Chapter 1:

NTRODUCTION TO INTERNATIONAL
FINANCIAL REPORTING STANDARDS

University of Jeddah
College of Business
 INTRODUCTIO
N
The mission of the IFRS Foundation and the International Accounting Standards Board
(IASB) is to develop International Financial Reporting Standards (IFRS) that bring
transparency, accountability and efficiency to financial markets around the world. They
seek to serve the public interest by fostering trust, growth and long-term stability in the
global economy.

The IFRS Foundation also created the International Sustainability Standards Board to
develop sustainability standards. These standards are outside the scope of this book.

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 INTRODUCTION
The driver for the convergence of historically dissimilar financial
reporting standards has been mainly to facilitate the free flow of capital
so that, for example, investors in the US would become more willing to
finance business in, say, China or the Czech Republic.
Access to financial statements which are written in the same “language”
would help to eliminate a major impediment to investor confidence,
sometimes referred to as “accounting risk,” which adds to the more
tangible risks of making such cross-border investments.
Additionally, permission to list a company’s equity or debt securities on
an exchange has generally been conditional on making filings with
national regulatory authorities. These regulators tend to insist either on
conformity with local Generally Accepted Accounting Principles (GAAP) or
on a formal reconciliation to local GAAP. These procedures are tedious
and time-consuming, and the human resources and technical knowledge
to carry them out are not always widely available, leading many would-
be registrants to forgo the opportunity of broadening their investor bases
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 THE CURRENT STRUCTURE
The formal structure put in place in 2000 has the IFRS Foundation, a
Delaware corporation, as its keystone (this was previously known as the
IASC Foundation). The Trustees of
the IFRS Foundation have both the responsibility to raise funds needed to
finance standard setting, and the responsibility of appointing members to
the IASB, the IFRS Interpretations Committee (IFRIC) and the IFRS
Advisory Council. The structure was amended to incorporate the IFRS
Foundation Monitoring Board (“Monitoring Board”) in 2009, renaming and
incorporating the SME Implementation Group in 2010 as follows:

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 THE CURRENT STRUCTURE
The Monitoring Board is responsible for ensuring that the Trustees
of the IFRS Foundation discharge their duties as defined by the
IFRS Foundation Constitution and for approving the appointment or
reappointment of Trustees.
The Monitoring Board consists of the Boards (as defined above)
and the Growth and Emerging Markets Committees of the IOSCO
(The International Organization of Securities Commissions—an
international body that brings together the world's securities
regulators and is recognised as the global standard setter for the
securities sector), the Financial Services Agency of Japan (JFSA),
the SEC, the Brazilian Securities Commission (CVM), the Financial
Services Commission of Korea (FSC) and Ministry of Finance of the
People’s Republic of China (China MOF). The Basel Committee on
Banking Supervision participates as an observer.
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 THE CURRENT STRUCTURE
The IFRS Foundation is governed by trustees and reports to the
Monitoring Board. The IFRS Foundation has fundraising
responsibilities and oversees the standard-setting work, the IFRS
structure and strategy. It is also responsible for a five-yearly,
formal, public review of the Constitution.

The IFRS Advisory Council is the formal advisory body to the IASB
and the Trustees of the IFRS Foundation. Members consist of user
groups, preparers, financial analysts, academics, auditors,
regulators, professional accounting bodies and investor groups.

The IASB is an independent body that is solely responsible for

establishing IFRS, including the IFRS for small and medium-sized
enterprises (SMEs). The IASB also approves new interpretations.
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 THE CURRENT STRUCTURE
The IFRS Foundation is governed by trustees and reports to the
Monitoring Board. The IFRS Foundation has fundraising
responsibilities and oversees the standard-setting work, the IFRS
structure and strategy. It is also responsible for a five-yearly,
formal, public review of the Constitution.

The IFRS Advisory Council is the formal advisory body to the IASB
and the Trustees of the IFRS Foundation. Members consist of user
groups, preparers, financial analysts, academics, auditors,
regulators, professional accounting bodies and investor groups.

The IASB is an independent body that is solely responsible for

establishing IFRS, including the IFRS for small and medium-sized
enterprises (SMEs). The IASB also approves new interpretations.
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 THE CURRENT STRUCTURE
The IFRS Interpretations Committee (the Interpretations
Committee) is a committee comprised partly of technical partners
in audit firms but also includes preparers and users.
The Interpretations Committee’s function is to answer technical
queries from constituents about how to interpret IFRS—in effect,
filling in the cracks between different requirements.
It also proposes modifications to standards to the IASB, in response
to perceived operational difficulties or the need to improve
consistency. The Interpretations Committee liaises with the US
Emerging Issues Task Force and similar bodies and standard
setters to preserve convergence at the level of interpretation.
Working relationships are set up with local standard setters who
have adopted or converged with IFRS, or are in the process of
adopting or converging with IFRS.
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 PROCESS OF IFRS STANDARD-SETTING
The IASB has a formal due process, which is currently set out in the
IFRS Foundation Due Process Handbook issued in February 2013 by
the Due Process Oversight Committee (DPOC), and updated in June
2016 to include the final IFRS Taxonomy due process.
The DPOC is responsible for:
1. reviewing regularly, and in a timely manner, together with the
IASB and the IFRS Foundation staff, the due process activities of
the standard-setting activities of the IASB;
2. reviewing, and proposing updates to, the Due Process Handbook
that relates to the development and review of Standards,
Interpretations and the IFRS Taxonomy so as to ensure that the
IASB procedures are best practice;
3. reviewing the composition of the IASB’s consultative groups to
ensure an appropriate balance of perspectives and monitoring the
effectiveness of those groups;
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 PROCESS OF IFRS STANDARD-SETTING
4. responding to correspondence from third parties about due
process matters, in collaboration with the Director for Trustee
Activities and the technical staff;

5. monitoring the effectiveness of the IFRS Advisory Council

(“Advisory Council”), the Interpretations Committee and other
bodies of the IFRS Foundation relevant to its standard-setting
activities; and

6. making recommendations to the Trustees about constitutional

changes related to the composition of committees that are integral
to due process, as appropriate.

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 PROCESS OF IFRS STANDARD-SETTING
As a minimum, a proposed standard should be exposed for
comment, and these comments should be reviewed before
issuance of a final standard, with debates open to the public.
However, this formal process is rounded out in practice, with
wider consultation taking

place on an informal basis. The IASB’s agenda is determined

in various ways. Suggestions are made by the Trustees, the
IFRS Advisory Council, liaison standard setters, the
international accounting firms and others. These are debated
by IASB and tentative conclusions are discussed with the
various consultative bodies. Long-range projects are first put
on the research agenda, which means that preliminary work
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 PROCESS OF IFRS STANDARD-SETTING
Once a project reaches the current agenda, the formal
process is that the staff (a group of about 20 technical staff
permanently employed by the IASB) drafts papers which are
then discussed by IASB in open meetings. Following that
debate, the staff rewrites the paper, or writes a new paper,
which is then debated at a subsequent meeting. In theory at
least, there is an internal process where the staff proposes
solutions, and IASB either accepts or rejects them. In practice,
the process is more involved: sometimes (especially for
projects such as financial instruments) individual Board
members are delegated special responsibility for the project,
and they discuss the problems regularly with the relevant
staff, helping to build the papers that come to the Board.
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 PROCESS OF IFRS STANDARD-SETTING
The due process comprises six stages: (1) setting the agenda;
(2) project planning; (3) developing and publishing a
Discussion Paper; (4) developing and publishing an Exposure
Draft; (5) developing and publishing the IFRS; and (6)
procedures after an IFRS is issued.

The process also includes discussion of Staff Papers outlining

the principal issues and analysis of comments received on
Discussion Papers and Exposure Drafts. A pre-ballot draft is
normally subject to external review. A near-final draft is also
posted on the limited access website. If all outstanding
matters are resolved, the final ballot is applied.

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 PROCESS OF IFRS STANDARD-SETTING
Final ballots on the standard are carried out in secret, but
otherwise the process is quite open, with outsiders able to
consult project summaries on the IASB website and attend
Board meetings if they wish. Of course, the informal
exchanges between staff and Board on a day-to-Day basis are
not visible to the public, nor are the meetings where IASB
takes strategic and administrative decisions.

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 Current International Financial Reporting
Standards (IAS/IFRS) And Interpretations
(SIC/IFRIC)
IFRS 1 First-Time
Adoption of IFRS
IFRS 2 Share-Based
Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
)

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 Current International Financial Reporting
Standards (IAS/IFRS) And Interpretations
(SIC/IFRIC)
IFRS 8 Operating Segments
IFRS 9 Financial Instruments (effective for accounting periods
commencing
on or after January 1, 2018 and will supersede IAS 39 and
IFRIC 9)
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interest in Other Entities
IFRS 13 Fair Value Measurement
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
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 Current International Financial Reporting
Standards (IAS/IFRS) And Interpretations
(SIC/IFRIC)
IFRS 17 Insurance Contracts
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors
IAS 10 Events after the Reporting Period
IAS 11 Construction Contracts (replaced by IFRS 15)
IAS 12 Income Taxes
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue (replaced by IFRS 15)
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