International Financial Reporting Standards

International Financial Reporting Standards



International Financial Reporting Standards

Task 1:

Financial Reporting Standards FASB operating procedures and project life cycle are as follows. First issues are identified from sources such as letters from interested parties, formal input on agenda priorities, technical inquiries and from implementation resource groups. After a topic has been identified for the committee to review, they then appoint a task force to conduct research on the topic at hand. Once the task force has concluded their research, they issue a discussion memorandum or an invitation to comment. Then a public hearing/round table is held to discuss the issues. The task force then deliberates on the findings. When the board has reached a conclusion on the issues, the staff is directed to prepare what is called a proposed exposure draft for consideration by the board. After further discussion and revisions the board members vote by written ballot to issue the exposure draft. In order for the document to be approved a majority vote is needed by the Board. This draft will set forth the proposed standards of financial accounting and reporting, proposed effective date, methods and transition, background information and an explanation for the basis of the boards conclusion. FASB also issues other work products such as statements of concepts and statements of interpretations. Major differences in the financial reporting practices of companies in different countries lead to problems for those preparing, consolidating and interpreting published financial statements. These differences will be discussed in the first part of the essay. Attempts to harmonise financial statements on an international scale have been made by bodies such as the IASC, more recently, the IASB and the EU. The success of these, however, remains open to interpretation.

A company's annual accounts, wherever they may be produced, provide information as to the financial situation of a company. Although the general aim is the same in most countries, each has a different mix of influences on financial accounting and so, inevitably, differences between countries occur. These differences arise from differing environmental, institutional, and cultural differences. Some of the most important causes will now be discussed.

The first concerns the provision of finance. From the early 1800's companies started to increase in scale and private capital alone became insufficient to finance their activities. This saw companies in different countries react differently when dealing with the increased need for funds (Alexander, Britton, Jorissen; 2007). In nations such as Germany, France and Italy, they relied on debt from banks to finance their activities. However, in the UK and the USA, shareholders were seen as the source of gaining the extra funds. These companies relied more on equity to finance their activities. In companies where companies were largely financed through equity, the financial statements have an investor orientation. The financial statements must provide the relevant info for a potential investor to make the best decision. This is different in nations where companies rely more on debt financing. Their statements have a creditor ...