International Accounting Standards - Assignment Example

I. The Existing procedure for setting international accounting standards is now well established. 500 words A) What are the roles of the International Accounting Standard Committee (IASC) in relation to International Accounting Standards The International Accounting Standards Committee, founded 1973, had been responsible for the development and implementation of the International Accounting Standards(Hopwood,2004). After setting the standards, a draft of the standard will be submitted to all its 114 member countries for comments. After this, the board members will include all recommendations when they sign it. After signing the international accounting standards, all member nations must implemented to the letter accounting procedures mentioned in the international accounting standards. B) International Accounting Standards Board (IASB) in relation to International Accounting Standards The International Accounting Standards Board (IASB) replaced the IASC which had stopped operations in April, 2001(Schioppa,2004). The new replacement board concentrated its efforts developing the International Financial Reporting Standards starting in the year 2001. Furthermore, the International Accounting Standards Board in London is a privately-funded and independent accounting standard-setter that headquartered in London, United Kingdom(Buthe,2005). They say that accounting is an art. Meaning, any accounting data can be written in whatever style the bookkeeper or accountant wants provided information is understood. In summary, the International Accounting Standards (IASs) had been issued by the IASC from 1973 to 2000. Also, the International Accounting Standards Board had been replaced by the International Accounting Standards Council in 2001. Since then, the IASB has amended some IASs, it had inclusively proposed to amend other IASs, it had proposed to replace some IASs with new International Financial Reporting Standards (IFRSs), and had adopted or even proposed certain new IFRSs on topics for which there was no previous IAS. With the help of their separate committees, both the IASC and the IASB had issued Interpretations of Standards. Finally, the financial statements must comply with all of the requirements of each applicable standard and each applicable interpretation to be described as complying with IFRSs. C) International Financial Reporting Interpretations Committee (IFRIC) in relation to International Accounting Standards In terms of interpreting the international accounting standards, the International Accounting Standards Board has replaced the IASC's Standing Interpretations Committee (SIC) with the the International Financial Reporting Interpretations Committee (IFRIC). The replacement took place in the year 2001. This committee is mandated to reviews or not. on a regular basis inside the context of current International Financial Reporting Standards (IFRSs) and the IASB Framework, all accounting issues that will likely receive differing or unacceptable treatment in the non- appearance of authoritative guidance. Its view is to reach consensus on the appropriate accounting treatment. When developing its interpretations of financial accounting theory, the IFRIC gets feedback as it works hand in hand with similar national committees from many countries in the world. The IFRIC makes technical decisions that are taken at sessions where the public is invited to observe. The bottom line here is that the international accounting standards must be distributed and explained to all countries in the world for understandability and speed(Buthe,2005) As a result of the virorous efforts of The three accounting bodies above, the existing procedure for setting international accounting standards is now well established. Since accounting is the language of business, then international accounting standards insures that more nations understand each other when scrutinizing the balance sheet, income statement and statement of cash flows. II. Why is the development of International Accounting Standards Considered to be important 500 words. The development of International Accounting Standards is considered very important because accounting is the language of business. The financial statements are used by many parties to help them in their decision making(Pettigrew, 2006). For this reason, the parties want as many relevant data as possible that are material. FIRST, the managers will use the financial statements to determine whether they generated net income during the year. (Moyer, 2006). SECOND, the board of directors will use the financial statements in order to explain to the interested parties their decisions and plans such as expansion to uncharted territories or closing down a branch THIRD, the customers will use the financial statements to know if the company will last long enough to supply their needs or close down due to bankruptcy. FOURTH, Suppliers will use the financial statements to know if the company will survive until the next five or more years or close. The supplier will replace the bankrupt company with other customers in case the company is bankrupt. FIFTH, Creditors are also interested in the financial statements to determine whether to approve the company's new loan application. SIXTH, Government regulating agencies are also interested in the financials statements to know if the company has not violated any laws of the land. SEVENTH, government tax agencies are interested to get a copy of the financial statements to know if the company has been paying its taxes correctly and on time(Larson,1995). SEVENTH, the stockholders are determined to get a hold of the financials statement to help them decide whether to keep their investment in the company or withdraw immediately. EIGHT, the community is also interested in the financial statements. The community will use the financial statements to determine whether the company can afford to hire new employees from the community. Also, the community use the financial statements to determine if the company has not been polluting their rivers and waters as well as polluting the air. In case of pollution, the community will also determine, based on the financial statements, if the company could spend some advertising and promotions money to help the community defray the expenses of their community outreach activities like free dental & medical programs. NINTH, the Employees, especially those without labor unions, are interested in the financial statements. The employees need to see the financial statements in relation to their salaries and wages. The employees, upon seeing the company' financial statements, may demand an increase in salary if the net income and sales will be able to pay for those increases in salaries. (Meigs,1995). The bottom line then is understanding what one party(the company) wants to impart to the other users of the financial statements. Finally, the international accounting standards must be developed to facilitate faster and better communication among the parties concerned. III. How is the regulatory system funded and what are the alternatives being considered at the current time 500 words There are many financial supporters of the regulatory system. Some names include Abbott Laboratories, ABN Am ro Bank, Aegon Group, Alcan Inc., AXA, American International Group, Anglo American Plc, Boeing Canon and others. Also, underwriter companies like Allianz AG,BASF AG, Bank of America, Henkel KGaA, Merryll Lynch & Co., Nestle S.A, Sanofi Aventis, Siemens AG, Total, Morgan Stanley and JP Morgan. Some of the supporters are Hitachi, Merck & Co., Mitsui & Co., Marubeni, Matsushita Electric and many more. The International Accounting Standards Board structure has two major features(Mowen, 2006). FIRST, the International Accounting Standards Committee Foundation is an independent entity that has two main bodies. The two main bodies are the Trustees and the IASB together with the Standards Advisory Council and the International Financial Reporting Interpretations Committee( IFRIC). One portion of the press release of the International Accounting Standards Committee Foundation dated Nov 6, 2006 stated in relation to the IASB and the trustees of the IASC foundation pertains to its proposed future funding. The Trustees scrutinized the progress in the implementation of the agreed framework to establish an additional fund source to complement the current fund sponsors and contributors. The new broad based and sustainable fund will defray the expenses of the IASC Foundation and the IASB starting from the year 2008 onwards. The trustees are targeting to gather sixteen million pounds in 2008. This new funding scheme proposes that the money will be shared on a proportionate basis. The basis for fund allocation will be the Gross Domestic Product (GDP) of each country. The trustees ventured on this funding system due to the encouragement and all out support by the Economic and Financial Affairs Council of the European Union (ECOFIN), The Committee of European Union Finance Ministers in July of 2006. In fact, France has already proposed a funding system that is consistent with the Trustees' purposes which is two earlier than the 2008 start date. And, Austria has formally counted itself to the assigned funding target in 2008. Furthermore, Germany, Netherlands, United Kingdom, Spain and Italy are setting up of a new national funding mechanism. Recently, the United States based trustees have vigorously increased funding efforts there. Elsewhere, China and Japan have committed themselves to have mechanisms in place in 2008 and have succeeded in funding from significant portion of their country's total allocations. In short, the new funding scheme will come from the Gross Domestic Products based long term funding arrangements. The change from voluntary contributions mentioned to the newly proposed Gross Domestic Products based fund allocation starting in 2008 will surely increase the amount of money the accounting regulatory boards will need to pay its day to day operating expenses. Two sources are definitely better than one. REFERENCES: Garner, E., McKee, D., Accounting Services, the International Economy and Third World Development, Praeger, London, 1992 Leuz et al., The Economics and Politics of Accounting: International Perspectives on Research Trends, Policy, and Practice, Oxford University Press, Oxford, 2004 Schioppa, T., Regulating Finance: Balancing Freedom and Risk, Oxford University Press, Oxford, 2004 Buthe, T., Mattli, W., Global Private Governance: Lessons from a National Model of Setting Standards in Accounting, Law and Contemporary Problems, Volume: 68. Issue: 3-4., 2005. Pettigrew et al., Strategy and Management. Sage, London, 2006 Moyer et al., Contemporary Financial Management Fundamentals, Thompson, UK, 2006 Larson K., Miller P., Financial Accounting, Irwin Press, London, 1995 Meigs et al., Financial Accounting, McGraw Hill London, 1995 Hansen D., Mowen, M., Management Accounting, Thompson, UK, 2006 Press release IASCF Jan 6, 2006 http://www.iasb.org/NR/rdonlyres/B865EC06-E374-4BCD-BA80- C6D2F7511CED/0/PRforTrusteesetc6NovFinal2.pdf Read More