International Accounting Standards Quiz

Intermediate Accounting (IFRS Edition)

• The textbook is titled "Intermediate Accounting IFRS Edition"
• The textbook's authors are Kieso, Weygandt, and Warfield
• The book is published by Wiley
• The third edition is used
• Prepared by Coby Harmon, University of California, Santa Barbara, Westmont College
• Page 1-1

Chapter 1: Financial Reporting and Accounting Standards

• Learning Objectives:
  • Describe the growing importance of global financial markets and its relation to financial reporting.
  • Explain the objective of financial reporting.
  • Identify the major policy-setting bodies and their role in the standard-setting process.
  • Discuss the challenges facing financial reporting.
• Page 1-2

Preview of Chapter 1

• Global Markets:
  • Financial statements and financial reporting
  • Accounting and capital allocation
  • High-quality standards
• Objective of Financial Reporting:
  • General-purpose financial statements
  • Equity investors and creditors
  • Entity perspective
  • Decision-usefulness
• Standard-Setting Organizations:
  • International Organization of Securities Commissions (IOSCO)
  • International Accounting Standards Board (IASB)
  • Hierarchy of IFRS
• Financial Reporting Challenges:
  • IFRS in a political environment
  • The expectations gap
  • Significant financial reporting issues
  • Ethics in the environment of financial accounting
  • International convergence
  • Conclusion
• Page 1-3

Global Markets - Learning Objective 1

• World markets are increasingly intertwined.
• Top 20 global companies by sales include Walmart (U.S.), State Grid (China), China National Petroleum (China), Sinopec Group (China), etc.
  • This table lists the top 20 global companies with their country and revenue in millions.
• Page 1-4, 1-5
• Significant number of foreign companies are found on national exchanges
  • NYSE (U.S., 21.0% foreign listings), Nasdaq (U.S., 13.3%), etc.
  • List of foreign listings in various exchanges.
• Page 1-6

Global Markets - Learning Objective 1 - Financial Statements and Financial Reporting

• The essential characteristic of accounting involves the identification, measurement, and communication of financial information about economic entities to interested parties
• Page 1-7

Global Markets - Financial Statements

• Economic Entity - Financial Information (Accounting)
  • Identify and Measure
    • Statement of Financial Position
    • Income Statement or Statement of Comprehensive Income
    • Statement of Cash Flows
    • Changes in Equity
    • Note Disclosures
• Additional Information
  • President's letter
  • Prospectuses
  • Reports filed with governmental agencies
  • News releases
  • Forecasts
• Page 1-8

Global Markets - Accounting and Capital Allocation

• Resources are limited. Efficient resource use determines business success.
• Financial Reporting
  • The financial information provides help to investors and creditors for capital allocation decisions.
• Capital Allocation
  • The process of determining how and at what cost money is allocated among competing interests
• Page 1-9

Global Markets - High Quality Standards

• Globalization demands a single set of high-quality international accounting standards.
• Some elements:
  • Single set of high-quality accounting standards established by a single standard-setting body
  • Consistency in application and interpretation
  • Common disclosures
  • Common high-quality auditing standards and practices
  • Common approach to regulatory review and enforcement
  • Education and training of market participants
  • Common delivery systems (e.g., eXtensible Business Reporting Language-XBRL)
  • Common approach to corporate governance and legal frameworks globally
• Page 1-10, 1-11

Objective of Financial Reporting - Learning Objective 2

• Objective: Provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity
• Page 1-12

Objective of Financial Reporting - Continued

• General-Purpose Financial Statements
  • Provide financial reporting information to a wide variety of users
  • Provide the most useful information possible at the least cost
• Equity Investors and Creditors
  • Investors and creditors are the primary user group
• Page 1-13

Objective of Financial Reporting - Continued

• Entity Perspective
  • Companies viewed as separate and distinct from owners (shareholders)
• Decision-Usefulness
  • Investors are interested in assessing
    • The company's ability to generate net cash inflows
    • Management's ability to protect and enhance capital providers' investments
• Page 1-14, 1-15, 1-16

Standard-Setting Organizations - Learning Objective 3

• International Accounting Standards Board (IASB)
  • Issues International Financial Reporting Standards (IFRS)
  • Standards used on most foreign exchanges.
  • IFRS used in over 149 countries
• Page 1-17
• Two main international standard-setting organizations: IOSCO and IASB
• Page 1-18

Standard-Setting Organizations - IASB

• Composed of four organizations:
  • IFRS Foundation
  • International Accounting Standards Board (IASB)
  • IFRS Advisory Council
  • IFRS Interpretations Committee
• Page 1-19, 1-20

Standard-Setting Organizations - Question

• IFRS stands for International Financial Reporting Standards
• IFRS question
• Page 1-21
• Major international key players on the international side are: IASB and IOSCO
• Page 1-22
• IASB due process elements include: An independent standard-setting board; a thorough and systematic process for developing standards; engagement with investors, regulators, business leaders, and the global accountancy profession; collaborative efforts with the worldwide standard-setting community.
• Page 1-23

Standard-Setting Organizations - The Process (Illustration 1.5)

• Topics are identified
• Preliminary views (pros/cons)
• Public hearing
• Exposure Draft
• Board response and changes
• Final standard issued
• Page 1-24

Standard-Setting Organizations - Question

• Accounting standard-setters use the following process in establishing international standards: Research, discussion paper, exposure draft, standard
• Page 1-25

Standard-Setting Organizations - Types of Pronouncements

• International Financial Reporting Standards
• Conceptual Framework for Financial Reporting
• International Financial Reporting Standards Interpretations
• Page 1-26

Standard-Setting Organizations - Hierarchy of IFRS

• Companies first look to the applicable IFRS standards.
• Followed by the IFRS Conceptual Framework for Financial Reporting and other pronouncements from standard-setting bodies using a similar conceptual framework (e.g., U.S. GAAP)
• Page 1-28
• IFRS is comprised of International Financial Reporting Standards, International Accounting Standards, and International Accounting Standards Interpretations
• Page 1-27

Financial Reporting Challenges

• Learning Objective 4
• IFRS in a Political Environment
  • Considering the economic consequences of many accounting rules, special interest groups are expected to vocalize their reactions to proposed rules.
  • The Board should not do is issue standards that are primarily politically motivated.
  • While paying attention to its constituencies, the Board should base IFRS on sound research and a conceptual framework that has its foundation in economic reality.
• Page 1-29
• Illustration 1.6: User groups that influence the formulation of accounting standards include business entities, financial community, preparers, government, and industry associations.
• Page 1-30

Financial Reporting Challenges - Continued

• The Expectations Gap: What the public thinks accountants should do and what accountants think they can do.
• Significant Financial Reporting Issues: Non-financial measurements, forward-looking information, soft assets, timeliness
• Page 1-31

Financial Reporting Challenges - Ethics

• Companies that concentrate on maximizing the bottom line, facing challenges of competition, and stressing short-term results place accountants in an environment of conflict and pressure.
• IFRS does not always provide an answer.
• Technical competence is not enough when encountering ethical decisions
• Page 1-32

Financial Reporting Challenges - International Convergence

• Examples of how convergence is occurring
  • China's goal is to eliminate differences between its standards and IFRS
  • Japan permits the use of IFRS for domestic companies
  • IASB and FASB have spent 12 years converging their standards
  • Malaysia helped amend the accounting for agricultural assets
  • Italy provided advice on accounting for business combinations under common control.
• Page 1-33
• Question: The expectations gap is what the public thinks accountants should do and what accountants think they can do. Page 1-34

Global Accounting Insights - Learning Objective 5

• Most agree that there is a need for one set of international accounting standards due to multinational corporations, mergers and acquisitions, information technology, and financial markets, etc.
• Page 1-35

Global Accounting Insights - Relevant Facts - Similarities

• GAAP is developed by the Financial Accounting Standards Board (FASB), a private organization. FASB is overseen by the U.S. Securities and Exchange Commission(SEC). IOSCO oversees the IASB.
• Both IASB and FASB have similar governance structures (governance, board, and an advisory council)
• FASB relies on the SEC; IASB relies primarily on IOSCO
• IASB and FASB working together to find common ground wherever possible
• Page 1-36 & 1-37

Global Accounting Insights - Relevant Facts - Differences

• U.S. GAAP is more rule-based (detailed); IFRS is more principle-based (flexible)
• Standard-setters develop standards to respond to user needs (private investors, tax authorities, etc.)
• Investors and creditors have driven accounting standard formulation in the U.S.
• Page 1-38

Global Accounting Insights - About the Numbers

• IASB has looked to the United States to determine the structure it should follow in establishing IFRS.
• Presents FASB's standard-setting structure:
  • Financial Accounting Foundation (FAF)
  • Financial Accounting Standards Board (FASB)
  • Financial Accounting Standards Advisory Council (FASAC)
• Staff and Task Forces
• Page 1-39

Global Accounting Insights - On the Horizon

• IASB and FASB developing standards to eliminate major differences in the way certain transactions are accounted for.
• IASB began its policy in 2010 to phase in adoption of new major standards over several years to provide time for translation and implementation.
• Page 1-40

Copyright Information

• Copyright Information - Copyright © 2018 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful.
• Page 1-41

Test your knowledge on the IASB due process and the international standard-setting process. This quiz covers key concepts related to financial reporting standards, the role of investors and creditors, and fundamental characteristics of international accounting standards. Perfect for students and professionals in accounting and finance.