Revision Aid - International Accounting Standards
System
Posts: 100,534 🤖 Admin 🤖
As many of you are aware there is a great deal of apprehension about the forthcoming examinability of IAS's. This post (whilst very lengthy) is designed to help appreciate the theory behind why IAS's have been brought in. I did a presentation a couple of months ago regarding IAS and the following excerpts are from my presentation.
As those studying DFS are all too aware application of knowledge is also tested not just through computation but through explanation. I suspect (though don't hold me to this) that as the June sitting is the first to examine DFS under IAS a question on WHY the IASs where introduced could come up. This post is to outline the basics as to why they were introduced. A discussion question on why IAS were introduced may not come up but who knows? In my experience it's better to go into the exam hall with more knowledge than you need than less knowledge.
Here we go.
The Objectives
To develop a single set of understandable and rigid set of accounting standards that require comparable information in financial statements to help users make reasoned decisions. They were also introduced to help to promote the use and enforce these standards (certainly post Enron, Worldcom etc).
Another objective was to also ensure that those responsible for standard setting in other countries did so by bringing convergance therefore enabling each and every reporting entity to comply with uniform policy rather than "country adopted" standards. As a result the use and application of IASs are used:
- as national requirements, often after a national process
- as the basis for all or some national requirements
- as an international benchmark
- by regulatory authorities
Before the ASB (Accounting Standards Board) came into existence, the effect of IASs and other publications was limited and very haphazard. Many SSAP's and IAS's were in agreement but some were not and some covered completely different subjects therefore causing a certain degree of conflict when it came to preparing Financial Statements.
In its FRSs, usually in an appendix, the ASB identifies where the UK standards are in agreement with or are different from IASs or IAS exposure drafts. The ASB sees itself as closely aligned with the IASC (now the IASB). However, it seems that the ASB will only follow the relevant IAS if it fits in with UK Practice. Hence, my past postings stating that there is not going to be much difference between reporting under IAS and reporting under UK GAAP. Why? Because in the UK we have always been in tangent with International Standards (not 100% but never far away).
In June 2000 the European Commission proposed that all PLCs have to implement IAS and IFRs for their consolidated financial statements with accounting periods beginning on 1 January 2005. The objective being that harmonisation is intended to provide a number of benefits such as:
a) a platform for wider investment choice;
b) a more efficient market;
c) lower cost of capital (internal interest rate);
d) enhanced developments in business
Key topic to revise for discussion questions
It would help you if you looked at IFRS 1 (First time adoption of International Financial Reporting Standards) to understand the impact that reporting under these standards has for organisations.
Part of the learning process involves looking at the wider picture. The press has had lots of reports recently about the problems faced by companies who have now, either by choice or by mandatory legislation, reported under IAS's and the impact it has had on their profit, earnings per share (EPS) and profitability/liquidity ratios. It does no harm to review this and (if given the opportunity) enhance your answer with the knowledge you have picked up.
Overview
This thread gives the reasons why IAS was developed, the effects it has and the advantages as well as a guide in the right direction of how you can expand further (via IFRS1 studying). It is possible that because IAS are being examined for the first time, candidates may be required to explain the reasons WHY they are being brought in hence the reason for this post. You never know - given a discussion question - this post might get you through.
Kind regards but most of all the best of luck
Steve
As those studying DFS are all too aware application of knowledge is also tested not just through computation but through explanation. I suspect (though don't hold me to this) that as the June sitting is the first to examine DFS under IAS a question on WHY the IASs where introduced could come up. This post is to outline the basics as to why they were introduced. A discussion question on why IAS were introduced may not come up but who knows? In my experience it's better to go into the exam hall with more knowledge than you need than less knowledge.
Here we go.
The Objectives
To develop a single set of understandable and rigid set of accounting standards that require comparable information in financial statements to help users make reasoned decisions. They were also introduced to help to promote the use and enforce these standards (certainly post Enron, Worldcom etc).
Another objective was to also ensure that those responsible for standard setting in other countries did so by bringing convergance therefore enabling each and every reporting entity to comply with uniform policy rather than "country adopted" standards. As a result the use and application of IASs are used:
- as national requirements, often after a national process
- as the basis for all or some national requirements
- as an international benchmark
- by regulatory authorities
Before the ASB (Accounting Standards Board) came into existence, the effect of IASs and other publications was limited and very haphazard. Many SSAP's and IAS's were in agreement but some were not and some covered completely different subjects therefore causing a certain degree of conflict when it came to preparing Financial Statements.
In its FRSs, usually in an appendix, the ASB identifies where the UK standards are in agreement with or are different from IASs or IAS exposure drafts. The ASB sees itself as closely aligned with the IASC (now the IASB). However, it seems that the ASB will only follow the relevant IAS if it fits in with UK Practice. Hence, my past postings stating that there is not going to be much difference between reporting under IAS and reporting under UK GAAP. Why? Because in the UK we have always been in tangent with International Standards (not 100% but never far away).
In June 2000 the European Commission proposed that all PLCs have to implement IAS and IFRs for their consolidated financial statements with accounting periods beginning on 1 January 2005. The objective being that harmonisation is intended to provide a number of benefits such as:
a) a platform for wider investment choice;
b) a more efficient market;
c) lower cost of capital (internal interest rate);
d) enhanced developments in business
Key topic to revise for discussion questions
It would help you if you looked at IFRS 1 (First time adoption of International Financial Reporting Standards) to understand the impact that reporting under these standards has for organisations.
Part of the learning process involves looking at the wider picture. The press has had lots of reports recently about the problems faced by companies who have now, either by choice or by mandatory legislation, reported under IAS's and the impact it has had on their profit, earnings per share (EPS) and profitability/liquidity ratios. It does no harm to review this and (if given the opportunity) enhance your answer with the knowledge you have picked up.
Overview
This thread gives the reasons why IAS was developed, the effects it has and the advantages as well as a guide in the right direction of how you can expand further (via IFRS1 studying). It is possible that because IAS are being examined for the first time, candidates may be required to explain the reasons WHY they are being brought in hence the reason for this post. You never know - given a discussion question - this post might get you through.
Kind regards but most of all the best of luck
Steve
0
Comments
-
Re:Revision Aid - International Accounting Standards
Thank you for this and for all the help you are offering. I have saved your post to my computer. Hope you don't mind.
Jackie0 -
Re:Revision Aid - International Accounting Standards
Its not a problem - you can wallpaper your lounge with it if you like if it makes things clearer for you.
Kind regards
Ste0 -
Re:Revision Aid - International Accounting Standards
Thank you Steve for this detail re IAS.
I went to a seminar re this this week, waht I was concerned that 'standards' was a confusing word, as it seemed that some of the information under the new IAS could be put under some header fields wherever the company/accountant considered them most ''apt''.
This raised a question of comparability/ analysis between companies. How can anyone compare, if a company has a figure in basket b and the other has it in basket c?
Am concerned about this when I come to doing my exams, as a lot of it seems likely to change and open to conjecture and 'masking' for want of a better word?
Or am I looking at this in completely the wrong way?
regards, Chris0 -
Re:Revision Aid - International Accounting Standards
I understand what you are saying here. This is more apparent with the Accounting Policies standard in that one company could adopt policies different from another. For example, stock valuations at Tesco could be a lot different than the valuation method at, say, BP.
The aim of the standards is to enable Financial Statements to present a true and fair view and preparers of the Financial Statements MUST pay particular attention to adopting the more APPROPRIATE standards.
The IAS are a uniform policy to ensure that companies use them in an appropriate manner. By following the standards correctly they aim to "iron out" some BUT NOT ALL inconsistencies that may be prevalent in Financial Statements. Again, adoption of some standards is very much judgmental but has to be appropriate in the circumstances.
Regards
Steve0 -
Re:Revision Aid - International Accounting Standards
Thanks Steve for that,
it's just that there is so much news about this - for some time! I'm just a little concerned where it will be when it comes to doing the exams - and going forward from there. I suppose any change will always take a little while to get straight - but I don't think I want to work for a plc till it's all settled!0