Nearly every nation regulates how its businesses systematically record financial transactions, but businesses that want to play on the global stage should understand the international standards that are created and maintained by the International Accounting Standards Board (IASB). Advancements in technology, improvements in supply chain management and increasing levels of economic cooperation among nations have given rise to many international, multinational and global businesses. The International Financial Reporting Standards (IFRS) Foundation is a non-profit, private organization that recognized the need to offer the financial community a certain level of transparency when it came to the reporting of financial information by businesses that operate in multiple countries. The IFRS Foundation established the IASB to evaluate the accepted accounting principles of many nations, identify best practices and establish accounting standards that are beneficial for the global financial community. Here are examples of the international accounting standards that were adopted by the board, a brief introduction to board membership and an overview of the process for creating international accounting standards.
Summary of Standards
As of January 2015, there are 41 international accounting standards. These standards are used to guide the identification, measurement and disclosure of business assets, liabilities, income and expenses. Some examples of these standards include presentation of financial statements, statement of cash flows and the effects of changes in foreign exchange rates. Presentation of financial statements was the first accounting standard that was developed by the International Accounting Standards Board, and it stipulates the structure and content of financial statements. For instance, participating businesses must include complete sets of financial statements for reporting purposes that include financial position, profit and loss, changes in equity and cash flows statements.
Board Members Represented by Regions
The International Accounting Standards Board is comprised of 14 members who have recent accounting experience within their home markets. These board members are considered to be experts in their field, and they are purposely chosen for the geographic diversity that they bring to the group. The current members include accounting and finance leaders from the United Kingdom, Germany, the Netherlands, New Zealand, China, South Korea, Brazil, the United States, Japan and South Africa; each inhabited continent is represented. International Accounting Standards Board members usually serve terms of five years.
Standard Setting Process
International Accounting Standards Board members develop international accounting standards by using a four step process that includes a comprehensive review of agenda items, thorough research of proposed candidates for standardization, an initial draft of the standard and the establishment of implementation methods. The board reviews items that are on its agenda every three years, and issues that are most pressing become candidates for new standards. The board then conducts the necessary research that is needed to generate a draft of the standard. The new standard is tested out to determine if there are any issues that result from its implementation. The IFRS Foundation has established a separate Interpretations Committee that helps to further refine international accounting standards and make them less ambiguous before they are formally published by the International Accounting Standards Board for use. Over 138 nations or jurisdictions have adopted the standards.
The current trend in business is definitely moving toward easier trading in open international markets. The IASB is simply the catalyst for leveling the playing field among the participating businesses and financial stakeholders.