situations (introduced, in particular, for micro-entities) entity specific accounting
policies as determined by themselves.
In addition to the disclosure requirements of IFRS and IFRS for SMEs, the South African
Companies Act and the JSE impose certain additional disclosure requirements on
reporting entities. Further, the previous South African standard setter – the Accounting
Practices Board – issued four interpretations. While these interpretations are specific
to issues in the South African environment, IFRS reporters in South Africa make use of
them as they are based on a framework equivalent to that used for IFRS. These are
updated for developments in IFRS.
5
CONSISTENCY IN APPLICATION OF IFRS
The use of a consistent set of accounting standards by companies throughout the world
has the potential to improve the comparability and transparency of financial
information. The provision of higher quality information has been shown to reduce
financial statement preparation costs and, it is believed, to enable capital markets
participants to make better decisions. The global adoption of IFRS is a necessary
condition for global comparability, but, on its own, it is insufficient. Global
comparability cannot be achieved without a rigorous and consistent application of the
standards. However, consistent application of the standards cannot be achieved unless
countries adopt IFRS without modifying the standards issued by the IASB.
30 Chapter
1
Studies into the impact of the use of IFRS indicate reduced cost of capital and
improvements in share prices and trading, resulting in part from increased disclosure
and enhanced information comparability. However, the research concludes that these
improvements occur in countries with strong legal enforcement.71 The adoption of
IFRS alone is, therefore, unlikely to produce uniform financial reporting. The
standards need to be applied, audited and enforced on a consistent basis in order to
get the most out of comparability.72
Practitioners and regulators agree that enforcement of accounting standards is an
integral part of achieving accounting quality under IFRS. With this in mind, ESMA
has agreed on common enforcement priorities and has made the consistent
application of IFRS one of its primary objectives. In December 2014, ESMA’s
guidelines on enforcement of financial information (the Guidelines) became
effective. They replace earlier versions of the guidelines from ESMA and its
predecessor, the Council of European Securities Regulators (CESR). The Guidelines
apply to all EU national competent authorities and other bodies in the EU that
undertake enforcement responsibilities. The Guidelines build on a common
approach to the enforcement of financial information and reinforce coordination
among European enforcers. In addition, the Guidelines codify European common
enforcement priorities and include a requirement to discuss views on accounting
matters prior to taking enforcement decisions.73
In addition to enforcement, ESMA contributes to the standard-setting process by
engaging with the IASB and the Interpretations Committee by submitting comment
letters and identifying areas of diversity in practice (including areas in which a lack of
clarity in standards could lead to diversity in practice). In addition, the IFRS Foundation
and ESMA have entered into a joint Statement of Protocols, which reaffirms the
cooperation between the two entities as well as describes additional areas of
cooperation including electronic reporting, the implementation of new standards and
emerging financial reporting issues.74
The IFRS Foundation and IOSCO have entered into a joint Statement of Protocols to
facilitate consistency in the application of IFRS. This is in addition to the memorandum
of understanding between the capital markets authorities that formed the Monitoring
Board (see 2.3 above) and the IFRS Foundation.75
The SEC stresses the importance of enforcing IFRS, not only through its filing review
process of foreign private issuers, but also through its collaboration with foreign
counterparts bilaterally and through IOSCO.76
Although consistent application of IFRS is not the primary responsibility of the IASB, it
understandably takes a keen interest. The ASAF was established (see 2.8 above) to
coordinate interaction with national and regional standard-setting bodies to, among
other things, identify where divergence occurs across borders.77 The post-
implementation reviews of all major standards and interpretations are intended to
identify and rectify difficulties in consistency that are identified only after the standard
is used. The Interpretations Committee plays a key role as well.
Much has been written about consistency in IFRS, but a recurring message is that it
requires a coordinated effort by standard-setters, preparers, regulators and auditors.
International
GAAP
31
6 SUMMARY
IFRS is now, together with US GAAP, one of the two globally recognised financial
reporting frameworks. Although the goal of a single set of high-quality global accounting
standards has not been fulfilled, given the number of countries that have adopted or
converged with IFRS or have plans to in the future, it is safe to say that IFRS has become
‘International GAAP’.
References
1
IFRS Foundation website
18
IFRS Foundation Constitution, December
https://www.ifrs.org/use-around-the-world/use-
2016, Section 24.
of-ifrs-standards-by-jurisdiction/#analysis
19 IFRS Foundation Constitution, December 2016,
(accessed 21 August 2018).
Section 25.
2 IFRS Foundation Constitution, December 2016,
20 IFRS Foundation Constitution, December 2016,
Section 3.
Section 25.
3 IFRS Foundation Constitution, December 2016,
21 IFRS Foundation Constitution, December 2016,
Section 6.
Section 27.
4 IFRS Foundation Constitution, December 2016,
22 IFRS Foundation Constitution, December 2016,
Section 8.
Section 26.
5 IFRS Foundation Constitution, December 2016,
23 IFRS Foundation Constitution, December 2016,
Section 7.
Section 36(a).
6 IFRS Foundation Constitution, December 2016,
24 IFRS Foundation Constitution, December 2016,
Section 6.
Section 35.
7 IFRS Foundation Constitution, December 2016,
25 IFRS Foundation Constitution, December 2016,
Sections 15(a) and (c).
Section 35.
8 Accounting Standards Advisory Forum: Terms
26 IFRS Foundation Constitution, December 2016,
of Reference/Charter.
Section 36(d), (e) and (h).
9 IFRS Foundation Constitution, December 2016,
27 IFRS
Foundation
website,
Sections 13 and 15.
https://www.ifrs.org/projects/better-
10 IFRS Foundation website, https://www.ifrs.org/
communication/ (accessed on 21 August 2018).
about-us/who-we-are/#fun
ding
28 Due Process Handbook for the IASB and IFRS
(accessed 21 August 2018).
Interpretations Committee, February 2013,
11
IFRS Foundation Annual Report 2017,
para. 5.15.
‘Financial supporters’.
29 Due Process Handbook for the IASB and IFRS
12 IFRS Foundation Constitution, December 2016,
Interpretations Committee, February 2013,
Section 18.
para. 5.16.
13 Charter of the IFRSF Monitoring Board, 30 Due Process Handbook for the IASB and IFRS
February 2016.
Interpretations Committee, February 2013,
14 IFRS Foundation Constitution, December 2016,
para. 5.16.
Section 19.
31 Due Process Handbook for the IASB and IFRS
15 IOSCO website, https://www.iosco.org/about/?
Interpretations Committee, February 2013,
subSection=monitoring_board&subSection1=
para. 5.22.
members (accessed 21 August 2018).
32 IFRS Foundation Constitution, December 2016,
16 Charter of the IFRSF Monitoring Board,
Section 39.
February 2016, Appendix A.
33 Due Process Handbook for the IASB and IFRS
17 IFRS Foundation Monitoring Board Press
Interpretations Committee, February 2013,
Release, Monitoring Board finalizes assessment
para. 3.18.
approach for membership criteria and announces
34 IFRS Foundation Constitution, December 2016,
Chair selection, 1 March 2013.
Section 41.
32 Chapter
1
35 Due Process Handbook for the IASB and IFRS 57 IFRS
Foundation
website,
Interpretations Committee, February 2013,
https://www.ifrs.org/projects/current-areas-of-
para. 1.3.
focus/ (accessed on 21 August 2018).
36 Due Process Handbook for the IASB and IFRS
58 IFRS Foundation Constitution, January 2013,
Interpretations Committee, February 2013,
Section 2(a).
para. 7.1.
59 Speech by Hans Hoogervorst, ‘Closing the
37 Due Process Handbook for the IASB and IFRS
accounting chapter of the financial crisis’, Asia-
Interpretations Committee, February 2013,
Oceania Regional Policy Forum, 8 March 2014.
paras. 2.2 and 2.4.
60 Speech by Wesley R. Bricker, ‘Working
38 Due Process Handbook for the IASB and IFRS
together to advance high quality information
Interpretations Committee, February 2013,
in the capital markets’, 2016 AICPA
para. 1.5.
Conference on Current SEC and PCAOB
39 Due Process Handbook for the IASB and IFRS
Developments, 5 December 2016.
Interpretations Committee, February 2013, 61 This means those with their securities admitted
para. 3.1.
to trading on a regulated market within the
40 Due Process Handbook for the IASB and IFRS
meaning of Article 1(13) of Council Directive
Interpretations Committee, February 2013,
93/22/EEC (on investment services in the
para. 1.2.
securities field) or those offered to the public in
41
IFRS Foundation Press Release, IFRS
view of their admission to such trading under
Foundation revises Due Process Handbook to
Council Directive 80/390/EEC (coordinating
incorporate IFRS Taxonomy, 23 June 2016.
the requirements for the drawing up, scrutiny
42 Due Process Handbook for IASB and IFRS
and distribution of the listing particulars to be
Interpretations Committee, February 2013,
published for the admission of securities to
para. 3.42.
official stock exchange listing).
43 Due Process Handbook for the IASB and IFRS
62 European Commission, Implementation of the
Interpretations Committee, February 2013,
IAS Regulation (1606/2002) in the EU and
para. 3.43.
EEA, 7 February 2012.
44 Due Process Handbook for the IASB and IFRS
63 European Commission, Regulation (EC) No
Interpretations Committee, February 2013,
1606/2002 of the European Parliament and of
para. 3.44.
the Council of 19 July 2002, Recital 11.
45 Due Process Handbook for the IASB and IFRS
64 European Financial Reporting Advisory Group
Interpretations Committee, February 2013,
website,
para. 3.45.
http://www.efrag.org/Activities/286/IFRS-14-
46 Due Process Handbook for the IASB and IFRS
Regulatory-Deferral-Accounts# (accessed on
Interpretations Committee, February 2013,
13 August 2018).
para. 6.7.
65
European Commission Regulation (EU)
47 Due Process Handbook for the IASB and IFRS
2017/1988, 3 November 2017.
Interpretations Committee, February 2013, 66 European Commission, Public consultation on
para. 6.8.
the operations of the European Supervisory
48 IFRS Advisory Council, Terms of reference
Authorities, 21 March 2017.
and operating procedures, July 2014.
67 European Commission, Feedback statement on
49 IFRS Advisory Council, Terms of reference
the public consultation on the operations of the
and operating procedures, July 2014.
European Supervisory Authorities, 20 June
50 IFRS Foundation Constitution, December 2016,
2017.
Section 44.
68 European Union High-Level Expert Group on
51 IFRS Foundation Constitution, December 2016,
Sustainable Finance, Financing a Sustainable
Section 45.
European Economy, 31 January 2018.
52 IFRS Advisory Council, Terms of reference
69 European
Commission,
Consultation
and operating procedures, July 2014.
Document Fitness Check on the EU Framework
53 Accounting Standards Advisory Forum: Terms
for Public Reporting by EU Companies, 21
of Reference/Charter.
March 2018.
54 Accounting Standards Advisory Forum: Terms
70 The Gazette of India, Extraordinary, Part-II,
of Reference/Charter.
Section 3, Sub-section (i), February 19, 2015.
55 Feedback Statement, Review of the Accounting
71 Li, S. (2010) Does mandatory adoption of
Standards Advisory Forum 2018, June 2018.
International Financial Reporting Standards in
56 IFRS Foundation website,
the European Union reduce the cost of equity
https://www.ifrs.org/about-us/consultative-
capital? The Accounting Review, 85(2),
bodies/ (accessed 21 August 2018).
607-636.
International
GAAP
33
72 Speech by Hans Hoogervorst, ‘The Search
75 IOSCO and IFRS Foundation, Statement of
for Consistency in Financial Reporting’,
Protocols for Cooperation on International
Ernst & Young/Cass Business School,
Financial Reporting Standards,
/>
17 January 2013.
16 September 2013.
73 European Securities and Markets Authority, 76 Speech by Mary Jo White, ‘Regulation in a Global
ESMA Report on Enforcement and Regulatory
Financial System’, Investment Company Institute
Activities of Accounting Enforcers in
2014,
General Membership Meeting, 1 May 2013.
31 March 2015.
77 IFRS Foundation, Report of the Trustees’
74 IFRS Foundation and ESMA Press Release,
Strategy Review 2011, IFRSs as the Global
IFRS Foundation and ESMA sign joint
Standards: Setting a Strategy for the
Statement of Protocols, 15 July 2014.
Foundation’s Second Decade, February 2012.
34 Chapter
1
35
Chapter 2
The IASB’s Conceptual
Framework
1 INTRODUCTION .............................................................................................. 39
1.1
What is a conceptual framework? ...................................................................... 40
1.2
Why is a conceptual framework necessary? ..................................................... 41
2 DEVELOPMENT OF THE IASB’S CONCEPTUAL FRAMEWORK AND
EFFECTIVE DATE ............................................................................................ 43
3 CONTENTS, PURPOSE AND SCOPE OF THE IASB’S CONCEPTUAL
FRAMEWORK .................................................................................................. 44
3.1
Contents of the Conceptual Framework ........................................................... 44
3.2
Status and purpose of the Conceptual Framework ......................................... 45
4 CHAPTER 1: THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL
REPORTING ..................................................................................................... 45
4.1
Objective, usefulness and limitations of general purpose financial
reporting ................................................................................................................... 46
4.1.1
Objective and usefulness ....................................................................... 46
4.1.2 Limitations
...............................................................................................
47
4.2
Information about the economic resources of an entity and the use
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 9