In this lesson, you'll learn about the international accounting standards and its history. We'll also review a few standards and their purpose as well as explore the new international standards.
Sue just landed her dream job as Director of Financial Reporting for an international corporation. The chief financial officer asked her to review the international accounting standards with the financial subordinates.
Sue starts the presentation by explaining that each country has specific reporting requirements and accounting procedures differ from country to country. That's why the international accounting standards (IAS) were created to narrow the accounting procedural differences and provide continuity between countries.
For the rest of this lesson, we'll explore the history of the international accounting standards, review a few standards and discuss a new set of international standards.
International Accounting Standards Committee
In 1973, the International Accounting Standards Committee (IASC) was formed to create global uniform standards. Sue asks the group if they could name earlier participants in the IASC. Surprisingly, they mentioned all the initial members:
the United States
the United Kingdom
The IASC members originated from varied financial backgrounds and worked together to create global standards that were adopted by many companies and looked upon as the foundation to minimize the differential gap. Countries who adopted the standards required companies who operated in their country to use them in creating financial statements.
In 2000, the IASC changed its name to the International Accounting Standards Board to repurpose their focus and create the International Financial Reporting Standards, which we'll discuss later in this lesson. Sue then tells the group they will now review a few important IAS standards.
International Accounting Standards
Sue asks if the group can recall a few of the current IAS standards.
One participant states that the Presentation of Financial Statements standard is still relevant today. This standard requires companies to present the four main financial statement package that includes the:
statement of cash flows
statement of equity
Another participant mentions the Events after the Reporting Period standard which provides guidance on when to revise financial statements based on the occurrence of a significant event. Sue polls the group for examples of an event. ''Costly lawsuit!' says one member. ''Natural disaster!'' says another. These can cause substantial financial loss.
Lastly, Sue mentions the Employee Benefits standard, which provides guidance of when to account for benefits (wages, retirement, disability). The standard requires that the cost of employee benefits should be recognized in the period in which they are earned not paid.
Sue then groups the participants to review the remainder of the standards with each other. In all, they reviewed 41 IAS standards, some of which had been replaced by the international financial reporting standards.
International Financial Reporting Standards
Since this group was more familiar with the International Financial of Reporting Standards (IFRS), she allows one of the participants in the audience, Ross, to explain its purpose.
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Ross stands up and says ''the IFRS are similar to the IAS; however the IFRS provides a higher level of detail and an enforceable component for those countries who adopt the standards.''
While the United States has yet to adopt IFRS at the time of Sue's presentation in early 2017, she mentions that many other countries have. Moreover, all the US accounting firms are aware of IFRS and many major US companies are preparing for the change.
The International Accounting Standards attempt to narrow the accounting procedural differences and provide continuity between countries. They were originally established in 1973 by the International Accounting Standards Committee. Some example standards:
Presentation of Financial Statements standard - requires companies to present the four main financial statement package:
statement of cash flows
statement of equity
Events after the Reporting Period standard - provides guidance on when to revise financial statements based on the occurrence of a significant event like a lawsuit or natural disaster.
Employee Benefits standard - provides guidance of when to account for benefits (wages, retirement, disability). It states that the cost of employee benefits should be recognized in the period in which they are earned not paid.
In 2000, the committee was reorganized as the International Accounting Standards Board. The IASB later created the International Financial Reporting Standards, which replaced many standards created by IASC. The IFRS provides more clarity and an enforceability component.
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