International Convergence of Financial Reporting 73

3. The oversight role of the trustees. (Concern: Trustees should demonstrate more clearly
how they are fulfilling the oversight function.)
4. Funding of the IASC Foundation. (Concern: The funding structure of the IASC
Foundation needs to be examined.)
5. The composition of the IASB. (Concern: The geographic backgrounds of the IASB
members need to be examined.)
6. The appropriateness of the IASB’s existing formal liaison relationships. (Concern: More
guidance is needed in the constitution regarding the role that liaison relationships play.)
7. Consultation arrangements of the IASB. (Concern: Consultative arrangements need
to be improved.)
8. Voting procedures of the IASB. (Concern: For approval of a standard, the current
“simple majority” approach should be replaced with a “super majority” approach.)
9. Resources and effectiveness of the IFRIC. (Concern: Given the likely increase in
demand for IFRIC interpretations, the current arrangements are inadequate.)
10. The composition, role, and effectiveness of the SAC. (Concern: Steps should be taken
to make better use of the SAC.)
A proposal published by the trustees of the IFRS Foundation builds on governance
enhancements implemented as a result of the first Constitution Review, ­completed
in 2005 (these reviews take place every five years). For example, in 2005, the IASC
Foundation’s trustees changed the most important criterion for IASB membership
from “technical expertise” to “professional competence and practical experience.”
Indeed, Hans Hoogervorst, who succeeded David Tweedie as IASB chairman in July
2011, was the immediate past chairman of the Dutch securities regulator, and he did
not have an accounting background. The trustees published a report on the changes to
the Foundation’s constitution made as a result of the second part of their 2008–2010
constitution review. They launched a program to enhance investors’ participation in the
development of IFRS. In early 2009, the trustees revised the constitution to increase the
number of Board members from 14 to 16 and specified geographical quotas for member-
ship: four from North America, four from Europe, four from Asia/Oceania, one from
South America, one from Africa, and two to achieve geographical balance. Further, as
many as 3 of the 16 members could be part-­timers. Further, in response to the crit-
icism that the IASB is a private-sector standard-setter and is not likely to act in the
public interest, the trustees created a Monitoring Board, which consists of leading fig-
ures from regulators in the world (namely, representatives of the SEC, Japan’s Financial
Services Agency, the European Commission, and the Emerging Markets and Technical
Committees of IOSCO) with the functions of overseeing the standard-­setting activities
of the IASB and approving the appointment of trustees.

FROM HARMONIZATION TO CONVERGENCE

OF FINANCIAL REPORTING STANDARDS
The IASB has earned a great deal of goodwill from many interested parties. Its new
approach clearly reflects a change of role from a harmonizer to a global standard-setter.
The phrase “international convergence of accounting standards” refers to both a goal
and the process adopted to achieve it. The goal of “convergence” in accounting stan-
dards can be interpreted differently. From a strict viewpoint, it refers to the enforcement
74 Chapter Three

of a single set of accepted standards by several regulatory bodies. From a soft viewpoint,
it refers to diminishing differences among accounting standards issued by several regu-
lators. According to a third viewpoint, it refers to a situation where two or more jurisdic-
tions agree on a core set of common standards, allowing varying interpretations
regarding non-core issues. Similarly, in implementing the international “convergence”
process, three fundamental approaches can be adopted. First, the aim could be to merge
all standard-setting bodies into a unified “global” body. From a theoretical point of
view, it is often argued that the unified solution of a single international standard-setting
body is optimal. Second, the aim could be to recognize each of the existing standard-
setting bodies as the sole authority in its respective jurisdiction. Accordingly, it could
also be argued that discretion and flexibility in accounting standards through mutual
recognition is theoretically more desirable than uniformity and rigidity, and when the
incentive consequences and the investment effects of accounting standards are taken
into consideration, then discretion can be superior to uniformity. Third, the aim could
also be to recognize that a national standard-setting body can coexist with international
coordination bodies. The IASB’s main objective is to achieve international convergence
with its standards. In other words, the efforts of the IASB are directed toward develop-
ing a high-quality set of standards for use internationally for financial reporting pur-
poses (global standard-setting).15
According to its former chairman, the IASB’s strategy is to identify the best in
standards around the world and build a body of accounting standards that constitutes
the “highest common denominator” of financial reporting. The IASB has adopted a
­principles-based approach to standard-setting and has obtained the support of U.S.
regulators (even though U.S. standard-setters historically have taken a rules-based
­
approach). On the other hand, the IASB’s structure is similar to that of the U.S.
­standard-setter, ­recognizing that the FASB has the best institutional structure for devel-
oping accounting standards.
The major concerns in achieving IFRS convergence include:
• The complicated nature of particular standards, especially those related to financial
instruments and fair value accounting.
• For countries with tax-driven national accounting regimes, using IFRS as the basis for
taxation may be a problem.
• Disagreement with certain significant IFRS, especially those related to financial state-
ments and fair value accounting.
• Insufficient guidance on first-time application of IFRS.
• For countries with limited capital markets, there is little benefit to be derived from
using IFRS.
• Investor/user satisfaction with national accounting standards.
• IFRS language translation difficulties.
The IASB has taken initiatives to facilitate and enhance its role as a global standard-setter.
The issuance of IFRS 1 is one such initiative. IFRS 1 was issued in response to the concern
about a lack of guidance on first-time application of IFRS. The official language of the
IASB is English, and IFRS are written in this language. The IASB has attempted to address
the translation issue by permitting national accountancy bodies to translate IFRS into more
than 30 languages, including Chinese, French, German, Japanese, Portuguese, and Spanish.
In addition to the problem that IFRS have not yet been translated into very many ­languages,

15
G. Whittington, “The Adoption of International Accounting Standards in the European Union,”
European Accounting Review 14, no.1 (2005), pp. 127–53.
 International Convergence of Financial Reporting 75

research has shown that translation can be problematic, as some terms in English have no
direct equivalent in other languages.16
With the increasing trend toward the adoption of IFRS in many countries, including
Australia and the EU member nations, a large number of companies now use IFRS in
preparing their financial statements. An important initiative was the IASB’s decision
to hold a series of public roundtable forums to provide opportunities for those who had
commented on an Exposure Draft to discuss their views on the proposals with members
of the IASB.
A significant number of Board members had direct liaison responsibility with national
standard-setters.17 As a result, unlike its predecessor, the IASB was formally linked to
national standard-setters in at least some countries, and the liaison Board members were
able to coordinate agendas and ensure that the IASB and those national bodies were work-
ing toward convergence.
IFAC supported the IASB’s objective of convergence. For example, at its July 2003
meeting, held in Quebec, Canada, IFAC approved a compliance program designed to pro-
vide clear benchmarks to current and potential member organizations in ensuring high-
quality performance by accountants worldwide. This program required member bodies to
implement, with appropriate investigation and disciplinary regulations, both IFAC stan-
dards and IFRS. IFAC’s Auditing and Assurance Standards Board (IAASB) also issued
new guidance clarifying when financial statements were in full compliance with IFRS. In
its 2007 annual report, the IFAC highlighted, among other things, the progress in achiev-
ing international convergence through IFRS.
As stated earlier in this chapter, the main objective of the IASB is to achieve interna-
tional convergence with IFRS. However, as Zeff points out, some obstacles to comparability
are likely to arise in areas of the business and financial culture, the accounting culture, the
auditing culture, and the regulatory culture.18 He also warns that, in addition to the obsta-
cles to convergence due to the problems of interpretation, language, and terminology, the
impact of politics could create a “catch-22” situation. He states:
The more rigorous the enforcement mechanism—that is, the more authority and the larger
budget a country gives to its securities market regulator to fortify the effort to secure
compliance with IFRS—the more lobbying pressure that will be brought on the IASB,
because companies in such countries will know that they have no “escape valve,” no way
of side-­stepping the adverse consequences, as they see them, of a proposed IASB standard
or interpretation. If the auditor is strict and the regulator is strict, political lobbying of the
standard setter, IASB, may become more intense. If a powerful company or group of com-
panies do not like a draft standard, they will have an incentive to engage in politicking of
the standard-setting body. Hence it becomes a Catch-22.

Regardless of the arguments against harmonization/convergence, substantial efforts

to reduce differences in accounting practice have been ongoing for several decades. The
question is no longer whether convergence should be strived for, but how to achieve
convergence.

16
T. S. Doupnik and M. Richter, “Interpretation of Uncertainty Expressions: A Cross-National Study,”
Accounting, Organizations and Society 28, no. 1 (2003), pp. 15–35. These researchers found, for
example, that German speakers do not view the English word “remote” (used in the context of the
probability that a loss will occur) and its German translation “Wahrscheinlichkeit äußerst gering” as
being equivalent.
17
The IASB initially had official liaison with national standard-setters from Australia, Canada, France,
Germany, Japan, New Zealand, the United Kingdom, and the United States.
18
S. Zeff, “Political Lobbying on Proposed Standards: A Challenge to the IASB,” Accounting Horizons 16,
no. 1 (2002), pp. 43–54.
76 Chapter Three

PRESENTATION OF FINANCIAL STATEMENTS (IAS 1/IFRS 1)

IAS 1 is a single standard providing guidelines for the preparation and presentation of
financial statements. In September 2007, the IASB published a revised IAS 1, effective
for annual periods beginning on or after January 1, 2009. It provides guidance in the
­following areas:
• Purpose of financial statements. To provide information for decision making.
• Components of financial statements. A set of financial statements must include a ­balance
sheet, income statement, statement of cash flows, statement of changes in equity, and
notes, comprising a summary of significant accounting policies and other explanatory
notes.
• Overriding principle of fair presentation. IAS 1 states that financial statements “shall
present fairly the financial position, financial performance and cash flows of an entity.
Fair presentation requires the faithful representation of the effects of transactions, other
events and conditions in accordance with the definitions and recognition criteria for
assets, liabilities, income and expenses set out in the Framework.”19 Compliance with
IFRS generally ensures fair presentation. In the extremely rare circumstance when
management concludes that compliance with the requirement of a standard or inter-
pretation would be so misleading that it would conflict with the objective of financial
statements set out in the Framework, IAS 1 requires departing from that requirement,
with extensive disclosures made in the notes. If the local regulatory framework will not
allow departing from a requirement, disclosures must be made to reduce the misleading
aspects of compliance with that requirement.
• Accounting policies. Management should select and apply accounting policies to be
in compliance with all IASB standards and all applicable interpretations. If guidance
is lacking on a specific issue, management should refer to (a) the requirements and
guidance in other IASB standards dealing with similar issues; (b) the definitions, rec-
ognition, and measurement criteria for assets, liabilities, income, and expenses set out
in the IASB Framework; and (c) pronouncements of other standard-setting bodies and
accepted industry practices to the extent, but only to the extent, that these are consistent
with (a) and (b). IAS 1 does not indicate that this is a hierarchy. It is important to note
that individual country GAAP may be used to fill in the blanks, but only if consistent
with other IASB standards and the IASB Framework.
• Basic principles and assumptions. IAS 1 reiterates the accrual basis and going-concern
assumptions and the consistency and comparative information principles found in the
Framework. IAS 1 adds to the guidance provided in the Framework by indicating that
immaterial items should be aggregated. It also stipulates that assets and liabilities and
income and expenses should not be offset and reported at a net amount unless specifi-
cally permitted by a standard or interpretation.
• Structure and content of financial statements. IAS 1 also provides guidance with respect
to: (a) current/noncurrent distinction, (b) items to be presented on the face of financial
statements, and (c) items to be disclosed in the notes.
IAS 1 requires companies to classify assets and liabilities as current and noncurrent
on the balance sheet, except when a presentation based on liquidity provides informa-
tion that is reliable and more relevant. IAS 1 also provides guidance with respect to the
items, at a minimum, that should be reported on the face of the income statement or bal-
ance sheet. The line items comprising profit before tax must be reflected using either a
19
IAS 1.
 International Convergence of Financial Reporting 77

EXHIBIT 3.2
IFRS not permitted 23 jurisdictions (e.g., Argentina, Thailand, Tobago, Tunisia,
Use of IFRS in 175
and Uzbekistan)
jurisdictions*
IFRS permitted 25 jurisdictions (e.g., American Samoa, Dominican Republic,
Note: 21 jurisdictions have no Mexico, Moldova, Maldives, and Nepal)
stock exchange (e.g., Albania IFRS required for some 10 jurisdictions (e.g., Belarus, Belgium, Botswana, Dubai-UAE,
and Afghanistan).
Fiji, and Kazakhstan)
IFRS required for all 96 jurisdictions (e.g., some EU countries, Australia, Hong Kong,
(with some variations) Turkey, and Canada)

* For details, see Use of IFRSs by jurisdiction, [Link]

nature of expense format (common in Continental Europe) or a function of expense format

­(commonly found in Anglo countries). IAS 1 specifically precludes designating items as
extraordinary on the income statement or in the notes.
Currently, IFRS are used in many jurisdictions around the world (see Exhibit 3.2).

A PRINCIPLES-BASED APPROACH TO INTERNATIONAL

FINANCIAL REPORTING STANDARDS
The IASB uses a principles-based approach in developing accounting standards, rather
than a rules-based approach. Principles-based standards focus on establishing general
principles derived from the IASB Framework, providing recognition, measurement, and
reporting requirements for the transactions c­ overed by the standard. By following this
approach, IFRS tend to limit guidance for applying the general principles to typical trans-
actions and encourage professional judgment in applying the general principles to transac-
tions specific to an entity or industry. Sir David Tweedie, former chairman of the IASB,
explains the principles-based approach of the IASB as follows:
The IASB concluded that a body of detailed guidance (sometimes referred to as brightlines)
encourages a rule-based mentality of “where does it say I can’t do this?” We take the view
that this is counter-productive and helps those who are intent on finding ways around stan-
dards more than it helps those seeking to apply standards in a way that gives useful infor-
mation. Put simply, adding the detailed guidance may obscure, rather than highlight, the
underlying principles. The emphasis tends to be on compliance with the letter of the rule
rather than on the spirit of the accounting standard. We prefer an approach that requires the
company and its auditors to take a step back and consider with the underlying principles.
This is not a soft option. Our approach requires both companies and their auditors to exer-
cise professional judgement in the public interest. Our approach requires a strong commit-
ment from preparers to financial statements that provide a faithful representation of all
transactions and strong commitment from auditors to resist client pressures. It will not
work without those commitments. There will be more individual transactions and situa-
tions that are not explicitly addressed. We hope that a clear statement of the underlying
principles will allow companies and auditors to deal with those situations without resort-
ing to detailed rules.20

A report published by the Institute of Chartered Accountants in Scotland in early 2006

stated that rules-based accounting adds unnecessary complexity, encourages financial
engineering, and does not necessarily lead to a true and fair view or a fair presentation.

20
Excerpt from a speech delivered before the Committee on Banking, Housing and Urban Affairs of the
United States Senate, Washington, DC, February 14, 2002.
78 Chapter Three

Further, it pointed out that the volume of rules would hinder the translation into different
languages and cultures. The Global Accounting Alliance (GAA) supported a single set of
globally accepted and principles-based accounting standards that focused on transparency
and capital market needs and would be ideal for all stakeholders.21 In February 2010, the
IOSCO, in a report entitled “Principles for Periodic Disclosure by Listed Entities,” pro-
vided securities regulators with a framework for establishing or reviewing their periodic
disclosure regimes. According to the report, its principles-based format allows for a wide
range of application and adaptation by securities regulators.

ARGUMENTS FOR AND AGAINST INTERNATIONAL

CONVERGENCE OF FINANCIAL REPORTING STANDARDS
Arguments for Convergence
Proponents of accounting convergence put forward several arguments. First, they argue
that comparability of financial statements worldwide is necessary for the globalization of
capital markets. Financial statement comparability would make it easier for investors to
evaluate potential investments in foreign securities and thereby take advantage of the risk
reduction possible through international diversification. Second, accounting convergence
would simplify the evaluation by multinational companies of possible foreign takeover
targets. Third, convergence would reduce financial reporting costs for companies that seek
to list their shares on foreign stock exchanges. Cross-listing of securities would allow com-
panies to gain access to less expensive capital in other countries and would make it easier
for foreign investors to acquire the company’s stock. Fourth, national differences in corpo-
rate reporting cause loss of investor confidence, which affects the availability and cost of
capital. Investors often build in a premium to the required return on their investment if
there is any uncertainty or lack of comparability about the figures—and such premiums
can be as large as 40 percent.22 Fifth, one set of universally accepted accounting standards
would reduce the cost of preparing worldwide consolidated financial statements, and the
auditing of these statements also would be simplified. Sixth, multinational companies
would find it easier to transfer accounting staff to other countries. This would be true for
the international auditing firms as well. Finally, convergence would help raise the quality
level of accounting practices internationally, thereby increasing the credibility of financial
information. In relation to this argument, some point out that as a result of convergence,
developing countries would be able to adopt a ready-made set of high-quality standards
with minimum cost and effort.

Arguments against Convergence

The greatest obstacle to convergence is the magnitude of the differences that exist between
countries and the fact that the political cost of eliminating those differences would be enor-
mous. One of the main obstacles is nationalism. Whether out of deep-seated tradition,
indifference born of economic power, or resistance to intrusion of foreign influence, some
say that national entities will not bow to any international body. Arriving at principles that

21
The Global Accounting Alliance was an alliance of 11 leading professional accounting bodies in the
United States, the United Kingdom, Canada, Hong Kong, Australia, Germany, Japan, New Zealand, and
South Africa formed in November 2005 to promote quality services, share information, and collaborate
on important international issues.
22
David Illigworth, president of the Institute of Chartered Accountants in England and Wales, in a
speech at the China Economic Summit 2004 of the 7th China Beijing International High-Tech Expo,
May 21, 2004.
 International Convergence of Financial Reporting 79

satisfy all of the parties involved throughout the world seems an almost impossible task.
Not only would convergence be difficult to achieve, but the need for such standards is not
universally accepted. A well-developed global capital market exists already. It has evolved
without uniform accounting standards. Opponents of convergence argue that it is unneces-
sary to force all companies worldwide to follow a common set of rules. They also point out
that this would lead to a situation of “standards overload” as a result of requiring some
enterprises to comply with a set of standards not relevant to them. The international capital
market will force those companies that can benefit from accessing the market to provide
the required accounting information without convergence. Yet another argument against
convergence is that because of different environmental influences, differences in account-
ing across countries might be appropriate and necessary. For example, countries that are at
different stages of economic development or that rely on different sources of financing
perhaps should have differently oriented accounting systems. Professor Frederick Choi
refers to this as the dilemma of global harmonization. According to him, the dilemma is
that the thesis of environmentally stimulated and justified differences in accounting runs
directly counter to efforts at the worldwide harmonization of accounting.23

THE IASB CONCEPTUAL FRAMEWORK

The Need for a Framework

With no conceptual framework, accounting standards are developed unsystematically. As a
result, accounting standards may be inconsistent and, according to Gresham’s law, bad
accounting practices will triumph over good practices.24 In this situation, a principle or
practice may be declared to be “right” because it is generally accepted, but it may not be
generally accepted because it is “right.” Further, it is unwise to develop standards unless
there is agreement on the scope and objective of financial reporting, the type of entities
that should produce financial reports, recognition and measurement rules, and qualitative
characteristics of financial information. Furthermore, by adding rigor and discipline, a
conceptual framework enhances public confidence in financial reports, and preparers and
auditors can use the conceptual framework as a point of reference to resolve an accounting
issue in the absence of a standard that specifically deals with that issue.
The Framework for the Preparation and Presentation of Financial Statements was first
approved by the IASC Board in 1989 and was reaffirmed by the newly formed IASB in
2001. The objective of the Framework is to establish the concepts underlying the prepara-
tion and presentation of IFRS-based financial statements. It deals with the following:
1. Objective of financial statements and underlying assumptions.
2. Qualitative characteristics that affect the usefulness of financial statements.
3. Definition, recognition, and measurement of the financial statements elements.
4. Concepts of capital and capital maintenance.
The purpose of the Framework is, among other things, to assist the IASB in develop-
ing future standards and revising existing standards. It also is intended to assist preparers
of financial statements in applying IFRS and in dealing with topics that have not yet been
addressed in IFRS. The Framework identifies investors, creditors, employees, suppliers,

23
See F. D. S. Choi, “A Cluster Approach to Harmonization.” Management Accounting, August 1981 , pp.
27–31.
24
Gresham’s law is named after Sir Thomas Gresham (1519–1579), an English financier in Tudor times.
It means, briefly, “Bad money drives out good.”
80 Chapter Three

customers, government agencies, and the general public as potential users of financial
statements but concludes that financial statements that are designed to meet the needs of
investors will also meet most of the information needs of other users. This is an important
conclusion because it sets the tone for the nature of individual IFRS, that is, that their
application will result in a set of financial statements that is useful for making investment
decisions.

Objective of Financial Statements and Underlying Assumptions

The Framework establishes that the primary objective of IFRS-based financial statements
is to provide information useful for decision making. Financial statements also show the
results of management’s stewardship of enterprise resources, but that is not their primary
objective. To meet the objective of decision usefulness, financial statements must be pre-
pared on an accrual basis. The other underlying assumption is that the enterprise for which
financial statements are being prepared is a going concern.

Qualitative Characteristics of Financial Statements

The four characteristics that make financial statement information useful are understand-
ability, relevance, reliability, and comparability. Information is relevant if it can be used
to make predictions of the future or if it can be used to confirm expectations from the past.
The Framework indicates that the relevance of information is affected by its nature and its
materiality. An item of information is material if its misstatement or omission could influ-
ence the decision of a user of financial statements.
Information is reliable when it is neutral (i.e., free of bias) and represents faithfully
what it purports to. The Framework specifically states that reflecting items in the financial
statements based on their economic substance rather than their legal form is necessary
for faithful representation. The Framework also states that while the exercise of prudence
(conservatism) in measuring accounting elements is necessary, it does not allow the cre-
ation of hidden reserves or excessive provisions to deliberately understate income, as this
would be biased and therefore would not have the quality of reliability.

Elements of Financial Statements: Definition,

Recognition, and Measurement
Assets are defined as resources controlled by the enterprise from which future economic
benefits are expected to flow to the enterprise. Note that a resource need not be owned to
be an asset of an enterprise. This allows, for example, for leased resources to be treated
as assets. An asset should be recognized only when it is probable that future economic
benefits will flow to the enterprise and the asset has a cost or value that can be measured
reliably. The Framework acknowledges that several different measurement bases may
be used to measure assets, including historical cost, current cost, realizable value, and
present value.
Liabilities are present obligations arising from past events that are expected to be settled
through an outflow of resources. Obligations need not be contractual to be treated as a lia-
bility. Similar to assets, liabilities should be recognized when it is probable that an outflow
of resources will be required to settle them and the amount can be measured reliably. Also
as with assets, several different bases exist for measuring liabilities, including the amount
of proceeds received in exchange for the obligation, the amount that would be required to
settle the obligation currently, undiscounted settlement value in the normal course of busi-
ness, and the present value of future cash outflows expected to settle the liabilities.
The Framework identifies income and expenses as the two elements that constitute profit.
Income, which encompasses both revenues and gains, is defined as increases in equity other
than from transactions with owners. Expenses, including losses, are decreases in equity other
 International Convergence of Financial Reporting 81

than through distributions to owners. Equity is defined as assets minus liabilities. Income
should be recognized when the increase in an asset or decrease in a liability can be measured
reliably. The Framework does not provide more specific guidance with respect to income
recognition. (This topic is covered in IAS 18, Revenue.) Expenses are recognized when the
related decrease in assets or increase in liabilities can be measured reliably. The Framework
acknowledges the use of the matching principle in recognizing liabilities but specifically
precludes use of the matching principle to recognize expenses and a related liability when
it does not meet the definition of a liability. For example, it is inappropriate to recognize an
expense if a present obligation arising from a past event does not exist.

Concepts of Capital Maintenance

The Framework describes different concepts of capital maintenance (financial capital
maintenance versus physical capital maintenance) and acknowledges that each leads to a
different basis for measuring assets (historical cost versus current cost). The Framework
does not prescribe one measurement basis (and related model of accounting) over another,
but indicates that it (the Framework) is applicable to a range of accounting models.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The IASC has issued 41 IAS, of which 15 IAS have been superseded mainly by IFRS. As
a result, only 26 IAS are still in force in 2017. The IASB has issued 17 IFRS, of which
IFRS 4, Insurance Contracts, has been superseded by IFRS 17, Insurance Contracts. IFRS
1 was issued by the IASB in 2003, providing guidance on the important question of how
a company goes about restating its financial statements when it adopts IFRS for the first
time. Because the IASB is a private body, it does not have the ability to enforce its stan-
dards. Instead, the IASB develops IFRS for the public good, making them available to any
country or company that might choose to adopt them.

Adoption of IFRS
There are a number of different ways in which a country might adopt IFRS, including
requiring (or permitting) IFRS to be used by the following:
1. All companies; in effect, IFRS replace national GAAP.
2. Parent companies in preparing consolidated financial statements; national GAAP is
used in parent company–only financial statements.
3. Stock exchange–listed companies in preparing consolidated financial statements.
Nonlisted companies use national GAAP.
4. Foreign companies listing on domestic stock exchanges. Domestic companies use
national GAAP.
5. Domestic companies that list on foreign stock exchanges. Other domestic companies
use national GAAP.
The endorsement of IFRS for cross-listing purposes by the IOSCO and the EU’s deci-
sion to require domestic-listed companies to use IFRS for consolidated accounts beginning
in 2005 have provided a major boost to the efforts of the IASB.
The IFAC supports IASB in its efforts at global standard-setting. The IFAC 2008 annual
report highlights initiatives during the credit crisis and the need for convergence to global
standards.
The IFAC G20 accountancy summit in July 2009 issued a renewed mandate for adop-
tion of global standards in which it recommended that governments and regulators should
step up initiatives to promote convergence to global accountancy and auditing standards.