HW Chapter 3
Questions:
2. The potential benefits for a multinational corporation from convergence of financial reporting
standards are derived mainly as a result of international comparability of financial reporting standards
and practices.
1. Comparability
2. Reduction of financial reporting costs
3. Easier to list on Foreign stock exchanges
4. Reduction of cost for consolidated financials
5. Easier to transfer accounting staff overseas
3. The EU Directives were not completely effective in generating comparability across EU member nations
because of the Directives: a. allowed countries to choose among available options in many areas b. did
not cover many accounting issues, such as leases and translation of foreign currency financial statements.
7. What is the IASB’s principle-based approach to accounting standard-setting? A principles-based
approach to accounting standard setting refers to the development of standards which provides the basic
guidelines for accounting in a particular area without getting bogged down in detailed rules. The IASB uses
a principles-based approach in developing IFRSs.
8. Are there any major accounting issues that have not yet been covered by IFRS? IFRSs appear to cover
most of the major accounting issues but they are some issues that are not covered. They tried to cover
the biggest issue first.
12. The objective of developing a set of high quality standards for financial reporting by companies
internationally is commendable. There are many potential benefits associated with it. For example, it
would increase the level of comparability of information contained in financial statements prepared by
companies from different countries, and this would benefit investors when using those statements to
assess the performance of companies as the basis for their investment decisions. Currently, about one
hundred and twenty countries are adopting IFRS and some other countries, including the U.S., are taking
steps so that they can use those standards in future.
However, adoption of IFRS is different from their implementation on a consistent basis. If the standards
are not implemented consistently by companies in different countries, the objective of international
comparability of information contained in financial statements would not be achieved. There are many
factors that are likely to influence the consistency with which IFRS are implemented in different countries.
IFRS are principles-based standards. To start with, arriving at principles that satisfy all of the parties
involved in different countries seems an almost impossible task. Further, accountants’ professional
judgments play an important role in implementing principles-based standards, as there are many
principles and uncertainty expressions that need interpretation. But, accountants’ professional judgments
can be influenced by factors such as cultural values and the level of professionalism in a particular country.
One can argue that it is unnecessary to force all companies worldwide to follow a common set of rules
requiring to comply with a set of standards which may not be relevant to them as it would be unnecessarily
costly and would lead to a situation of standards overload. Furthermore, not only is convergence difficult
to achieve, but the need for such standards is not universally accepted. Finally, global convergence may
not be necessary as the international capital market will force those companies that can benefit from
accessing the market to provide the required accounting information without convergence.
13. IAS 1 indicates that, if existing IFRS do not provide guidance in a specific area, management should
refer to the definitions, and recognition and measurement criteria for assets, liabilities, income and
expenses set out in the Framework.
16. The SEC has ruled that beginning in 2007, foreign companies which have prepared their financial
statements on the basis of IFRS need not include a reconciliation to U.S. GAAP in filing the Form 20-F. A
possible reason for this rule is that it would help better serve investors. The AICPA, FASB and senior finance
professional supported this view. Taking a step further, the SEC has considered allowing U.S. domestic
companies also to use IFRS and developed a “Roadmap for the Potential Use of Financial Statements
Prepared in Accordance with International Financial Reporting Standards by US Issuers”.
Exercise:
5. he International Accounting Standards Board (IASB) has today published in a single volume its official
pronouncements that will be applicable from 1 January 2005. The International Financial Reporting
Standards (IFRSs) Bound Volume 2004 provides the complete consolidated text of the latest version of
