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International Accounting Standards

Information Systems Audit and Control Foundation (1995). THE ROLE OF THE
COBIT: Control Objectives and Information Related Tech- INTERNATIONAL ACCOUNTING
nology. Rolling Meadows, IL. STANDARDS BOARD
Institute of Internal Auditors Research Foundation (1994). Con- The most important driving force in the development of
trol Objectives and Information Related Technology. Altamonte IASs is the International Accounting Standards Board
Springs, FL.
(IASB), an independent, privately funded accounting
Roth, J. (1997). Control Model Implementation: Best Practices. standard-setter based in London, United Kingdom. The
Altamonte Springs, FL: Institute of Internal Auditors,
IASB, established in 2001, is committed to developing a
Research Foundation.
single set of high-quality, understandable and enforceable
Simmons, M. R. (1997, December). “COSO Based Auditing.” global accounting standards that require transparent and
Internal Auditor, 68-73.
comparable information in general-purpose financial
statements. Standards issued by the IASB are designated
International Financial Reporting Standards (IFRSs).
Audrey A. Gramling
Standards issued by its predecessor, the International
Accounting Standards Committee (IASC), from 1973 to
2001, continue to be designated IASs. Many published
INTERNATIONAL sources use the term IFRSs to encompass IFRSs, IASs and
interpretations issued by the International Financial
ACCOUNTING Reporting Interpretations Committee (IFRIC).
STANDARDS
Comparable, transparent and reliable financial informa- MEMBERSHIP
tion is fundamental for the smooth functioning of capital The IASB, consisting of fourteen members (12 full time
markets. In the global arena, the need for comparable and 2 part time), follows due process of setting account-
standards of financial reporting has become paramount ing standards, which allows for a great deal of consultation
because of a dramatic growth in the number, reach, and and discussion and ensures that all interested parties can
size of multinational corporations; foreign direct invest- express their views at several points in the standard-setting
ments; cross-border purchases; sales of securities; and the process. The final standard requires approval by at least
number of foreign securities listings on the stock eight members. The IASB uses a principle-based approach
exchanges. Nevertheless, because of the social, economic, rather than a rules-based approach in issuing accounting
legal, and cultural differences among the countries, the standards. IFRSs thus provide guidance for applying the
general principles to typical transactions and encourage
accounting standards and practices in different countries
professional judgment in applying them to transactions
vary.
specific to an entity or industry.
To improve the comparability of financial statements,
The IASB members are selected by the trustees of the
harmonization of accounting standards is advocated. Har- IASC Foundation. In addition to reviewing broad strate-
monization strives to increase the harmony between
gic issues affecting accounting standards, the trustees raise
accounting principles by setting limits on the alternatives
funds for the IASB and also appoint members to two
allowed for similar transactions. Harmonization differs
other committees, IFRIC and the Standards Advisory
from standardization in that the latter allows no room for Council (SAC). IFRIC interprets the application of IFRSs
alternatives even in cases where economic realities differ. and provides guidance on financial reporting issues not
The international accounting standards (IASs) result- specifically addressed by the IFRSs. The SAC has forty-
ing from the harmonization efforts hold important bene- nine members with diverse geographic and functional
fits. Investors and analysts benefit from enhanced backgrounds who provide advice to the IASB and the
comparability of financial statements. Multinational cor- trustees of the IASC Foundation. The chair of the IASB is
porations benefit from not having to prepare different also the chair of the SAC.
reports for the different countries in which they operate.
Stock exchanges benefit from the growth in the listings STANDARDS ISSUED
and volume of securities transactions. The international As of December 31, 2005, forty-one IASs and five IFRSs
standards also benefit developing countries and other had been issued. They cover a wide range of topics such as
countries that do not have a national standard-setting inventories, depreciation, research and development costs,
body or do not want to spend scarce resources to under- income taxes, segment reporting, leases, business combi-
take the full process of preparing accounting standards. nations, investments, earnings per share, interim financial

406 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION