1. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Chapter 3 The process of harmonization

2. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Contents EU Directives –Enforcement of IFRS in the EU –The future of EU accounting regulation International Accounting Standards The structure of the IASB The objectives of the IASB The IASB’s due process of standard setting IFRS for SMEs The future?

3. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Learning objectives Outline the role of the EU in the development of accounting harmonization Explain the endorsement process of IAS/IFRS in the EU Outline the history and changing role of the IASC/IASB Describe the different steps in the due process of standard setting Understand current developments and their implications

4. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA How to improve financial communication between different countries Through harmonization: increasing the compatibility of accounting practices by setting bounds to their degree of variation Through standardization: the imposition of a more rigid and narrow set of rules

5. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA EU-approach in the 20th century Harmonization through the EU-Directives of financial reporting 4th Company Law Directive of 25 July 1978 on the annual accounts of individual companies 7th Company Law Directive of 13 June 1983 on the consolidated accounts

6. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA History of financial reporting in the EU 1978: 4th Directive 1983: 7th Directive 1995: The new “Accounting Strategy” 1999: The Financial Services Action Plan 2002: Approval of Regulation (EC) N°1606/2002 on the application of IAS 2003: update of the 4th and 7th Directive

7. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA IAS-Regulation in the EU Scope: EU and countries of the European Economic Area Requirement to publish consolidated accounts in compliance with IAS/IFRS for listed groups for accounting periods on or after the 1 January 2005

8. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The endorsement process of the IASs in the EU The EC decides on the applicability of individual IASs in the EU. It may adopt an IAS only if: a)it is not contrary to the principles of the 4th and 7th Directives; b)it is conductive to the European public good; and c)it meets the criteria of understandability, relevance, reliability and comparability

9. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The endorsement process of the IASs in the EU The EC is assisted in the endorsement decision by the Accounting Regulatory Committee (ARC), the European Financial Reporting Advisory Group (EFRAG) and the Standards Advice Review Group

10. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Accounting Regulatory Committee Consists of representatives of the member states Its function is to provide an opinion to the Commission on proposals to adopt (endorse) IAS

11. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA European Financial Reporting Advisory Group (EFRAG) A technical group which advises the EC in its endorsement process It provides proactive advice to the IASB It provides advice to the EC on resulting changes to be made to the Accounting Directives and related topics

12. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The Standards Advice Review Group Seven independent experts To give advice to the Commission that is not influenced by governments (unlike ARC) or by stakeholders like companies and audit firms (EFRAG)

13. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Commission of European Securities Regulators (CESR) * Strive for consistent application of IFRS in accounts of listed companies * Analyse and discuss the decisions taken by independent EU National Enforcrs in respect of financial statements published by issuers with instruments (equity and debt) traded on a EU market

14. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA International Accounting Standards Committee Created in 1973 Creation related to the set up of International Federation of Accountants Mission statement: (a) to formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observance; (b) to work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements

15. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA History of the IASC 1970s and 1980s standards with many options 1989 “comparability project” – ED 32 1995 agreement with IOSCO to complete a core set of IAS by 1999 1999 “Recommendations on shaping IASC for the Future” 2000 acceptation of “core” standards by IOSCO

16. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA In 2001 the structure of the IASC changed The reform of the IASC

17. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Mission statement of the IASB 1.To develop, in the public interest, a single set of high quality, understandable and enforceable global standards that require high quality, transparent and comparable information 2.To promote the use and rigorous application of those standards 3.To take account of the special needs of SMEs and emerging countries 4.To bring about convergence of national accounting standards and IAS and IFRS to high quality solutions

18. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The structure of the IASB

19. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The due process of standard setting Stage 1: setting the agenda Stage 2: project planning Stage 3: development and publication of a discussion paper Stage 4: development and publication of an exposure draft Stage 5: development and publication of an IFRS Stage 6: procedures after an IFRS is issued

20. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA The IASB’s due process of standard setting

21. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA IASB: towards a global standard setter? Mandatory application for listed companies in the EU, European Economic Area, Australia and New Zealand Mandatory compliance for listed companies underway in: -Brazil from 2010 onwards -Korea from 2011 onwards -Russia for banks

22. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA IASB: towards a global standard setter? (cont’d) Canada : decision on mandatory compliance under way for 2011 (IASB Insight 2008) A number of countries have adopted IASs as their national standards: Hong Kong, Singapore, South Africa Voluntary adoptions in other countries

23. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA SEC Decision - 2007 For financial statements of foreign private issuers covering years ended after 15 November 2007, the SEC decided that financial statements prepared according to IFRS as issued by the IASB are accepted on American stock exchanges without reconciliation to US GAAP

24. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA Most important element for the near future The further evolution of the convergence project with the FASB and the position of the SEC with regard to American listed companies FASB and IASB reaffirm commitment to complete convergence project by the end of June 2011 (november 2009)

25. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA IFRS for SMEs In 2003 discussions started on the need for such statements, they could also be of help to developing nations Discussion paper 2005 IFRS for SMEs published in 2009 SME – implementation group set up in January 2010

26. International Financial Reporting and Analysis, 5 th edition David Alexander, Anne Britton and Ann Jorissen ISBN 978-1-4080-3228-2 © 2011 Cengage Learning EMEA IFRS for SMEs: characteristics IFRS for SMEs – simplification of full IFRS through –By the ommission of topics not relevant for SMEs –When IFRS have options, the simpler option is retained, the more complex ommitted –Recognition and measurement principles simplified –The number of disclosures reduced