Essay About International Accounting Standard Board And Direct Benefits

Corporate Governance
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ASSIGNMENT 1Question 1             International Accounting Standard Board (IASB) was founded on 6th February 2001 in United Kingdom (UK), Capital of London as an independent accounting standard setter. It was formed in order to replace the International Accounting Standard Committee (ISAC). As an independent and private sector body, IASB is responsible in preserving and developing the IFRS standards (International Financial Reporting Standards) efficiently. In other word, it explains that IASB is a standard setting body of IFRS foundation.In 1st April 2001, IASB have adopted the International Accounting Standard Board (IASB) Framework into practice. IASB Framework is the framework developed for preparing and presenting Financial Statement. This framework has been approved by ISAC Board on 1989. “The basic purpose of IASB Framework is to provide assistance and guidance to the IASB in developing new or revised standards in addition to assisting the preparers of financial statements in applying standards and dealing with issues which are not explicitly dealt with by the standards”[1]. On other hand, IASB has also developed a conceptual framework for financial accounting and reporting. Conceptual Framework was issued by IASB in 2010 as a result of joint project between the IASB and FASB. Conceptual Framework is a group of ideas or principles that used to plan and decide something. In other word, it can be called as a set of guiding principles for all the parties. It helps the users to make decision (users such as investors) and solve problems that arise from accounting aspects.In adopting IASB framework, it argued that the direct benefits are available and represented in term of economic benefit, political benefit, technical benefit and professional benefit. Economic benefit that will derive from IASB framework is it able to enhance greater transparency and understandability2. Transparency is mainly affected by the financial reporting and disclosure. Financial reporting and disclosure are considered as an important element in institutional setting. Therefore, it’s not surprising that the involvement of developed financial infrastructure together with the use of high quality of accounting standards able to promote the capital growth as a whole. Moreover, it also concluded that IASB are an instrument for most of countries to improve the investor protection and make their capital markets more accessible in the current market3. Other types of economic benefit that can be derived from IASB framework is lower cost of capital to companies and higher share prices due to greater confidence of investors and transparent information2. Technical benefit is a benefit that enables to improve the practice of accounting and provide guideline or basis to answer specific accounting problems and questions. For example, IASB framework provides a basis and guideline for those who set the specific accounting rules in their organization or entity. In addition, it also helps those individuals such as accountant and auditor who are involved in preparing or auditing the financial statement. Through providing an adequate financial statement, it enables the current and future investors, lenders and other owners to compare the financial data across the borders and access for an accessory investment opportunity. For example, Nigeria GAPP has transformed to IFRS standards for an easy comparability of financial statement of two or more companies’ worldwide3.                                    The most important quality that needed in accounting information is relevance and faithful representation. The purpose of these characteristics is basically to identify the most useful and beneficial information for the existing users and potential users, investors, shareholders, lenders and other creditors to make decision on the entity overall performances. The common decision that will be made by the users are to identify whether the governing board of  that entity have made efficient and effective use of the resources provided to them as a whole. Followed by, it also help to distinguish between the useful information and not useful information or misleading. First of fall, the relevance characteristic purpose is mainly to ensure that only those accounting information that could enhance and make a difference in the user’s decision making are included. Accounting information can make difference if it helps the users to predict the future economic benefits and cash flows and/or confirm or verify on prior expectations and if it is material in nature and amount. In short, the accounting information must possess predictive value, confirmatory value or both in order to be relevant.