Acca f3 Financial Accounting (int) Study Text

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2: The regulatory framework   Part A  The context and purpose of financial reporting 

1.4.2 Standards Advisory Council (SAC) 

The Standards Advisory Council assists the IASB in standard setting. It has about 50 members drawn 

from organisations all over the world, such as national standard–setting bodies, accountancy firms, the 

IMF and the World Bank. 

The SAC meets the IASB at least three times a year and puts forward the views of its members on current 

standard–setting projects. 

1.4.3 International Financial Reporting Interpretations Committee (IFRIC) 

IFRIC was set up in December 2001 and issues guidance in cases where unsatisfactory or conflicting

interpretations of accounting standards have developed. In these situations, IFRIC works closely with 

similar national committees with a view to reaching consensus on the appropriate accounting treatment. 

1.4.4 The International Accounting Standards Committee Foundation (IASCF) 

The IASCF is an independent body that oversees the |ASB. It was formed as a not-for-profit corporation in 

the USA. 

In the December 2007 exam, there was a 1 mark MCQ on the roles of the IASB and its associated bodies. 

The examiner commented that there was roughly an even split between the two options, suggesting that 

this area 'is not given adequate attention'. The examiner also commented that she regards this area to be 

an important part of the F3 syllabus. 

1.4.5 The use and application of IASs and IFRSs 

IASs and IFRSs have helped to both improve and harmonise financial reporting around the world. The 

standards are used in the following ways. 

(a) As 

national requirements, often after a national process 

(b) As 

the 

basis for all or some national requirements

(c) As 

an 

international benchmark for those countries which develop their own requirements 

(d) By 

regulatory authorities for domestic and foreign companies 

(e)

By companies themselves

1.4.6 Benchmark and allowed alternatives 

IASs often allowed more than one accounting treatment (a benchmark (or preferred) treatment and an 

allowed alternative). Recent IFRSs and amendments to IASs have sought to disallow alternative 

treatments.

1.5 Generally Accepted Accounting Practice (GAAP)

We also need to consider some important terms which you will meet in your financial accounting studies. 

GAAP, as a term, has sprung up in recent years and signifies all the rules, from whatever source, which 

govern accounting.

Exam focus 

point

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Part A  The context and purpose of financial reporting

  2:  The regulatory framework

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GAAP is a set of rules governing accounting. The rules may derive from: 

 

Local (national) company legislation 

 

National and international accounting standards 

 

Statutory requirements in other countries (particularly the US) 

 

Stock exchange requirements 

1.6 Fair presentation 

Financial statements are required to give a 

fair presentation or present fairly in all material respects  the 

financial results of the entity. These terms are not defined and tend to be decided in courts of law on

the facts. 

It is a requirement of both national legislation (in some countries) and International Standards on Auditing 

that the financial statements should give a 

fair presentation of the financial position of the entity as at the 

end of the financial year. 

1.6.1 Fair presentation 'override' 

The term fair presentation is not defined in accounting or auditing standards. Despite this, a company's 

managers may depart from any of the provisions of accounting standards if these are inconsistent with the 

requirement to give a fair presentation. This is commonly referred to as the ' fair presentation override'. It 

has been treated as an important loophole in the law in different countries and has been the cause of much 

argument and dissatisfaction within the accounting profession. 

2 The International Accounting Standards Board (IASB)   

The main objectives of the IASB are to raise the standard of financial reporting and to eventually bring 

about global harmonisation of accounting standards. 

2.1 International harmonisation 

The IASB is an 

independent private sector body. Its objective is to achieve uniformity in the accounting 

principles which are used by businesses and other organisations for financial reporting around the world. 

This is known as 

international harmonisation.

2.2 Current position of the IASB 

There were 41 IASs, as well as the Framework for the preparation and presentation of financial statements,

(which is discussed in 

Chapter 3

). A substantial number of multinational companies prepare financial 

statements in accordance with IASs. IASs are also endorsed by many countries as their own standards, 

either unchanged or with minor amendments. The IASB has adopted the extant IASs and issued 8 IFRSs. 

From 1 January 2005 listed companies in the EU have been required to prepare consolidated accounts 

in accordance with IFRS.

3 International Financial Reporting Standards (IFRSs)

   and International Accounting Standards (IASs) 

 

In this section, we examine the process by which IFRSs are created and we will list the full range of IFRSs 

currently in force, so you can place the standards you will study into context.

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