FAR Institutional background
Historically, accounting principles were prescribed by...
national law
Internationalization means that accounting is, instead, based on
worldwide accepted principles
Today, there are two sets of worldwide accepted accounting standards...
US GAAP and IFRS
The internationalization of accounting preceded by...
internationalization of capital markets
Drivers of internationalization of accounting (2) ...
1. Cross-listings 2. Foreign investments
Cross-listings problem before internationalization of accounting...
Cross-listed companies had to present separate financial statements for each market (This was costly and confusing)
Foreign investments problem before internationalization of accounting
Usually, foreign investors are not familiar with local GAAP
Advantages of harmonized accounting standards (4)
1. Cuts compliance costs for firms
2. Easier access for firms to international capital
3. Increases the attractiveness of local capital markets for foreign firms
4. Increases comparability of international financial statements (understandability)
Disadvantages of harmonized accounting standards (3)
1. Lack of influence for local governments
2. International accounting standards often allow firms more flexibility, because they must be adaptable to numerous legal environments and they cannot consider country-specific situations
3. Accounting quality does not only depend on accounting standards, but also on the enforcement of the rules
which is still a local responsibility
Independence of the IASB is based on (2) ...
1. Funding 2. Public accountability of the process
The IASB is funded by...
Voluntary contributions from governments, private companies, central banks, international organizations, and audit firms
Within the IASB, public accountability of the process is determined by
Public meetings and public consultations
IFRS Standards Interpretations Committee has two key roles:
1. Reviews newly identified financial reporting issues that are not dealt with in IFRS Standards.
2. Overviews emerging interpretation issues
IFRS Advisory Council provides...
Strategic advice to the IASB
Trustees of the IFRS Foundation appoint ... and get informed by...
The IFRS Advisory Council
The monitoring board of public capital market authorities appoints monitors of ... and receives reports from ...
Trustees of the IFRS Foundation
IFRS Adoption in Europe (3)
1. IFRS are applied in all member states of the EU and EEA.
2. IFRS as issued by the IASB need to be endorsed by the European Union before they become binding European law.
3. Endorsement procedure is necessary as it is not in conformity with constitutional law of most jurisdictions to fully outsource law-making to a private body.
European endorsement / adaption criteria of international accounting standards, only if (3) ...
1. They are not contrary to the [European true and fair view] principle
2. Are conducive to the European public good
3. They meet the criteria of understandability, relevance, reliability and comparability
When an endorsement procedure exists, the question remains whether...
law-making is still a political process
In general, accounting standards are during the endorsement proces...
not altered
Two requirements for preparing IFRS financial statements
1. Public listing of securities on a regulated market
2. Existence of at least one subsidiary, which the
company shall include into consolidated accounts
Three requirements for being a subsidiary...
1. A majority of the shareholders' or members' voting rights in another undertaking
2. The right to appoint or remove a majority of the members of the administrative, management or supervisory body of another undertaking
3. Has the right to exercise a dominant influence over an undertaking