FAR Key Topics
Course Introduction
The need for ● Cross-listings (costly and confusing)
“international” accounting ○ Cross-listed companies had to present
standards separate financial statements for each market
● Foreign investments (attract foreign investors)
○ Foreign investors are not/less familiar with local
GAAP
Why not one set of Advantages
accounting rules for all ● Cuts compliance costs for firms
types of companies? ● Easier access to international capital
● Increase attractiveness of local capital markets
● Increases comparability of international financial
statements
Disadvantages
● Lack of influence for local governments
● More flexibility (no country specific situations)
● Enforcement of rules is still a local responsibility
● Different general objectives of financial accounting
IFRS IFRS Institutional Background
Consolidated accounts (a) has a majority of the shareholders' or members'
when a parent voting rights in another undertaking (a subsidiary
undertaking: undertaking) OR
(b) has the right to appoint or remove a majority of the
members of the administrative, management or
supervisory body of another undertaking (a
subsidiary undertaking) and is at the same time a
shareholder in or member of that undertaking. OR
(c) has the right to exercise a dominant influence over
an undertaking (a subsidiary undertaking)
IFRS adoption in Europe ● Listing criterion: Public listing of securities on a
regulated market (No difference between equity and/or
bond issuers)
● Group criterion: Parent undertaking
Three pillars of IFRS in ● Standard Setting - IASB
Europe ● Endorsement - giving approval, support
● Enforcement - compliance with law / regulation
IASB Standard Setting To develop, in the public interest, a single set of high quality,
understandable, enforceable and globally accepted financial
reporting standards based upon clearly articulated principles
IASC to IASB IASC
● Initiative: Auditing companies
● Private standard-setting organization
● Developed International Acc Standards (IAS) 1 to 41
IASB
, ● IFRS Foundation as organizational structure
● Developed International Financial Reporting Standards
(IFRS) 1 to 17 (as of Apr. 2022)
IFRS Foundation: 1. IFRS Foundation Monitoring Board - Public
Three-tier structure accountability
2. IFRS Foundation Trustees - Governance, strategy &
(IFRS Advisory Council oversight
provides advice to 3. IASB and ISSB - Independent standard-setting &
Trustees, IASB, ISSB) related activity
Due process IASB holds public hearing on proposed accounting standards
● Agenda consultation - define priorities (3-5 year)
● Research programme - ideas in discussion paper
● Standard-setting programme - exposure draft for
public consultation
● Maintenance programme - to identify any
implementation or application problems
Endorsement - the IAS ● they are not contrary to the [European true and fair
can only be adopted if: view] principle and,
● are conducive to the European public good and,
● they meet the criteria of understandability, relevance,
reliability and comparability required of the financial
information needed for making economic decisions
and assessing the stewardship of management.
- SARG and EFRAG give advice to EU Commission
- ARC votes on endorsement of IFRS standards in
European Union
In general, accounting standards are not altered during the
endorsement process, exeptions:
● hedge accounting
● fair value accounting
Enforcement ESMA, SEC, AFM, Auditing
CF Conceptual Underpinnings of IFRS
IFRS Conceptual Serves as a foundation for the development, application, and
Framework interpretation of IFRS standards
“The objective of general purpose financial reporting is to
provide financial information about the reporting entity that is
useful […] in making decisions […]”
Purpose of financial ● Distribution function (earnings, taxable income)
reporting ● Information function (investors, management etc)
● Other functions
Course Introduction
The need for ● Cross-listings (costly and confusing)
“international” accounting ○ Cross-listed companies had to present
standards separate financial statements for each market
● Foreign investments (attract foreign investors)
○ Foreign investors are not/less familiar with local
GAAP
Why not one set of Advantages
accounting rules for all ● Cuts compliance costs for firms
types of companies? ● Easier access to international capital
● Increase attractiveness of local capital markets
● Increases comparability of international financial
statements
Disadvantages
● Lack of influence for local governments
● More flexibility (no country specific situations)
● Enforcement of rules is still a local responsibility
● Different general objectives of financial accounting
IFRS IFRS Institutional Background
Consolidated accounts (a) has a majority of the shareholders' or members'
when a parent voting rights in another undertaking (a subsidiary
undertaking: undertaking) OR
(b) has the right to appoint or remove a majority of the
members of the administrative, management or
supervisory body of another undertaking (a
subsidiary undertaking) and is at the same time a
shareholder in or member of that undertaking. OR
(c) has the right to exercise a dominant influence over
an undertaking (a subsidiary undertaking)
IFRS adoption in Europe ● Listing criterion: Public listing of securities on a
regulated market (No difference between equity and/or
bond issuers)
● Group criterion: Parent undertaking
Three pillars of IFRS in ● Standard Setting - IASB
Europe ● Endorsement - giving approval, support
● Enforcement - compliance with law / regulation
IASB Standard Setting To develop, in the public interest, a single set of high quality,
understandable, enforceable and globally accepted financial
reporting standards based upon clearly articulated principles
IASC to IASB IASC
● Initiative: Auditing companies
● Private standard-setting organization
● Developed International Acc Standards (IAS) 1 to 41
IASB
, ● IFRS Foundation as organizational structure
● Developed International Financial Reporting Standards
(IFRS) 1 to 17 (as of Apr. 2022)
IFRS Foundation: 1. IFRS Foundation Monitoring Board - Public
Three-tier structure accountability
2. IFRS Foundation Trustees - Governance, strategy &
(IFRS Advisory Council oversight
provides advice to 3. IASB and ISSB - Independent standard-setting &
Trustees, IASB, ISSB) related activity
Due process IASB holds public hearing on proposed accounting standards
● Agenda consultation - define priorities (3-5 year)
● Research programme - ideas in discussion paper
● Standard-setting programme - exposure draft for
public consultation
● Maintenance programme - to identify any
implementation or application problems
Endorsement - the IAS ● they are not contrary to the [European true and fair
can only be adopted if: view] principle and,
● are conducive to the European public good and,
● they meet the criteria of understandability, relevance,
reliability and comparability required of the financial
information needed for making economic decisions
and assessing the stewardship of management.
- SARG and EFRAG give advice to EU Commission
- ARC votes on endorsement of IFRS standards in
European Union
In general, accounting standards are not altered during the
endorsement process, exeptions:
● hedge accounting
● fair value accounting
Enforcement ESMA, SEC, AFM, Auditing
CF Conceptual Underpinnings of IFRS
IFRS Conceptual Serves as a foundation for the development, application, and
Framework interpretation of IFRS standards
“The objective of general purpose financial reporting is to
provide financial information about the reporting entity that is
useful […] in making decisions […]”
Purpose of financial ● Distribution function (earnings, taxable income)
reporting ● Information function (investors, management etc)
● Other functions
