Function of ISAB and EU Companies - Case Study Example

Financial ment Function of ISAB and EU Companies Financial ments are the key of financial reporting which is treated as the main objectiveby Business Enterprises. The broader concept of financial reporting includes not only the financial statements but also other way of communicating information that relates, directly or indirectly, to the financial statements. The most important purpose of financial statements is stewardship: How competently has the company used its resources to run its business? Attempting to make available a companys value to both existing and potential investors represents an unfair expectation of what the financial statements can tell you. The major exercise is to evaluate the effects of past transactions or actions or the present status of an asset or liability.... Users of the information need to assess the feasible or probable impact of factors that may cause change and form their own hope about the future and its relation to the past." Accounting for past actions and valuation, which is forward-looking, are different animals. Focusing on future value generate superfluous unlikelihood, in addition to the decision previously requested in reporting what a company has done (Mary 2006). The mission of the International Accounting Standards Board (IASB) is to build up a single set of financial reporting standards that are accepted worldwide. The Financial Accounting Standards Board (FASB) is committed to convergence of its standards with those of the IASB. Thus, universal financial reporting matter relate to specific topics on the agendas of the IASB and the FASB. They also talk about globalization of financial reporting itself. At the same time as the IASB is concerned with developing standards which can be applied on a global basis, it identify that accomplishing this objective depends on help from the United States and the EU. The progress toward accounting harmonization centers in the region of the standards being developed by the International Accounting Standards Board (IASB). At the moment, 65 countries require their listed companies to use the IASBs International Financial Reporting Standards (IFRS). That total approaches hundred when together with all that countries which allow their companies to use IFRSs and countries that require only certain companies to use them. The harmonization movement received a significant boost in 2002 when the European Union (EU) adopted a regulation requiring public companies to convert to IFRSs beginning in 2005. The EU now liable more than a third of the countries that recommends submission of IASB standards. IAS regulation (Brackney, Kennard, and Philip 2005). The mutation in accounting standards reflected the generally disjointed state of capital markets in the EU. For the reason that EU capital markets lack the size and the degree of integration of those in the U.S., many of the EUs larger companies seek financing in U.S. markets. With the ambition of improving the integration and competitiveness of EU capital markets, the EC detailed its vision for a single EU financial services market in a June 2000 position paper, EU Financial Reporting Strategy: The Way Forward. The EC identified harmonization of accounting standards for listed companies as essential to achieving its vision; more specifically, it identified the adoption of IASs as the best path to successful accounting harmonization. The EC formally proposed an IAS regulation in February 2001 calling for listed companies in the EU to start applying IASs in 2005. At the urging of France and Germany, the EU Council added an alteration allowing member states to delay the required adoption of IASs to 2007 for companies with only listed debt and for companies that use a globally accepted GAAP (e.g., U.S. GAAP). The European Parliament approved the altered regulation in March 2002, and the EU Council approved it three months later (Cunningham 2006). The IAS regulation has affected the enormous majority of listed companies in the EU. At the time the regulation was accepted, only 275 of the EUs 7,000 public companies used IAS. Of the 7,000 public companies, 6,500 were reporting under their appropriate national standards. All of these companies were required to change to IFRS beginning January 1, 2005. (IFRSs are issued by the IASB, which was formed in 2001. IASs were issued by the IASBs predecessor, the International Accounting Standards Committee, and many of them remain in consequence. The term IFRSs in this article comprises the surviving IASs.) With the EUs expansion in 2004, the number of EU public companies applying IFRS in 2005 has grown to 9,000. Two most important developments in EU accounting associated to financial reporting have taken place since the issuance of the IAS regulation. The first is the foundation of an endorsement mechanism to evaluate IASB standards for adoption in the EU. The second is the series of adoption disagreements that have arisen in the evaluation of pronouncements on financial instruments and emission rights. Such disagreements are problematic because they could derail the EUs full adoption of IFRSs or delay its implementation of them. The IAS regulation specifies criteria that an IASB announcement must satisfy to achieve adoption. The pronouncement must: 1) enhance understandability, reliability, and comparability; 2) assist "true and fair" reporting by companies; and 3) contribute to the EU public good. The regulation established a two-tier endorsement mechanism to help the EC evaluate the acceptability of IASB announcements. At the same time as the EC possesses the ultimate decision-making authority in adopting pronouncements, it receives contribution from two endorsement bodies, one in the private sector and one in the public sector (Gore and Dyan 2007). The EUs participation in the IASBs standards-setting process could set hurdles and slow the creation of global standards. Simultaneously, however, the EU has a counterbalancing interest in seeing the swift creation and adoption of standards that the United States would be willing to accept. The 300 EU companies at present listed in U.S. markets want the SEC to agree to their filings without reconciliation to U.S. GAAP. If the SEC eradicate the reconciliation requirement, many more EU companies are likely to seek a listing here. Then--SEC chief accountant Donald Nicolaisen stated that failure on the part of the EU to observe IAS 39 and other standards as issued by the IASB could jeopardize or delay U.S. acceptance of EU reporting. The EU is certainly aware of the potential for this unwelcome outcome. Bibliography Barth, Mary E. (2006). "1 introduction. (Research, Standard Setting, and Global Financial Reporting)(Standards for financial reporting)." Foundations and Trends in Accounting . [Accessed 23 Oct. 2007]. Brackney, Kennard S., and Philip R. Witmer. (2005). "The European Unions role in international standards setting: will bumps in the road to convergence affect the SECs plans?" The CPA Journal. . [Accessed 23 Oct. 2007]. Cunningham, Colleen. (2006). "Financial statements are trying to do too much." Financial Executive. .[Accessed 23 Oct. 2007]. Gore, Richard, and Dyan Zimmerman.(2007). "Building the foundations of financial reporting: the Conceptual Framework (standards setting)." The CPA Journal. . 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