Fourth Directive – a set of comprehensive accounting rules built on the principle of a “true and fair view.”Seventh Directive – requires consolidated financial statements for company groups of a certain size.Learning Objective 33-15Harmonization EffortsIASBPreceded by the IASC (International Accounting Standards Committee).Works toward harmonization of international accounting standards.IASC was established in 1973.Learning Objective 33-16Harmonization EffortsIASBComprised of 14 members (12 full, 2 part-time).7 members are liaison with a national board.Standard development process is open.Standards are principles-based.Since establishment of IASB, focus is on global standard-setting rather than harmonization per se.Learning Objective 33-17Harmonization EffortsIASB – Major InitiativesComparability Project Comprehensive review of existing IAS (International Accounting Standards).Begun in 1989.In order to increase rigor of IAS.Learning Objective 33-18Harmonization EffortsIASB – Major InitiativesIOSCO AgreementEstablishment of a core set of 30 accounting standards.Standards agreed upon by IOSCO and IASC.Learning Objective 33-19Harmonization EffortsIASB – Revised StructureThe restructured IASB is overseen by the IASC Foundation which also oversees:The International Financial Reporting Interpretations Committee (IFRIC).The Standards Advisory Council (SAC).Also, IFRSs are subject to due process and the IASC Foundation now periodically reviews its constitution.Learning Objective 33-20Principles-Based Approach to Accounting Standard SettingIASB PerspectiveIASB attempts to follow a Principles-Based approach to standard setting.As such accounting standards are grounded in the the IASB Framework.Learning Objective


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