Different Sources of Regulation for Financial Statements in Ireland
By Sean Burke ( please note my referancing is quiet bad) but hopefully my work is of use to somebody for general information. Outline the different sources of regulation of financial statements in Ireland. When accountants are preparing a set of financial statements accountants must comply with the relevant accounting rules. The regulatory framework provides a set of rules and regulations to ensure fair play. The principal aim of the regulatory frame work is to ensure that the financial statements present a true and fair view of the financial performance and position of the organization’. The three sources of rules which accountants must be familiar with (aka the regulatory framework which applies to financial reporting by companies ) : * Legislation/Law : Via the government through companies legislation * Accounting standards: Via accounting standard setting bodies through accounting standards. Group accounts are also subject to IAS’s. Stock exchange rules : Publically listed companies are governed by rules issued by the Stock Exchange. Legislation ‘Companies acts are acts of the Oireachtas which specify the legal requirements for companies including regulations for accounting and reporting’. The various companies acts which have been in force in Ireland since 1963 are | * The Companies Act 1963 was the principal act in ireland. | * The Companies Amendment Act 1977 was issued to facilitate changes in Stock exchange procedures. * The Companies Amendment Act 1982 was issued to deal with sundry miscellaneous changes to the principal act | * The Companies Amendment Act 1983 was issued to implement the EC Second directive dealing with maintenance of capital and provision of certain rights to shareholders. | * The Companies Amendment Act 1986 was issued to implement EC Fourth Directive harmonizing financial reporting in member states| * The Companies Amendment Act 1990 was issued to deal with appointment and powers of examiners to troubled companies. * The Companies Act 1990 was issued to introduce new measures to improve the management and direction of companies implementing the EC eighth directive on mutual recognition and dealing with insider trading | * The European Communities Regulations 1992 was issued to implement EC seventh directive harmonizing group accounts in member states. | * The Companies Act 1999 was issued due to issues with the issue or sale of securities and to amend the 1990 act with relation to examinership.
It also prohibits the formation of a company unless it appears to the Registrar of Companies that the company will carry on an activity in the state. | * The company law enforcement act 2001 was issued to provide for the establishment of a director of corporate enforcement and also for the Company law review group. | * The companies act 2003 was issued to establish the Irish Auditing and Accounting Supervisory Authority, to give power to it to supervise the regulatory functions of the recognized accountancy bodies and other prescribed accountancy bodies and in relation to auditing, accounting and other matters. * The investment funds, companies and miscellaneous provisions act 2005 was issued to to change the existing law on investment funds, and also to pave the way smooth transposition of EU Directives on Market abuse and prospectus. | * The investment funds, companies and miscellaneous provisions act 2006 | * The companies amendment act 2009 was issued mainly in relation to licenses and disclosures of loans to directors. | * The companies miscellaneous provisions act 2009 was issued in relation to parent undertakings and amended a number of other acts. These acts contain extensive provisions relating to the books and records that companies must keep and the form and content of the company accounts. The main provisions dealing with accounting matters up until 1992 are : Legal provision Issue| S147 CA63 Proper books – repealed by S202 CA1990| S148 CA63 Preparation of profit and loss account and balance sheet| S149 CA63 True and Fair view| S150-53 CA63 Group Accounts| th Scheule CA63 Detailed accounting disclosures| S3 CA86 General provisions relating to accounts| S4 CA 86 Format of accounts| S5 CA86 Accounting Principals| S6 CA 86 Departure from accounting principals| S10 CA86 Exemptions for small companies| S11 86 Exemptions for medium companies| S13 CA86 Direcotrs reports |
Schedule CA86 Form and content of accounts | S183-201 CA90 Appointment, qualification etc of auditors| S202 –CA90 Keeping proper books of account| GAR92 GROUP Accounts | ‘If after issuing legislation the government comes up with additional accounting provisions, they are included in secondary legislation in the form of orders and regulations to the companies acts and to the European Communities Acts i. e. GAR92 which implements the EC Seventh Directive on group accounts in Ireland. ‘The companies acts required companies to keep proper books of account. In particular the books must : * Record a companies transactions in a timely and consistent manner * correctly record and explain the transactions of the company * enable the financial position of the company to be determined with reasonable accuracy at all times * enable the directors to ensure that the annual accounts comply with the requirements of the companies acts * enable those annual accounts to be readily and properly audited ‘ Accounting standards : Legislation generally sets out the broad rules with which companies must comply when preparing financial statements , detailed rules governing the accounting treatment of transactions and other items shown in those statements are laid down in accounting standards’. Accounting standards are authoritative statements of how particular types of transaction and other events should e reflected in financial statements and accordingly compliance with accounting standards will normally be necessary for financial statements to give a true and fair view’ In Ireland there are two types of accounting standards – SSAP’s and FRS’s. 1. SSAP’s SSAP’s were developed by an umbrella organization (ASC) consisting of representatives of the six professional accountancy bodies.
These bodies then created the requirement for their members to follow the SSAP’s. These SSAP’s were developed between 1970 and 1990. ‘It is believed that seeing as the professional accounting bodies represented the views of the profession that these SSAP’s would ensure that treatment of items resulted in a true a fair view in the accounts’ SORP’s were introduced by the ASC in 1983 in relation to recommended treatment of certain items but they are not mandatory and relate to issues that are not of major importance 2. FRS’s In 1990 the ASC was replaced when the six accountancy bodies in Ireland and the UK set up the Financial Reporting Council ( Members of the Financial Reporting Council represent all the business stakeholders including members of the accounting profession) . Its function is to oversee the preparation and implementation of reporting standards and it is independent of the professional bodies it represents. ‘ Two other bodies were also set up and report to the FRC – The ASB and the Review Panel. The FRC appoints members tot the ASB, and all standards issued by the ASB are called Financial Reporting Standards ( FRS’s) .
Many of the FRS’s developed and issued by the ASB are now replacing the SSAP’s. IAS’s ‘From January 2005 Irish companies listed in an European securities market were required to prepare group accounts in accordance with IAS’s’ Stock Exchange Requirments Companies who have their shares quoted on the Stock Exchange must disclose extra information to the public and shareholders. The following are some of the main extra disclosures required by the stock exchange : The preparation of half yearly reports in the form of an abbreviated profit and loss account. | Details of contracts and financial arrangements between directors and company. Changes in capital structure that might affect the share price . | The principal country inwhich each subsidiary operates. | A geographical analysis of turnover and profits. | Small and Medium sized companies These companies which are categorized by headcount revenue and balance sheet value are given exemptions with regard financial reporting. Describe the evolution of the regulatory framework in the UK and Ireland 1. UK Legislation Before we dive into the evolution of accounting standards and the framework, its important to understand the evolution of legislation which has lead to the need for accounting standards. The first companies act was passed in 1844 allowing limited liability companies to form by incorporation as joint stock companies, prior to that a separate act of parliament was required for each company formed. The Companies act set out the basic rules of accounting and auditing but these were not effective until 1900. ’ ‘From 1907, there was a requirement to produce an audited balance sheet however no guidance was given with regard the format or content. ‘ ‘The companies act 1929 increased the amount of information companies had to disclose. ‘In 1932 public opinion about accounting disclosure arose because of the Royal Mail Steam Packet case where there was a high level of what is now considered to be creative accounting. This change in opion lead to the Companies act 1948 being enacted which specified minimum levels of disclosure, an audited profit and loss account and balance sheet, group accounts and an enhancement of the rights and duties of auditors. ‘ ‘The companies Acts 1948 where an improvement in regards extra disclosures but still not adequate for satisfactory confidence in the accounts published. They required directors to prepare accounts which showed a true and fair view and which contained the minimum amount of information specified by the various Companies acts. ‘ ‘The Companies acts 1981 implemented the Fourth Directive issued by the European commission. ‘ This act increased the amount of information to be disclosed and reduced the flexibility which companies previously enjoyed by specifying more tightly the formats and valuation rules to be used ‘ The requirement to report only realized profit and not estimated profit in the profit and loss account was also included. The 1981 Act was additional to the 1948 and subsequent acts and all were consolidated in 1985 act ‘ ‘The companies act 1989 implemented the EC seventh directive on consolidated accounts and the EC Eighth directive on auditors as well as other matters The Companies Act 2006 now supersedes the 1985 act and is the primary source of company law in the UK’ ‘The Act provides a comprehensive code of company law for the United Kingdom, and made changes to almost every facet of the law in relation to companies.
The key provisions are: * the Act codifies certain existing common law principles, such as those relating to directors’ duties. | * it implements the European Union’s Takeover and Transparency Obligations Directives. | * it introduces various new provisions for private and public companies. | * it applies a single company law regime across the United Kingdom, replacing the two separate (if identical) systems for Great Britain and Northern Ireland. | * it otherwise amends or restates almost all of the Companies Act 1985 to varying degrees. ‘ | ‘ Accounting standards
There was no accounting standards in the UK prior to the 1970’s however following a number of high profile creative accounting cases leading to the collapse of many companies in the UK in the 1960’s’ ‘the council of the ICAEW created the statement of intent on accounting standards with the objective of developing accounting standards. ‘This lead to the Accounting standards steering committee being set up by the ICAEW & the ICAI this committee was later joined by the ACCA and CIMA in 1971 and by CIPFA in 1976 when its name was changed to the Accounting Standards Committee. We now had an umbrella organization representing the major accounting bodies asking their members to obey accounting standards in addition to the companies acts. This led to criticism in some parts as it was not legally obliged & ‘ even where professional accountants didn’t comply the only action was disciplinary action and the professional bodies were loath to take such action. ‘ * Statements of Standard Accounting Practice (SSAPs) ‘SSAPs are the previous generation of accounting standards approved and issued by the ICAEW and the other 6 accountancy bodies following recommendations from the ASC. The professional bodies required their members to comply with them. Some are still in force today. ’ ‘In total 25 standards were issued of which seven have been withdrawn. ‘ Whats of importance with the SSAP’s is that before finalizing a standard the ASC issued an exposure draft which set out the proposed treatment for the topic which enabled the views of persons outside the committee to be solicited and taken into account. ‘ * SOI’s ; SORP’s A 1983 Review of the standard setting process led to the publication of two new types of statement, the Statement of Intent which was a short statement explaining how the ASC proposed to deal with a particular matter was barely used and the Statement of Recommended Accounting Practice ( SORP) which was a statement issued on topics considered not to be of sufficient importance to warrant the issue of an accounting standard. ‘ The lack of powers of enforcement of the ASC lead to critisms and a decline in credibly of the ASC led to the Dearing Committee which lead to changes in setting and enforcing accounting standards. FRS’s ‘Since 1990 all accounting standards developed and issued by the ASB are known as Financial Reporting Standards (FRSs). The standards include the FRSSE (Financial Reporting Standard for Smaller Entities). FRSs are first usually issued as Exposure Drafts for consultation that are known as Financial Reporting Exposure Drafts (FREDs). ’ FRC, ASB, & UITF ‘Following the Dearing Report, In 1990 the Government announced the establishment of a new Financial Reporting Council (FRC).
The FRC was charged with promoting good financial reporting through two subsidiary bodies: the Accounting Standards Board, which replaced the ASC on 1 August 1990 which has the power to issue standards in its own right and whose members consist of main business stakeholders in addition to members of the professional accounting bodies , and the Financial Reporting Review Panel (FRRP) ‘ ‘The FRRP was set up to investigate contentious departures from accounting standards by large companies ‘ [page 33 advanced fin reporting].
The FRC is responsible for securing finance to operate the standard setting process and for ensuring the system is carried out efficiently and effectively ” An Urgent Issues Task Force was set up as a committee of the ASB. ‘The UITF’s main role is to assist the ASB with important or significant accounting issues where there exists an accounting standard or a provision of companies legislation (including the requirement to give a true and fair view) and where unsatisfactory or conflicting interpretations have developed or seem likely to develop’ Current situation of finical reporting regulation in the UK The government launched a major company law review in 1998 and published a white paper in July 2002. The White paper envisages that the next Companies Act will delegate the power to set the tulles on the form and content of company financial statements and other reports to a new Standards Board, based on the present ASB but with wider remit’ ‘There are both mandatory and advisory sources of generally accepted accounting principles (GAAP) in the United Kingdom. GAAP ‘GAAP is a term used to describe the rules generally accepted as being applicable to accounting practices as laid down by standards, legislation or upheld by the accounting profession. ’ Mandatory sources of GAAP in the United Kingdom are the following: | * The Companies Act 2006| Financial Reporting Standards (FRS) issued by the UK Accounting Standards Board (ASB)| * Statements of Standard Accounting Practice (SSAPs) adopted by the UK Accounting Standards Board| * UITF Abstracts issued by the Urgent Issues Task Force (UITF) of the UK Accounting Standards Board| * Listed companies must also comply with the reporting requirements set out in the Listing Rules of the London Stock Exchange, and AIM companies must comply with the AIM rules. ‘| Ireland Legislation
Before we dive into the evolution of accounting standards and the framework, its important to understand the evolution of legislation which has lead to the need for accounting standards. | * The Companies Act 1963 was the principal act in ireland. | * ‘The Companies Amendment Act 1977 was issued to facilitate changes in Stock exchange procedures. | * The Companies Amendment Act 1982 was issued to deal with sundry miscellaneous changes to the principal act | * The Companies Amendment Act 1983 was issued to implement the EC Second directive dealing with maintenance of capital and provision of certain rights to shareholders. * The Companies Aamendment Act 1986 was issued to implement EC Fourth Directive harmonizing financial reporting in member states| * The Companies Amendment Act 1990 was issued to deal with appointment and powers of examiners to troubled companies. | * The Companies Act 1990 was issued to introduce new measures to improve the management and direction of companies implementing the EC eighth directive on mutual recognition and dealing with insider trading | * The European Communities Regulations 1992 was issued to implement EC seventh directive harmonizing group accounts in member states. * The Companies Act 1999 was issued due to issues with the issue or sale of securities and to amend the 1990 act with relation to examinership. It also prohibits the formation of a company unless it appears to the Registrar of Companies that the company will carry on an activity in the state. | * The company law enforcement act 2001 was issued to provide for the establishment of a director of corporate enforcement and also for the Company law review group. * The companies act 2003 was issued to establish the Irish Auditing and Accounting Supervisory Authority, to give power to it to supervise the regulatory functions of the recognized accountancy bodies and other prescribed accountancy bodies and in relation to auditing, accounting and other matters. | * The investment funds, companies and miscellaneous provisions act 2005 was issued to to change the existing law on investment funds, and also to pave the way smooth transposition of EU Directives on Market abuse and prospectus. * The investment funds, companies and miscellaneous provisions act 2006 | * The companies amendment act 2009 was issued mainly in relation to licenses and disclosures of loans to directors. | * The companies miscellaneous provisions act 2009 was issued in relation to parent undertakings and amended a number of other acts. | Overall these companies acts required : ‘Companies are required to keep proper books of account. In particular the ooks must : * Record a companies transactions in a timely and consistent manner * correctly record and explain the transactions of the company * enable the financial position of the company to be determined with reasonable accuracy at all times * enable the directors to ensure that the annual accounts comply with the requirements of the companies acts * enable those annual accounts to be readily and properly audited ‘ [irish company accounts book] Standards Just like in the UK there was no accounting standards in Ireland prior to 1970.
The ASC included members from the Irish professional accounting bodies and thus SSAP’s , SOI’s and SORP’s also applied to Ireland ( as per explained in the UK section) ‘However the FRC, ASB FRRP AND UITF regime in the UK has legal backing. The system operates differently in Ireland as the irish government decided not to get directly involved due to legislative changes and finance needed. The government however requested the ICAI to act as the Irish standard setting body and to maintain a link with the ASB. There is also an ICAI representative on the FRC.
The ICAI adopts standards developed by the ASB adjusting them where necessary to reflect Irish legislation. ’ International accounting standards Increased globalization over the past 30 years has lead to increased international mergers, acquisition, trade and investment from abroad in irish companies. This has lead to the demand for increased global consistency with regard finical reporting. ‘ This lead to IASB begin established to develop a set of international standards which it wants to be used globally.
Irish companies were required from 1st January 2005 to prepare group accounts in accordance with IAS’s. ‘ ‘IAS’s are developed by the ‘International Accounting Standards Committee which was established in 1973 by the professional accounting bodies in nine countries including the UK and ireland with the main aim 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.
There are various ways an IAS can be applied such as being adopted as a national standard or being used as a national requirement but adapted for local purposes. In Ireland and the UK the national requirement is derived independently but adapted to conform with the IAS. SSAP’s 4,9,12,13,15,17,18,20,21,22,24 AND FRS’s 1,3,5 and 6 include paragraphs confirming compliance with the equivalent IAS’ Small and medium sized companies ‘The ASB has proposed replacing Irish and UK GAAP with a new ‘tier system’ based on public accountability, and incorporating the IFRS for SMEs ‘ The future – replacement of GAAP with IFRS’s Irish GAAP will soon disappear in its present form to be replaced by a new version of the international rules according to PricewaterhouseCoopers. The Ireland and UK accounting standard-setter, the Accounting Standards Board (ASB), has in a discussion paper issued this week proposed to base the future of Irish and UK accounting on a version of International Financial Reporting Standards (IFRS). ’ ‘The October 2010 proposals were in the form of Financial Reporting Exposure * Drafts (FREDs) 43 and 44, which proposed
A new financial reporting regime for current UK and Irish GAAP reporters. The proposals centred on a three tier reporting framework focusing on the nature of the entity. The goal of these proposals, according to the ASB, is to achieve “a suite of high quality financial reporting standards, all of which are fit for purpose”. * FREDs 43 and 44 proposed For financial periods beginning on or after 1 July 2013; 1. All publicly accountable entities would prepare financial statements that comply with EU adopted IFRS 2.
Entities that qualify as small, based on the company law thresholds for a small company, would prepare financial statements that comply with the ASB’s Financial Reporting Standard for Smaller Entities. 3. All other entities would prepare financial statements in accordance with the Financial Reporting Standard for Medium-sized Entities (FRSME). ‘ Describe the historical differences in accounting systems and the emergence of pressure for international harmonization. this asks for historical differences in accounting systems however the question does not specify what countries to analysis the differences between, so I am presuming it means differences in accounting systems on a global scale. Before we dive into historical differences in accounting systems lets look at how we classify an accounting system as there are many ways to classify accounting systems and thus are numerous accounting systems in which we could analysis the historical differences between.
There are two types of classification an inductive classification and a deductive classification. * ‘An inductive classification is data driven and do not rely on theory of accounting to develop categories. * A deductive classification decides upon relevant classifications baced on knowledge or beliefs of the classifier. ‘ Using the deductive classification method we can classify countries accounting systems according to their legal system.
This classification is based on the argument that the accounting system of a country is the result of the legal system used and the resulting groups of countries should have accounting rules or practices that are substantially similar inside each group’ Accounting systems globally can be classified into two systems on the basis of whether the country uses a roman law system or a common law system. Historical differences between the two accounting systems – * ‘Countries with a legal system based on common law include England, Ireland, USA, Australia, Canada and New Zealand.
These countries rely on the application of equity to specific cases rather than a set of detailed rules to be applied in all cases. The effect in the UK, was that there was limited legislation regulating the form and cogent of financial statements until the government was required to implement the EC Forth directive’. * ‘Countries with a legal system based on Roman law included France, Germany and japan. These countries rely on the codification of detailed rules which are often included within their companies legislation.
The result is that there is less flexibility in the preparation of the financial reports in those countries’ The different accounting systems around the world result in different companies presenting information in different formats and disclosing different amounts of information which can be very confusing for investors thinking about investing abroad. The different accounting systems also entail different treatment of different items for example treatment of intangible assets and criteria to recognise this, this results in confusion and confidence issues when analysing inancial statements from abroad. Need for international harmonization of accounting standards : Over the past 30 years as companies in different countries have globalized and expanded abroad, investors, lenders and other users of financial information have began to air concerns about the lack of consistency, understand ability and comparability of financial information between the financial statements of companies located in different countries. potential investors and lenders are unhappy with some countries lack of adequate information disclosed in both the accounts and notes to the accounts.
This lack of uniformity and understand ability across different countries has resulted in companies, investors and lenders unable to invest/ lend to the level they would like to in foreign markets. This resulted in demands for harmonization of accounting standards between countries but ‘ by the 1990’s demands for harmonization were replaced by demands for a single global set of financial reporting standards that could replace national accounting standards at least for companies with publicly traded securities. ‘Governments and tax authorities have also become strong advocates for global accounting standards/ harmonization as too have the IMF, G7 Finance Ministers, World Bank, IOSCO, OECD etc’ ‘The economic crisis that began in 1998 in certain Asian countries and spread to other areas of the world also demonstrated the need for reliable and transparent accounting to support sound decision making by investors, lenders and regulatory authorities. The World Bank then pushed countries to adopt IAS’s or develop national standards based on IAS’s. ‘Benefits to Companies of having a harmonized set of accounting rules is * reduction in costs * reduction in risks of uncertainty and misunderstanding * more effective communication with investors * comparability with other companies in the industry, nationally and internationally’ Approaches 2 approaches towards harmonization include attempts by the EU and attempts by the IASB. A third alternative of using US GAAP will also be briefly examined. * Harmonisation within Europe through directives The main directives aimed at harmonization within the EU to date are the forth and seventh directive.
Forth directive ‘The major changes prescribed by the forth directive were 1. limited companies have to adopt compulsory formats for both the balance sheet and the profit and loss account 2. defined methods of valuing assets, the so called valuation rules had to be followed. The Directive also provided definitions of small and medium sized companies and permitted member states to offer such companies exemptions from complying with certain requirements of the directive. ‘ Seventh Directive The seventh directive requires 1. he consolidation of subsidiary undertakings across national borders 2. uniform accounting policies to be followed by all members of the group ‘ Both directives achieved much less harmonization than expected. The EU rejected the use of new directives and establishment of a European standard setting body and instead opted to support the work of the IASB and amended existing directives to facilitate and from the first of January 2005 a member state of the EU must prepare consolidated financial statements in accordance with IAS’s and IFRS’s Harmonisation on a Global level through IAS’s and IFRS’s ‘The international accounting standards committee which was replaced by the IASB in 2001 consists of over 153 professional accountancy bodies from over 112 countries and aims 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 and -to work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements . ‘The IASC has no direct power to implement or enforce its standards but relays on its members to persuade the relevant institutions in their countries to adopt and enforce the standards. By 1990 the IASC had issued 31 IAS’S which could be adopted by countries which had not developed their own mechanism for standard setting. ( This lead to a medium level of standardisation between countries which adopted their standards) In 1995 it entered into an agreement with the IOSCO to develop a et of ‘ core standards for cross border capital raising and listing purposes’ which would permit quoted companies to produce their financial statements using IAS’s rather than having to prepare a set of financial statements drawn up in accordance with the GAAP of the country in which the stock exchange is situated or to provide a reconciliation with the local rules of that country. It finally came as IAS 39 Financial instruments ;recognition and measurement but received limited endorsement from IOSCO. It also failed to achieve a high level of harmonisation which its founders had hoped for and thus was a partial failure ) The IASB which then replaced the IASC in 2001 had aims similar to the IASC but aim to bring about convergence of national accounting standards and IAS’s. It adopted all the existing IAS’s but all standards issued will be described as IFRS’s. Currently the EU is adapting IAS’s and it looks like the new global standards will move towards IAS’s but this conformity won’t realistically happen for some time. So currently countries around the world are slowly adopting IAS’s/ IFRS’s in a move towards uniformity, however it will take some time for countries to fully depart from their GAAP unless their respective governments enforce regulation enforcing it. So currently a portion of countries around the world are using IAS’s but some including the US are still using their GAAP. However the move is towards IAS’s on a global scale. US GAAP ‘US regulators take the view that US standards are high quality and question anything that does not meet the detailed content of US GAAP. However other countries are reluctant to us US GAAP and have instead leaned towards use of IFRS’s. Critically analyse the role, objectives, politics and funding of the standard setting process of the IASB; * Objectives ‘Under the IFRS Foundation Constitution, the objectives of the IASB are: * (a) to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high uality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions; * (b) to promote the use and rigorous application of those standards; * (c) in fulfilling the objectives associated with (a) and (b), to take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies; and * (d) to bring about convergence of national accounting standards and International Accounting Standards and International Financial Reporting Standards to high quality solutions. These objectives are very valid in today’s conditions. With increased pressure internationally for harmonization of accounting standards or even a single set of global standards these aims show that the IASB are committed towards the harmonization of accounting standards. These objectives show investors that this major body is working in their interest and in the interest of companies internationally.
However many question how some of these objectives can be achieved when the IASB has no enforcement mechanism and thus the objectives of the IASB are somewhat unattainable and should be revised to include the development of an enforcement mechanism rather than the current system of member bodies having to persuade their respective members to obey the rules.
This lack of enforcement mechanisms has meant that IASB standards and auditing standards have not been applied on the scale expected and some blame certain aspects of the 2009 financial crisis on the lack of adequate accounting and auditing standards thus the blame is going back to the IASB, which intern relates to the objectives set out for the IASB being unattainable. We should also analysis whether these objectives have been achieved. In some respects they have and in some they hav’nt, ‘In five years up till 2006 it has created accounting standards that have been adopted or adapted by 100 countries in the world’.
So in most respects the IASB has become a global standard setter and achieved its aims to some extent. However its final aim “to bring about convergence of national accounting standards and IFRS’s has not been achieved in a greater majority of countries and will take some time to achieve. ‘These objectives of creating adequate standards to be applied on a global scale are achieved through the standard setting process * 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 ‘ ‘Setting the agenda The IASB evaluates the merits of adding a potential item to its agenda mainly by reference to the needs of investors. The IASB considers: * the relevance to users of the information and the reliability of information that could be provided * whether existing guidance available * the possibility of increasing convergence the quality of the standard to be developed. * resource constraints (in my opinion this stage is very effective as it ensures that the IASB analyse the benefits and cons before placing an item on their agenda by considering all the relevant information as outlined above ) Project Planing When adding an item to its active agenda, the IASB also decides whether to: * conduct the project alone, or * jointly with another standard-setter. A team is selected for the project by the two most senior members of the technical staff: * The Director of Technical Activities; and The Director of Research. The project manager draws up a project plan under the supervision of those Directors. The team may also include members of staff from other accounting standard-setters, as deemed appropriate by the IASB. (In my view is stage is also effective as it ensures collaboration between research staff and technical staff, it also sets out a clear staff structure for the project which is also good) Development and publishing of exposure draft Although a discussion paper is not mandatory, the IASB normally publishes it s its first publication on any major new topic to explain the issue and solicit early comment from constituents. Irrespective of whether the IASB has published a discussion paper, an exposure draft is the IASB’s main vehicle for consulting the public. Unlike a discussion paper, an exposure draft sets out a specific proposal in the form of a proposed standard (or amendment to an existing standard) (This stage is very very effective my view and ensures full participation of all the relevant stakeholders in the standard setting process)
Development and publication of an IFRS The development of an IFRS is carried out during IASB meetings, when the IASB considers the comments received on the exposure draft. After resolving issues arising from the exposure draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second exposure draft. A pre-ballot draft is usually subject to external review, normally by the IFRIC. Shortly before the IASB ballots the standard, a near-final draft is posted on eIFRS.
Finally, after the due process is completed, all outstanding issues are resolved, and the IASB members have balloted in favour of publication, the IFRS is issued. (This is again a very effective stage in my view as it ensures that the IASB consider the stakeholders views in the setting of the standard and then puts it to vote democratically) After standard is issued After an IFRS is issued, the staff and the IASB members hold regular meetings with interested parties, including other standard-setting bodies, to help understand unanticipated issues related to the practical implementation and potential impact of its proposals. In my view this standard setting process is adequate and extensive. It ensures that the entire standard setting process is transparent and consults all the necessary process through the various stages. For example the exposure draft ensures that public accountants and law makers can analysis the standard and have adequate input in the process. The IASB regular meetings are also very useful as they ensure that the standard is constantly reviewed and improved if necessary . Role The IFRS foundation quoted how ‘The IASB is the independent standard-setting body of the IFRS Foundation.
Its members (currently 15 full-time members) are responsible for the development and publication of IFRSs, including the IFRS for SMEs and for approving Interpretations of IFRSs as developed by the IFRS Interpretations Committee (formerly called the IFRIC). All meetings of the IASB are held in public and webcast. In fulfilling its standard-setting duties the IASB follows a thorough, open and transparent due process of which the publication of consultative documents, such as discussion papers and exposure drafts, for public comment is an important component.
The IASB engages closely with stakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession. ’ The role of the IASB as outlined above has been achieved to some extent to date. On the note of standard setting the IASB has developed an effective system of developing standards as outlined above. The aim of developing IFRS’s has also been successfully achieved with a large number issued since the change in title from IAS to IFRS as outlined previously.
The role of being transparent in standard setting has also been achieved successfully as outlined above with the exposure draft and discussion papers. And the role of engaging closely with the relevant stakeholders is being successfully achieved through the standard setting process as also outlined above. Funding ‘From 2000 the responsibility for funding has fallen on the IASCF Trustees. They have continued to raise funds from existing sources but have also explored others such as contributions from multinational corporations and stock markets whose needs are served by the IASB.
There is a list of IASCF underwriters and supporters at the end of the annual report. Categories of funders cover accounting firms, underwriter companies, supporters, central banks and government entities, international organizations and other official organizations and associations. ‘ There are 19 trustees initially appointed by a nominating committee. With regard funding it is clear that the current system in place is adequate to ensure that no one country / body is able to secretly influence the IASB’s standard setting as public disclosure of the amounts contributed by each is required.
This system of disclosing all contributors ensures that the main objectives of the IASB to create fair standards is achieved. However in 2010 when the EU threatened to cut funding unless the IASB changed the composition of its board to include representatives from banks, companies and regulators, it demonstrated that the IASB’s funding may intact intefer with its independence and importability thus demonstrating that the funding of the IASB is not as above board as expected as the IASB then considered changes in its structure following these financial threats.
Politics In recent years the IASB has come under heavy criticism from numerous sources. In 2005 there was criticism in the political arena from Brussles and Europe about the formation of the Borad of the IASB, Charlie McCreevy, EU internal market commissioner saying “representation within the international standard-setter and within a public oversight body should correspond more appropriately to jurisdictions that directly apply the standards’.
At the time this criticism was valid in terms of EU opinion, The EU believed that seeing as it will implementing the standards across the entire EU that they themselves should have adequate input into the process In 2005 there was also political criticism that ‘criticism that the IASB rule-makers practice an academic form of accounting with little regard for its impact in the real world. The IASB, however, points out that it consults extensively with companies, investors and analysts. This criticism was somewhat valid as it is widely noted that there was no minimum experience in the audit field required to be on the IASB board, this in tern lead to demands for minimum requirements to be introduced. Overall the politics of the IASB is not a cause of concern in my view, as the funding is above board, and the standard setting process is effective, there are political issues about who is influencing and who is’nt influencing the standard setting process of the IASB but this political issue is not of great concern as it is inevitable with any standard setting process.
Outline the legislation governing financial reporting in Ireland, the 2005 regulations and relevant aspects of the 1986 Companies Act and explain the choice between international and domestic financial reporting frameworks. A timeline of the legislation governing financial reporting in Ireland is as below | The Companies Act 1963 was the principal act in ireland. | The Companies Amendment Act 1977 was issued to facilitate changes in Stock exchange procedures. The Companies Amendment Act 1982 was issued to deal with sundry miscellaneous changes to the principal act | The Companies Amendment Act 1983 was issued to implement the EC Second directive dealing with maintenance of capital and provision of certain rights to shareholders. | The Companies Aamendment Act 1986 was issued to implement EC Fourth Directive harmonizing financial reporting in member states| The Companies Amendment Act 1990 was issued to deal with appointment and powers of examiners to troubled companies. The Companies Act 1990 was issued to introduce new measures to improve the management and direction of companies implementing the EC eighth directive on mutual recognition and dealing with insider trading | The European Communities Regulations 1992 was issued to implement EC seventh directive harmonizing group accounts in member states. | The Companies Act 1999 was issued due to issues with the issue or sale of securities and to amend the 1990 act with relation to examiner ship.
It also prohibits the formation of a company unless it appears to the Registrar of Companies that the company will carry on an activity in the state. | The company law enforcement act 2001 was issued to provide for the establishment of a director of corporate enforcement and also for the Company law review group. | The companies act 2003 was issued to establish the Irish Auditing and Accounting Supervisory Authority, to give power to it to supervise the regulatory functions of the recognized accountancy bodies and other prescribed accountancy bodies and in relation to auditing, accounting and other matters. The investment funds, companies and miscellaneous provisions act 2005 was issued to to change the existing law on investment funds, and also to pave the way smooth transposition of EU Directives on Market abuse and prospectus. | The investment funds, companies and miscellaneous provisions act 2006 | The companies amendment act 2009 was issued mainly in relation to licenses and disclosures of loans to directors. | The companies miscellaneous provisions act 2009 was issued in relation to parent undertakings and amended | Companies Amendment Act 1986 The purpose of the Companies Act 1986 is to give effect to the Fourth EC Company Law Directive which deals with the content and publication of the annual accounts of public and private limited companies. The main impact of this Bill will be to increase the level of detailed disclosure required in the accounts of public and private limited companies and in particular to remove the current exemption under section 128 of the 1963 Companies Act whereby private limited companies are not at present required to publish their accounts.
In so far as the formats of accounts are concerned, companies are being given a choice in the Bill of one of two balance sheet formats and one of four profit and loss account formats. The differences in either sets of formats are basically presentational. The Bill allows companies to choose so as not to upset whatever current format arrangements they may be using. Once a company has chosen a particular format it must, with very limited exceptions, stick to that format in subsequent years and not chop and change.
In practice, the choice of formats is not of such diversity as would cause difficulty for people in understanding the accounts’ To analyse the bill closer we should will now analyse the main sections of the bill with most relevance Sections 8 and 9 set out the criteria, turnover, gross assets, numbers  employed, for qualification as a small or medium-sized company. | Section 13 of the Bill provides that the directors’ report must give certain additional information to that required by section 158 of the 1963 Act. Section 14 of the Bill is a requirement of the Fourth Directive, and the Second Directive, for the directors’ report to give details of acquisitions by a company of their own shares. | Section 16 of the Bill provides for the disclosure by companies of information on subsidiary or associated companies| Section 17 provides a facility which is allowed in the directive whereby subsidiaries of a parent company in the EC may stand exempted from the requirement to file accounts once a number of strict conditions are fulfilled| 2005 Regulations In writing the following answer I am presuming the question is aimed at the regulation which came into effect in 2005 ) ‘ In June 2002, the European Union adopted an IAS Regulation requiring European companies listed in an EU securities market, including banks and insurance companies, to prepare their consolidated financial statements in accordance with IFRSs starting with financial statements for financial year 2005 onwards’ And from January 2005 Irish companies were required to prepare group accounts in accordance with IAS’s Choice Most Irish companies, other than listed companies, have the choice of continuing to prepare their accounts under Irish GAAP or to switch to IFRS from 2005. Irish GAAP relies on the accounting standards issued by the UK Accounting Standards Board (ASB). Consequently, the ASB’s plan to converge to IFRS is of significant interest and importance to Irish companies. In essence, the ASB’s plan is to adopt a phased approach to convergence over the next four years, by which time there may well be little or no difference remaining between Irish GAAP and IFRS. ‘Implementation of the ASB’s August 2009 proposals on The Future of UK GAAP would see the end of UK/Irish GAAP as we currently know it and a transformation of the reporting framework of thousands of Irish entities with all but small entities moving to IFRS (be it full IFRS or IFRS for SMEs) as their accounting framework. IFRS for SMEs is designed to be a complete accounting framework suitable for all companies, big and small, except those that are ‘publicly accountable’.
A new 3-tier system that will dictate the financial reporting of UK and Irish entities is at the heart of the ASB’s proposals. (see table 1 below). Table 1: ASB’s proposed financial reporting framework Tier| Reporting framework| Criteria| Tier 1| EU-adopted IFRS (full IFRS)| Publicly accountable entities | Tier 2| IFRS for SMEs | Entities that are not ‘publicly accountable’| Tier 3| FRSSE | Entities that qualify as | The choice of whether to use Irish GAAP or IFRS’s depends on the company but ts worth noting’ Since 2005 a number of private companies, such as subsidiaries in EU groups, have voluntarily adopted IFRS to streamline their consolidation process, while others have considered the benefits of transitioning before concluding that these were outweighed by the upheaval of implementing a new basis of accounting. The key change since 2005 is that a move away from current UK/Irish GAAP to IFRS or IFRS for SMEs is inevitable whether this move takes place now, or by 2013. Outline the professional accountants role in the financial reporting process and explain the ethical dimensions of that role.
The professional accountants role in the financial reporting process is to apply firstly the fundamental accounting conventions of 1. Monetary measurement | not accounting for items unless they can be quantified in monetary terms. | 2. Separate entity | ensuring that private transactions and issues relating to the owners are kept separate from company accounts. | 3. Realisation | ensuring the accounts recognize transactions at the point of sale or transfer of legal ownership| 4.
Materiality | If there are items that require a decision about a specific accounting standard the materiality convention suggests there should only be an issue if the decision is material to the accounts users. | Professional accounts are also expected to prepare accounts using the appropriate accounting concepts : ‘1. The going concern concept: an assumption that the business will continue to trade into the foreseeable future. | 2. The consistency concept: that the same principles for constructing accounts will be maintained from one set of accounts to the next. | 3.
The concept of prudence: that in valuing a transaction, a conservative approach will be used, i. e. not to value at highest possible estimate. | 4. The accruals concept: that revenues and costs are recorded when they occur rather than when the cash is received or paid. | 5. The materiality concept: that financial transactions should be shown separately if by lumping them together with other transactions the user of the accounts might be misled. ‘| The professional accountant is also expected to present the information with understanding of the key characteristics of good accounting information :
Understandability| This implies the expression, with clarity, of accounting information in such a way that it will be understandable to users – who are generally assumed to have a reasonable knowledge of business and economic activities| Relevance| This implies that, to be useful, accounting information must assist a user to form, confirm or maybe revise a view – usually in the context of making a decision (e. g. should I invest, should I lend money to this business? Should I work for this business? | Consistency| This implies consistent treatment of similar items and application of accounting policies| Comparability| This implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of performance over time. Much of the work that goes into setting accounting standards is based around the need for comparability. | Reliability| This implies that the accounting information that is presented is truthful, accurate, complete (nothing significant missed out) and capable of being verified (e. g. by a potential investor). Objectivity| This implies that accounting information is prepared and reported in a “neutral” way. In other words, it is not biased towards a particular user group or vested interest| Professional accountants also have the role of preparing the accounts in accordance with the relevant legislation and accounting standards which in most cases imposes the duty to prepare accounts which give a true and fair view. There are many ethical dimensions to the role of an a professional accountant and many of these are due to the application of the fundamental accounting conventions and concepts.
Ethical standards vary depending on the professional bodies but the fundamental ethical principals that accountants are expected to follow when engaging in financial reporting are : Integrity| The principle of integrity imposes an obligation on all members to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness. | Objectivity| The principle of objectivity imposes an obligation on all members not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others. Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but no other. | Professional Competence and Due Care| The principle of professional competence and due care imposes the following obligations on members:| (a) To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and| (b) To act diligently in accordance with applicable technical and professional standards when providing professional services. | Confidentiality|
The principle of confidentiality imposes an obligation on members to refrain from:| (a) Disclosing outside the firm or employing organisation confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and| (b) Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties. | Professional Behaviour| 50. 1 The principle of professional behaviour imposes an obligation on members to comply with relevant laws and regulations and avoid any action that may bring discredit to the profession. This includes actions which a reasonable and informed third party, having knowledge of all relevant information, would conclude negatively affects the good reputation of the profession. | References : Jones, 2006, Accounting second edition, Sussex, John Wiley and Sons Ltd Brennan, Peirce, 1996, Irish company accounts – regulation and reporting, Dublin, Oak Tree Press
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