IFRS Overview 2024 PDF

ACCOUNTABILITY, GOVERNANCE AND REGULATION II IFRS: an overview Chiara Saccon Venice, 2024 2  Programme and study materials Accounting Regulation (slides and Leuz article) TEXTBOOK: IFRS regulation – Chapter 2 IFRS: an o...

ACCOUNTABILITY, GOVERNANCE AND REGULATION II IFRS: an overview Chiara Saccon Venice, 2024 2  Programme and study materials Accounting Regulation (slides and Leuz article) TEXTBOOK: IFRS regulation – Chapter 2 IFRS: an overview IFRS Consolidation: when to consolidate – Chapter 4 Consolidated financial statements IFRS Consolidation: how to consolidate Consolidation according to theories (slides) IFRS Consolidation: how to consolidate – Chapter 3 Meaning of consolidation – Chapter 5 Combining individual financial statem. – Chapter 6 More on consolidation accounting  Accounting Convergence Historically, accounting and reporting grew up largely independently and often very differently in different countries With the global economy, instant communication and a global finance market, this situation has changed sharply and this process of change is continuing Financial communication represents a key factor in the functioning of financial markets (protection, transparency) => Ongoing process of increasing accounting convergence  Accounting Convergence Convergence of accounting regulation describes the phenomenon that the accounting regulation of two or more countries become more aligned or even uniform over time It comprises: – Harmonization when regulation are made broadly consistent – Standardization which is the adoption of the same regulation in several countries  Accounting Convergence Harmonization has often been associated with the transnational legislation of the EU Standardization tends to be associated with the IASs-IFRSs (international accounting standards) of IASB Convergence is associated with the FASB and IASB cooperation (Norwalk agreement, 2002) In practice these words are often used interchangeably but global convergence has nowadays affirmed  Reasons for the development and spread of global accounting standards Globalisation as a main driver for A/C convergence Globalization of capital markets is the main impetus for accounting convergence Capital markets effects (functioning improvement) Comparability and higher quality of accounting information (easier investment and financial analysis) Convergence facilitates transactions and relationship with other parties in global business (communication, cooperation, trade) Benefits on the firm-level (consolidation, management reports, internal control systems, reconciliations) Benefits from a regulatory point of view  IFRS - IASB – ifrs.org Convergence accomplishes through accounting standards=a set of concepts and techniques that are used with the aim of identifying, measuring and communicating financial information on a specific economic entity to different users Success of IFRS in global accounting convergence https://www.ifrs.org/about-us/ https://www.ifrs.org/-/media/feature/around- the-world/adoption/use-of-ifrs-around-the-world- overview-sept-2018.pdf  IFRS - IASB – ifrs.org Web site “ifrs.org” About us (IFRS Foundation) Who we are How we set IFRS standards (due process) Our structure (Monitoring Board,Trustees, IASB) Our consultative bodies Working in the public interest Around the world  IFRS Foundation - objectives IFRS Foundation is a not-for profit, public interest organization established to: develop a single set of high quality, understandable, enforceable and globally accepted accounting standards (IFRS) promote and facilitate adoption of the standards  IFRS Foundation Mission statement “Our mission is to develop IFRS that – bring transparency – strengthen accountability – contribute to economic efficiency Our work serves the public interest by fostering trust, growth and long-term financial stability in the global economy” IFRS Foundation Structure IFRS Foundation - IASB IFRS Foundation - IASB  Accounting standards development (due process- Due Process Handbook 2020) International Accounting Standards IAS - IFRS International Accounting Standards IAS - IFRS International Accounting Standards IAS - IFRS  International Accounting Standards IAS - IFRS IFRS 9 Financial Instruments (replacement of IAS 39) IFRS 10 Consolidated Financial Statements (replacemet of IAS 27) IFRS 11 Joint Arrangements (replacement of IAS 31) IFRS 12 Disclosure of Interests in other entities IFRS 13 Fair value measurement IFRS 14 Regulatory deferral accounts IFRS 15 Revenue from contracts with customers IFRS 16 Lease IFRS 17 Insurance contracts IFRS 18 Presentation and Disclosures in Financial Statements (replacement of IAS 1) IFRS 19 Subsidiaries without Public Accountability: Disclosure  The relevance of IFRS Consequences of adopting a set of high quality standards (IFRS): Removal of barriers to cross-border investments Greater credibility of domestic capital mkts among foreign capital providers Greater efficiency of stock mkts (information included in prices, less costs) Easier comparability of investors investment options Consequent decreasing information asymmetry Greater value relevance (IFRS mkts oriented, FV) Decreasing earnings management (but controversial results from research on IFRS)  IFRS Impacts IAS/IFRS diffusion from 2005 onwards EU regulation 1606/2002 as major historical event – made IFRS the most widely accepted A/C stds – Modified the balance of power between IASB and FASB (since 2008 no US GAAP reconciliation for foreign companies) Country incentives to use IAS/IFRS: countries with weak investor protection mechanism and opening up their capital markets IAS/IFRS adoption as a consequence of political or economical pressures from international bodies (IMF), wish of imitation, common values by deciders. Adopters: foreign aid, highly educated population, import  IFRS Impacts IAS/IFRS impact on accounting quality -improved reporting quality mainly for companies with specific incentives (Daske et al. 2013) or in effective legal environment (Christensen et al. 2013). Lima et al. 2018 show the opposite. -increased comparability (Jones and Finley, 2011; Cairns et al., 2011; Barth et al. 2012; Beneish et al. 2015) -earnings management (inconclusive results: Barth et al., 2008; Chen et al. 2010; Jeanjean and Stolowy, 2008; Callao and Jarne, 2010;) -timeliness, proxy: frequency of large losses (inconclusive results: Barth et al., 2008; Chen et al., 2010) -value relevance (mixed evidence: Liu et al., 2011; Aubert and Grudnitski, 2011, Barth et al., 2018)  IFRS Impacts IAS/IFRS economic consequences -capital markets -significant benefits (Leuz and Wysocki, 2016; Bertrand et al., 2021) -reduced information asymmetry (Platikanova and Nobes, 2006) -accurate analysts forecasts (Jiao et al. 2012; Tan et al. 2011; Byard et al. 2011) -market liquidity (Daske et al. 2008; Landsman et al. 2012) -lower cost of capital (Daske et al. 2008; Li, 2011; Floran and Kosi, 2015) -increased foreign investments/cross-border investments (Shima and Gordon, 2011; DeFond et al. 2011; Beneish et al. 2012; Barth et al. 2014) -lower cost of capital (Daske et al. 2008; Li, 2011; Floran and Kosi, 2015) -facilitate credit access for non-listed firms (Bertrand et. al, 2021) -real effects: efficient investment decisions, labour mobility (Leuz and Wysocki, 2016; De George et al., 2016)  IFRS Impacts Studies demonstrate association between institutional variables and reporting outcomes But heterogeneity in economic outcomes around IFRS adoption Institutional factors (reporting systems included) are intertwined and is difficult to isolate their specific effects on reporting outcomes (unrelated and related concurrent reforms; institutional clusters)  IFRS-Principle-based standarsd IFRS Principle –based standards (guide to action) – General principles – Adaptable to different circumstance US GAAP Rule-based standards (rule all situations) – Easier to apply – Very detailed, less discretion – Lack of indications in different circumstances