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An Overview of IAASA

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Title: An Overview of IAASA


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2
An Overview of IAASA
  • Presentation to MBS in Corporate Leadership,
  • DCU Business School
  • 24th November 2006
  • IAASA
  • Michael Kavanagh, Head of Financial Reporting
    Supervision
  • Eileen Townsend, Project Manager

3
Presentation Overview
  • Role and Organisation of the Authority
  • Corporate Governance and IAASA
  • IAASA Board and Key Staff
  • IAASA Functions and Funding
  • Experience to Date
  • Supervision of the Prescribed Accountancy Bodies
  • Financial Reporting Supervision
  • Looking Forward

4
Notes
  • Section 31 of 2003 Act on confidentiality
  • General confidentiality of MBS Sessions
  • Views are our own and do not necessarily reflect
    the Boards

5
Corporate Governance
  • Definition
  • The system by which business corporations are
    directed and controlled. The corporate governance
    structure specifies the distribution of rights
    and responsibilities among different participants
    in the corporation, such as, the board, managers,
    shareholders and other stakeholders, and spells
    out the rules and procedures for making decisions
    on corporate affairs.
  • OECD, April 1999

6
Corporate Governance
  • Corporate Governance Regulatory Framework
  • Legislation
  • Common Law
  • Companys MA
  • Listing Rules
  • Combined Code
  • Accounting Standards

7
Role of the Accounting Profession in Corporate
Governance
  • Principles of Corporate Governance
  • Directors
  • Directors remuneration
  • Accountability and audit
  • Relations with shareholders
  • Institutional shareholders

Combined Code, 2006
8
Role of the Accounting Profession in Corporate
Governance
  • Integrity of Corporate Reporting
  • Credibility of the External Audit
  • Auditors, traditional gatekeepers of the
    financial reporting regime, play a significant
    role in strengthening corporate governance

9
Role of the Accounting Profession in Corporate
Governance
  • Self-regulation
  • Control by a governing body over its membership
    and the activities of its members
  • Self-regulation in the Accounting Profession
  • Entry qualifications
  • Quality assurance processes
  • Conformity with accounting regulations and
  • Rules development and enforcement

Dellaportas et al. (2005, p. 63)
10
Role of the Accounting Profession in Corporate
Governance
  • Failures in corporate governance
  • Financial statements as the instrument of
    corporate scandals
  • Credibility gap in relation to accounting and
    auditing functions
  • Behaviour of accountants and auditors

11
IAASA and CG - Context
  • Tribunal and PAC
  • Review Group on Auditing (2000) - Terms of
    reference included an examination of
  • whether self regulation of the accountancy
    profession was working effectively and
    consistently
  • auditor independence and
  • role of the auditor in ensuring companies
    compliance with law and regulations.

12
IAASA and CG - Context
  • RGA recommendations included
  • establishment of an oversight body
  • financial reporting review function and
  • requirement for directors compliance statements.
  • RGAs recommendations given the force of law by
    the Companies (Auditing and Accounting) Act, 2003.

13
CG and the 2003 Act
  • The 2003 Act deals principally with
  • the establishment of IAASA and
  • Other Measures to Strengthen the Regulation of
    Auditors, including
  • statutory backing for accounting standards
  • audit committees
  • disclosure of accounting policies
  • disclosure of auditors remuneration (analysed by
    audit, audit related and non-audit) and
  • Directors Compliance Statements.
  • CG impact of these other measures

14
IAASA and the Corporate Governance Framework
  • Supervision of Accountancy Bodies Regulation of
    their Members
  • Supervision of Financial Reporting

15
IAASA Board
  • Company Ltd. by guarantee - Board comprises 15
    directors, nominated thus
  • 2 (including the Chairperson) nominated by the
    Minister
  • 3 nominated jointly by the prescribed accountancy
    bodies
  • 9 nominated by the following bodies (1 each)
  • IBEC ICTU
  • IAIM ISE
  • Pensions Board IFSRA
  • Revenue DCE
  • Law Society
  • Chief Executive
  • A maximum of 5 of the 15 directors may be members
    of prescribed accountancy bodies.

16
IAASA- key staff
  • Chief Executive Ian Drennan
  • Head of Financial Reporting Supervision Michael
    Kavanagh
  • Head of Regulatory Monitoring Supervision
    Helen Hall
  • Secretary Head of Legal Services Jane Meehan
  • Project manager Eileen Townsend
  • Project manager Bridget Ryan
  • Finance Administration manager Fergal OBriain

17
Board
  • Chief
  • Executive
  • Ian Drennan

Secretary Head of Legal Services Jane Meehan
Finance Administration Manager Fergal OBriain
Head of Regulatory Monitoring Supervision Helen
Hall
Head of Financial Reporting Supervision Michael
Kavanagh
Project Managers Bridget Ryan Eileen Townsend
18
Statutory Remit (S.8)
  • To supervise how the prescribed accountancy
    bodies regulate and monitor their members
  • To promote adherence to high professional
    standards in the auditing accountancy
    profession
  • To monitor whether the accounts of certain
    classes of companies and other undertakings
    comply with the Companies Acts and, where
    applicable, Article 4 of the IAS Regulation
    reference to IFRS inserted by S.I. No. 116 of
    2005 and
  • To act as a specialist source of advice to the
    Minister on auditing and accounting matters.
  • - All commenced at this stage except no.3

19
Functions
  • The Authoritys principal functions include
  • Promoting adherence to the highest standards in
    the profession
  • Considering applications for recognition for
    audit purposes
  • Supervising the manner in which the accountancy
    bodies monitor (including work quality) and
    regulate (including investigation and
    disciplinary functions) their members
  • Where deemed appropriate, conducting
    investigations into bodies and/or members.
  • Co-operating in the development of auditing and
    ethical standards.
  • Reviewing the financial statements of certain
    companies and other undertakings
  • Co-operating in the development of accounting
    standards and practice notes.

20
Funding
  • Two aspects to funding
  • Day to day operation of IAASA
  • - 40 Exchequer
  • - 60 Prescribed accountancy bodies
  • Reserve Fund
  • - 20 Exchequer
  • - 30 Prescribed accountancy bodies
  • - 50 Review constituency

21
Exchequer Prescribed Bodies Contribution - 2006
  • Total budget 2006 2.297m, provided thus
  • Exchequer 919,000
  • ICAI 757,000
  • ACCA 233,000
  • ICPAI 170,000
  • CIMA 96,000
  • IIPA 54,000
  • ICAEW 21,000
  • AIA 18,000
  • CIPFA 15,000
  • ICAS 14,000

22
  • Supervision of the Prescribed Accountancy Bodies

23
Supervision of the Prescribed Accountancy Bodies
  • Principal object
  • 8(1)(a) - to supervise how the prescribed
    accountancy bodies regulate and monitor their
    members

24
Supervision of the Prescribed Accountancy Bodies
  • IAASA as Supervisor rather than Regulator

25
Supervision of the Prescribed Accountancy Bodies
  • 9 Prescribed Bodies
  • 6 Recognised Bodies
  • ACCA, ICAEW, ICAI, ICAS, ICPAI, IIPA
  • 3 Prescribed Bodies
  • AIA, CIMA, CIPFA

26
Supervision of the Prescribed Accountancy Bodies
  • Approval Function
  • Grant recognition
  • Attach conditions to recognition
  • Approve the constitution bye-laws,
    investigation disciplinary procedures
    standards, also any amendments

27
Supervision of the Prescribed Accountancy Bodies
  • Supervisory Function
  • supervise how each recognised body monitors its
    members
  • supervise the investigation disciplinary
    procedures of each prescribed accountancy body
  • require explanations about the performance of
    regulatory and monitoring duties
  • conduct section 25 reviews of members of
    recognised accountancy bodies, if deemed
    appropriate

28
Supervision of the Prescribed Accountancy Bodies
  • Investigation/Enforcement Function
  • conduct enquiries into compliance with approved
    ID procedures (S. 23)
  • undertake investigations into possible breaches
    of accountancy body standards by a member (S. 24)
  • impose sanctions on a body/member

29
Supervision of the Prescribed Accountancy Bodies
  • Prescribed Body Reviews
  • Undertaking detailed reviews of each prescribed
    body
  • Emphasis of reviews is on seeking to ensure
    adherence to a common high standard of regulatory
    activity from which the public can derive comfort

30
Supervision of the Prescribed Accountancy Bodies
  • Prescribed Body Reviews (cont.)
  • Findings are confidential
  • Findings of reviews and complaints received will
    impact on
  • The Authoritys risk assessment selection
    methodologies
  • the scope and frequency of future reviews

31
Supervision of the Prescribed Accountancy Bodies
  • Prescribed Body Reviews (cont.)
  • Initial reviews have 4 main areas of focus
  • governance and its impact on the regulation of
    members
  • systems for monitoring members
  • complaints handling, investigative, disciplinary
    and appeals procedures and
  • licensing registration of members.

32
1. Governance and its Impact on the Regulation of
Members
  • Gain an understanding of the Corporate Governance
    of the body, including its
  • organisational structure
  • link between the governing body Committees
  • Committees working methods procedures
  • link between the Committees and the Quality
    Assurance and Secretariat functions.
  • Reviews of Committees minutes and attendance at
    meetings as observers.

33
2. System for Monitoring Members
  • Examination of bodies procedures for monitoring
    members providing audit services
  • monitoring cycles and annual plans
  • firm/practitioner risk assessment and visit
    selection methodologies
  • monitoring approach, scope, emphasis, review
    programmes and file selection procedures
  • internal quality control procedures
  • grading criteria
  • response and follow-up to unsatisfactory
    monitoring visits

34
2. System for Monitoring Members
  • assessment of the resourcing of the monitoring
    function, both human and financial
  • shadowing of bodies inspection staff on
    selected visits and
  • members compliance with other obligations e.g.
    PII, CPD.

35
3. Complaints Handling Disciplinary Procedures
  • Examination of
  • complaints handling processes and procedures
  • disciplinary and appeals processes and
  • policies regarding the publication of
    disciplinary or regulatory outcomes/sanctions.
  • Detailed review of selected files.
  • Assessment of resourcing of the function.

36
4. Licensing and Registration
  • Gain an understanding of the procedures for
  • issuance, renewal, suspension and revocation of
    licenses/authorisations
  • to allow members/member firms to engage in
    public practice and to provide an audit service.

37
Further Developments
  • The revised EU 8th Company Law Directive
  • Transposition into domestic legislation by mid
    2008
  • All member states should establish public
    oversight systems

38
Other Work Ongoing
  • APB
  • EGAOB
  • IFIAR

39
Other Work Ongoing
  • Approvals for amendments to Constitution/Bye-laws
    etc.
  • Complaints
  • Annual Reports to the Authority

40
Financial Reporting Supervision Function
41
Principal Functions of Financial Reporting
Supervision Unit
  • To monitor whether the accounts of certain
    classes of companies and other undertakings
    comply with the Companies Acts and IAS Regulation
  • Co-operating in the development of accounting
    standards and practice notes
  • Assisting the Board to discharge its functions as
    an advisor to the Minister on accounting related
    matters
  • Liaising with other countries financial
    reporting monitoring bodies
  • Developing policy regarding the imposition of
    levies on the Authoritys financial statement
    supervision constituency (S15)
  • Identifying, and maintaining under review, the
    composition of the Authoritys financial
    statement review constituency

42
Monitoring whether the financial statements of
certain companies comply with the Companies Acts
  • Section 26 of the 2003 Act
  • The IAS Regulation
  • The Transparency Directive

43
Section 26 of the 2003 Act
  • The financial reporting supervision constituency
    comprises
  • all plcs (whether listed or not)
  • all subsidiary undertakings of plcs
  • all private companies limited by shares that, in
    both in the relevant financial year and the
    immediately preceding financial year, satisfy the
    following criteria
  • balance sheet total exceeds 25m and
  • turnover exceeds 50m.
  • all private companies limited by shares which,
    when aggregated with their subsidiary
    undertakings, exceed the aforementioned
    thresholds
  • all subsidiary undertakings of the preceding
    class of private companies and
  • certain other undertakings, and where applicable
    their subsidiary undertakings, that satisfy the
    aforementioned criteria, including unlimited
    companies and partnerships whose members having
    unlimited liability are themselves limited
    companies.

44
Relevant Exemptions
  • Act provides potential exemptions for
  • certain entities already subject to, what in the
    Ministers opinion, is an appropriate level of
    supervision/regulation
  • - might, for example, include Part XIII
    companies and UCITS
  • S110 TCA 97 entities (securitisation vehicles).

45
IAS Regulation
  • Given effect to in Ireland by SI 116 of 2005
  • Requires EU Member States to take appropriate
    measures to ensure compliance with IFRS (applies
    to listed entities consolidated a/cs only)
  • Recital no.16 of the Regulation -
  • A proper and rigorous enforcement regime is key
    to underpinning investors' confidence in
    financial markets. Member States, by virtue of
    Article 10 of the Treaty, are required to take
    appropriate measures to ensure compliance with
    international accounting standards. The
    Commission intends to liase with Member States,
    notably through the Committee of European
    Securities Regulators (CESR), to develop a common
    approach to enforcement.

46
Transparency Directive
  • Article 24(4)(h) of the Transparency Directive
    (TD)
  • - ..to examine that information referred to in
    this Directive is drawn up in accordance with the
    relevant reporting framework and take appropriate
    measures in case of discovered infringements.
  • Directive deals with Interim Financial Statements
    (which are not within the scope of Section 26).

47
Proposed Approach toFinancial Statement
Supervision
  • S26/ IAS Regulation/ Transparency Directive
    suggests a proactive rather than reactive
    approach to monitoring
  • Methodology for risk assessment and selection of
    entities / financial statements for review has
    been developed
  • Written in context of S26 but also with a view to
    adherence to CESR Std No 1 Enforcement of
    Standards on Financial Information in Europe.

48
Methodology for selection of entity for review
  • CESR Standard No.1 Principle 13
  • The preferred models for selecting financial
    information for enforcement purposes are mixed
    models whereby a risk based approach is combined
    with a rotation and/or a sampling approach.
    However, an approach based solely on risk may be
    an acceptable selection method. A pure rotation
    approach as well as a pure reactive approach is
    not acceptable.

49
Methodology for selection of entity for review
  • Mixed model approach proposed and developed for
    IAASA
  • Criteria for selection will include
  • Risk of material misstatement in the financial
    statements
  • Potential impact on users of financial statements
    in the event of material misstatement
  • Supplemented with random selection of F/S for
    review
  • Complaint from public may also trigger a review

50
Methodology for selection of entity for review
  • Risk of material misstatement in the financial
    statements factors include
  • - financial structure and business trends,
  • - financial position and ratios,
  • - industry specific issues,
  • - corporate governance issues and internal
    control environment,
  • - related party transactions,
  • - incidence of business combinations and
    disposals,
  • - audit qualifications and related issues,
  • - administrative, court and regulatory actions,
  • - third party signals (e.g. complaints received
    by the Authority, press
  • reportage etc.)

51
Methodology for selection of entity for review
  • Potential impact on users users include
  • - present and potential investors
  • - shareholders
  • - employees
  • - lenders
  • - suppliers and other trade creditors
  • - customers
  • - the Revenue Commissioners
  • - regulatory authorities
  • - the general public

52
Methodology for selection of entity for review
  • Potential impact on users factors include
  • - Number, and nature of, retail investors
  • - Size of undertaking (including number of
    employees)
  • - Public profile
  • - Industry profile
  • - Whether the shares or other securities of the
    undertaking are traded
    on a public
    stock exchange. For those undertakings that have
    securities traded on a public stock exchange the
    following will be considered -
  • Share trading activity and volatility in stock
    price
  • Market capitalisation
  • Number of investors
  • Nature of security traded

53
S26 enforcement regime
  • In circumstances where there is, or may be, an
    issue regarding a set of financial statements
    compliance with the Companies Acts or the IAS
    Regulation, and those financial statements have
    been
  • disseminated to members in advance of the AGM or
  • laid before the AGM or
  • delivered to the Registrar
  • the Authority may give notice to the directors of
    the entity concerned.

54
S26 enforcement regime
  • The aforementioned notice must specify
  • the matters in respect of which it appears to the
    Authority that a question of non-compliance
    arises and
  • a period of not less than 30 days in which the
    directors are required to furnish the Authority
    with an explanation of the financial statements
    or prepare revised financial statements.

55
S26 enforcement regime
  • In the event that, at the end of the specified
    period, the directors have neither, in the
    Authoritys opinion
  • given a satisfactory explanation
  • nor revised the financial statements,
  • the Authority may apply to the High Court for a
    declaration of non-compliance and associated
    orders.

56
S26 enforcement regime
  • If, having considered the matter, the High Court
    is satisfied that an instance of non-compliance
    exists, the Court may make a declaration to that
    effect and may order the following
  • the revision of the financial statements and/or
    directors report
  • the re-audit of the financial statements
  • that the directors take specified steps to bring
    the Court order to the notice of persons likely
    to rely on the financial statements
  • that the Authoritys, and reporting entitys,
    costs be awarded against the directors (in that
    context, every person who was a director at the
    time the financial statements were approved is
    considered to have been a party to that approval
    unless s/he can show that they took all
    reasonable steps to prevent approval (section
    26(9)).

57
S26 enforcement regime
  • In the event of an application being made to the
    High Court, the Authority is required to furnish
    the CRO with
  • notice of the application and
  • a general statement of the matters at issue.
  • On the conclusion of proceedings, the Authority
    is required to furnish the CRO with
  • a copy of the Court Order or
  • notice that the application has failed or has
    been withdrawn.

58
Liaising with other countries financial
reporting monitoring bodies
  • IAASA an active participant in EECS (European
    Enforcement Co-ordination Sessions) sub
    committee of CESR monthly meetings
  • EECS Forum for discussing and co-ordinating
    enforcement decisions in EU/EEA
  • A database of IFRS enforcement decisions in the
    EU/EEA has been established not precedents but
    likely to be persuasive reference point
  • Has been Irish EECS case which was brought to EU
    Roundtable on Consistent Application of IFRS
  • CESR/EECS liasing with IASB and SEC on various
    matters of mutual interest
  • EECS - very important part of SEC and EU road
    map

59
Other financial reporting functions
  • Assisting the Board to discharge its functions as
    an advisor to the Minister on accounting related
    matters
  • - Advice on various matters as have arisen
  • - Member of CLRG and advice on part A6 of
    forthcoming Consolidation Bill dealing with
    accounting and auditing
  • Co-operating in the development of accounting
    standards and practice notes
  • - Irish Observer at ASB Board twice monthly
    meetings
  • - Liaison with IASB

60
  • The Future of Financial Reporting in Ireland

61
Re-cap on current accounting regimes operating in
Ireland
  • Irish GAAP
  • International Financial Reporting Standards
  • Alternative Bodies of Accounting Standards

62
European Communities (International Financial
Reporting Standards and Miscellaneous Amendments)
Regulations, 2005
  • Mandatory IFRS financial statements for
  • All consolidated group accounts for entities with
    securities listed
  • on an EU regulated market for years beginning
    1/1/05
  • Group accounts of debt listed entities deferred
    until years
  • beginning 1/1/07

63
European Communities (International Financial
Reporting Standards and Miscellaneous Amendments)
Regulations, 2005
  • Choice for all other companies to prepare
    individual or group accounts as
  • Companies Act accounts
  • or
  • IFRS accounts
  • One way choice, unless relevant change of
    circumstances

64
Investment Funds, Companies and Miscellaneous
Provisions Act, 2005.
  • Investment companies, as defined by Part XIII of
    the Companies Act, 1990 allowed to use
    Alternative Bodies of Accounting Standards (ABAS)
  • ABAS US, Japanese and Canadian GAAP

65
Main players involved in determining the future
of financial reporting in Ireland
66
Main players involved in financial reporting in
Ireland
IAASA
ASB
IASB

ICAI
Financial reporting
EU
SEC
DETE
CESR
67
International Accounting Standards Board (IASB)
  • The accounting standards produced by the IASB
    (previously the IASC) are
  • International Financial Reporting Standards
    (IFRS) (7)
  • International Accounting Standards (30)
  • Interpretations of these - IFRIC (10) and SIC
    (11)

68
Accounting Standards Board
  • The accounting standards produced by the UK ASB
    (previously the ASC) include
  • Financial Reporting Standards (FRS) (29)
  • SSAP (of ASC) (7 active)
  • Interpretations of these - UITF Abstracts (23)

69
Financial Reporting Review Unit of IAASA
  • Principal functions include
  • - Monitoring whether the accounts of certain
    classes of companies and other undertakings
    comply with the Companies Acts
  • Co-operating in the development of accounting
    standards and practice notes
  • Assisting the Board of IAASA to discharge its
    functions as advisor to the Minister on
    accounting and related matters
  • Liaising with other countries financial
    reporting monitoring bodies and developing
    contacts with those bodies.

70
Department of Enterprise Trade and Employment
(DETE) and the European Union (EU)
  • Various laws relating to accounting standards
    including prescribing which accounting standards
    should be used by the different categories of
    companies, the format of those accounts, and
    other accounting related EU regulations that are
    transposed into Irish law by the DETE.

71
The regulators CESR and SEC
  • Primarily regulators of capital markets and
    therefore impact on financial reporting.
  • CESR-Fin active in a number of areas

72
Influence of IFRS on the Irish financial
reporting environment
73
Other financial reporting functions
  • Assisting the Board to discharge its functions as
    an advisor to the Minister on accounting related
    matters
  • - Advice on various matters as have arisen
  • - Member of CLRG and advice on part A6 of
    forthcoming Consolidation Bill dealing with
    accounting and auditing
  • Co-operating in the development of accounting
    standards and practice notes
  • - Irish Observer at ASB Board twice monthly
    meetings
  • - Liaison with IASB

74
Experiences of first time implementation of IFRS
  • 8,000 listed groups required to report under IFRS
    in Europe including c50 in Ireland. Many others
    have done so voluntarily
  • The most common adjustments seen in Ireland
  • Financial instruments generally
  • Share-based payments
  • Pension obligations
  • Foreign currency
  • Business combinations
  • Leasing
  • Deferred tax
  • Dividend distributions
  • Others

75
What future for UK/Irish GAAP?
  • As the world moves towards global accounting
    standards - What is the future role for ASB in
    setting accounting standards?

76
The Accounting Standards Board (ASB)
  • ASB is an operating body of the UK Financial
    Reporting Council (FRC).
  • In Ireland, ASB standards are promulgated by
    the ICAI.
  • Section 41 of the 2003 Companies Act
    accounting standards . issued by any body or
    bodies prescribed by regulation. Not yet
    commenced.
  • Accounting standards responsibilities impacted by
    move to International Financial Reporting
    Standards (IFRS).
  • ASB has consulted on its future role in 2004,2005
    and 2006.

77
Future role for ASB- UITFs
  • ASB acknowledges that national interpretations of
    accounting standards should be rare.
  • ASB has stated that the International Financial
    Reporting Interpretations Committee (IFRIC) is
    the appropriate body to interpret IFRS.
  • Role of Urgent Issues Task Force (UITF) under
    review.

78
Future role for ASB FRSs/SSAPs
  • ASB sees its role as primarily trying to
  • influencing future direction of IASB standards
  • influencing EU policy on accounting
    standards, including the endorsement of IFRS
  • Future role in national standard setting might
    include issuing standards in relation to
  • Entity specific issues for example, smaller
    entities
  • Sector specific issues for example, use of
    Statements of Recommended Practice (SORPs) and
  • Improving communication between companies and
    investors narrative reporting and the Operating
    and Financial Review (OFR).

79
ASB convergence policy with IFRS
  • ASB policy no case for maintaining differences
    between the principles underlying Irish/UK GAAP
    and IFRS.
  • Consulted on convergence strategy in 2004
    responses indicated support for phased approach.
  • Responses to consultation on role in 2005
    highlighted change of view
  • Phased approach complicated/difficult to
    implement
  • Complicated IFRS may not be suitable for many
    companies
  • Await the outcome of the IASB SME project.
  • ASB now proposing to move to big bang
    convergence from 2009

80
ASB convergence current proposals
  • ASB issued tentative proposals in May 2006 for
    public comment
  • All publicly quoted and other publicly
    accountable companies would be required to apply
    full IFRS.
  • Use of the Financial Reporting Standard for
    Smaller Entities (FRSSE) extended to include
    medium-sized entities.

81
ASB convergence current proposals
  • Subsidiaries of group companies that apply full
    IFRS would also be required to apply full IFRS
    for measurement and recognition, but with reduced
    disclosure requirements (yet to be determined).
  • No decision yet on companies that do not fall in
    1, 2 or 3. Alternatives seem to be
  • extend FRSSE application further,
  • apply IFRS to more companies,
  • maintain Irish/UK GAAP for them, or
  • some combination of (i), (ii) and (iii).

82
Issues what is public accountability?
  • IASB definition
  • An entity has public accountability if
  • (a) there is a high degree of outside interest
    in the entity from non- management investors or
    other stakeholders, and those stakeholders
    depend primarily on external financial reporting
    as their means of obtaining financial
    information about the entity or
  • (b) the entity has an essential public service
    responsibility because of the nature of its
    operations.
  • How to put this definition into operation still
    to be determined.

83
Issues FRSSE or IASB SME standard?
  • Is it appropriate to apply the FRSSE to
    medium-sized and possibly even larger companies?
  • Final decisions will be made when the outcome of
    the IASB SME project is clearer.
  • Possibility the EU will also get involved in an
    SME project?

84
Current hot topics for future changes in
financial reporting
85
What direction are accounting standards going in?
  • ASB convergence with IASB standards
  • IASB formal agreements with US FASB and Japan.
  • Convergence roadmap between IFRS and US GAAP
    2008.
  • The potential impact of China and other emerging
    economies.

86
Current hot topics for future changes in
financial reporting
  • Financial Statement presentation
  • Fair value measurement
  • Business combinations
  • Revenue recognition
  • Conceptual framework
  • ... and many more

87
Financial Statement presentation
  • Current proposals are for 3 primary financial
    statements -

88
Financial Statement presentation
  • Each set of accounts will consist of
  • - 3 statements of financial position,
  • - 2 statements of earnings and comprehensive
    income/recognised income and expense,
  • - 2 statements of changes in equity, and
  • - 2 statements of cash flows.

89
Fair value measurement
  • The objective of IASB/FASB joint project is to
  • Define fair value,
  • Establish a framework for measuring fair value
  • Enhance disclosures about fair value, and
  • Codify existing fair value measurement guidance
  • Canadian DP Measurement on initial
    recognition
  • FASB is nearing completion of its project on fair
    value measurements

90
Business combinations
  • Joint IASB/FASB ED issued 30 June 2005 proposing
    major changes to acquisition accounting. For
    example e.g.
  • If acquirer purchases less than 100 recognise
    assets and liabilities at the full amount of
    their fair values and goodwill as the difference
    between the fair value of the acquiree, as a
    whole, and the fair value of assets acquired and
    liabilities assumed.
  • the acquirer to account for acquisition-related
    costs incurred in connection with the business
    combination separately from the business
    combination (generally as expenses).

91
Revenue recognition
  • Objectives are to
  • Eliminate weaknesses in existing concepts and
    standards.
  • - Focus on changes in assets and liabilities
  • - Insufficient guidance on multiple-element
    revenue arrangements
  • - Deal more comprehensively with recognition
    criteria for various other types of transactions
  • Converge IFRSs and US requirements approx 200
    sources of standards and guidance on revenue
    recognition in US GAAP.

92
Conceptual framework
  • IASB and FASB joint agenda project to develop a
    common conceptual framework.
  • Multi-phase project over a number of years
    converged framework 2010?
  • More than an academic exercise. Will have major
    impact on way in which the IASB/FASB will develop
    and revise standards.
  • First discussion paper issued July 2006

93
  • Questions?

94
Contacts Further Information
  • IAASA,
  • 2nd Floor, Willow House,
  • Millennium Park,
  • Naas,
  • Co. Kildare.
  • Tel 353 (0)45 983600 Fax 353 (0)45
    983601
  • Email info_at_iaasa.ie
  • Web www.iaasa.ie / www.iaasa.eu
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