Chapter 03 - International Convergence of Financial Reporting Solutions to Exercises and Problems 1.A major concern particularly in continental Europe is that the IASB is attempting to impose a certain style of accounting on every country. The reason for this concern is the fact that IFRS are based on Anglo-Saxon accounting principles, which are not the basis of accounting systems in most continental European countries. There is also a concern that the IASB standard setting process is dominated by representatives from Anglo-Saxon countries. Recognizing these and other similar concerns, the IASC Foundation Constitution Committee is currently undertaking a review of its constitution, and has identified as one of the key areas for consideration the appropriateness of the IASB’s existing formal liaison relationships. The Committee recognizes that the IASB should liaise with a broad range of national standard-setters, beyond the ones currently recognized in the Constitution. In addition, the IASB has attempted to make the standard setting process more transparent, by holding public meetings to discuss accounting issues, and increasing the opportunities for interested parties to contribute to the standard setting process. 2.a. The ultimate objective of adopting IFRS is to ensure that financial statements prepared by firms in different countries are comparable.b.There are several issues that might hamper the EU from achieving the objective of financial statement comparability through the use of IFRS:•The preparers of financial statements need to interpret and understand the requirements included in financial reporting standards in a consistent manner. Language will be a major issue in this regard. The IFRS are written in English and need to be translated into different languages. It is possible that the meanings of some of the terms used may be lost in translation, because of the absence of any equivalent terms in a particular language. This would be an impediment to achieving comparable financial statements.•The decision to adopt IFRS in EU member countries involves a change in accounting values (especially conservatism and secrecy) in most EU countries. The main focus of accounting in these countries has been either taxation or providing information to government, whereas IFRS are aimed at providing information for the efficient working of the capital market. Eight of the ten countries which gained membership of EU in May 2004 were former Soviet Union countries. Changing the accounting culture in these countries in particular will be a major challenge facing the EU.•In addition, there is lack of a tradition in exercising professional judgment in financial reporting in many EU countries. Using professional judgment within the principles-based system of IFRS to comply with IAS 1’s overriding principle of “fair presentation” might be something that EU accountants will need to learn how to do over time.•Another major challenge is the absence of an adequate accounting infrastructure, particularly in most of the new member countries. Successful adoption of IFRS
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- Spring '12
- Accounting, International Financial Reporting Standards, international Accounting standards Board