Chapter 3

International Convergence of Financial Reporting

INTRODUCTION
The accounting profession and standard-setters have been under pressure to reduce
diversity and harmonize accounting standards and practices internationally

INTERNATIONAL HARMONIZATION OF ACCOUNTING STANDARDS

International standard-setting is usually associate with harmonization
- Meaning of harmonization
o Not the same as standardization
 Standardization = the elimination of alternatives in accounting for
economic transactions and other events
o Harmonization refers to the reduction of alternatives while retaining a high
degree of flexibility in accounting practices
 Allows different countries to have different standards as long as they do
not conflict
o Takes place over time
o Can be considered in 2 ways ;
1) Formal/de jure harmonization
a. Accounting regulations and standards
2) Material/de facto harmonization
a. Accounting practices

HARMONIZATION EFFORTS THROUGH THE INTERNATIONAL

ACCOUNTING STANDARDS COMMITTEE (IASC)
The IASC was established in 1973 by an agreement of the leading
professional accounting bodies in 10 countries
- Objective: formulating “international accounting standards”
- Funding: contributions from member bodies, multinational companies,
financial institutions, accounting firms, and the sale of IASC publications
The “Lowest-Common-Denominator” Approach
The IASC’s harmonization efforts from 1973 to 2001 evolved in several different
phases
- Initial phase (1973-1987)
o The issuance of 26 generic international accounting standards (IAS) many
with multiple options o Lowest-denominator approach
 Standards reflected an effort to accommodate existing accounting
practices in various countries
 Introduced little if any comparability of financial statements across
countries

The Comparability Project

- Second phase (1989-1993): 2 significant activities
o 1989: publication of the framework for the preparation and presentation of
financial statements
 Set out objectives of financial statements, qualitative characteristics of
financial information, definitions of the elements of financial statements,
and the criteria for recognition of financial statement elements
o The comparability of financial statements project
 Purpose: to eliminate most of the choices of accounting treatment
currently permitted under IAS
 Result: 10 revised IAS’s approved

The IOSCO Agreement

- Final phase (1993-2001)
o Began with the International Organization of Securities
Commissions (IOSCO) agreement in 1993 and ended with creation of IASB
in 2001
 Focus: development of a core set of international standards that
could be endorsed by IOSCO for cross-listing purposes

OTHER HARMONIZATION EFFORTS

Several international organizations have been involved in harmonization efforts
either regionally or worldwide

International Organization of Securities Commissions

IOSCO aims to ensure a better regulation of the markets on both the domestic and
international levels
- Provides assistance to ensure integrity of the market by a rigorous
application of the standards and by effective enforcement
- Works to facilitate cross-border securities offerings and listings by
multinational issuers

International Federation of Accountants

IFAC mission: serve the public interest and strengthen the worldwide accountancy
profession and contribute to the development of strong international economies by
establishing and promoting adherence to high-quality professional standards on
auditing, ethics, education, and training

- June 1999: launch of IFAD

o Want to promote transparent financial reporting, duly audited to high
standards by a strong accounting and auditing profession
- May 2000: establishment of Forum of Firms
o Aim: raise standards of financing reporting and auditing globally in order
to protect the interests of cross-border investors and promote international
flows of capital
o Works alongside IFAD

European Union
Until may 2004 all EU countries possessed similar traits in many respects
- All wealthy industrial nations with similar political goals, comparable
standards of living, high volumes of trade within the union, and good
transportation links
- 2004: new entrants of the former soviet bloc

EU always focused on harmonization of company laws and taxation, the promotion

of full freedom in movement of goods and labor between member countries, and
creation of a community capital market
- July 2002: adoption of single currency, euro

2 directives aimed at harmonizing accounting:

1) The fourth directive (1978)
a. Deals with valuation rules, disclosure requirements, and the format of
financial statements
i. Includes comprehensive accounting rules covering the content of
annual financial statement, methods of presentation, measurement and
disclosure of information for both public and private companies
ii. Established “true and fair view” principle
1. Financial statements should provide a true and fair view of a
company’s assets and liabilities and its financial position and profit
and los for the benefit of shareholders and third parties

b. Provides flexibility
i. Allow countries to choose between alternatives 1. Opened the door for
noncomparability in financial statements

2) The seventh directive (1983)

a. Deals with consolidated financial statements
i. Requires firms to prepare consolidated financial statements and
outlines the procedures for their preparation

!! Directives failed to cover lease accounting, foreign currency translations,

accounting changes, contingencies, income taxes, and long-term
construction contracts

- Did help reduce differences in financial statements

- Served as basic framework of accounting that had been adopted by other
countries in search of an accounting model
June 2000: the European Commission issued the following communication to the
European Parliament
- All listed EU companies should prepare their consolidated accounts in
accordance with one single set of accounting standards, IAS
o Goes in effect in 2005
- Member states will be allowed to extend the application of IAS to unlisted
companies and to individual accounts

The International Forum on Accountancy Development (IFAD)

IFAD was created as a working group between the Basel Committee, the IFAC,
IOSCO, the large accounting firms, OECD, UNCTAD, and the World Bank

- Mission: improve market security and transparency and financial stability on a

global basis
- Its objectives highlight:
o To promote the importance of transparent financial reporting in accordance
with sound corporate governance
o To help develop the idea that accountancy profession should take
responsibility to support public interest
o To inculcate the important of focusing on the accountancy and auditing
needs of developing countries
o To encourage cooperation among governments, the accountancy and other
professions, the international financial institutions, regulators, standard-
setters, capital providers, and issuers

IFAD promoted that national accounting standards should be raised

- IAS was the benchmark

Compliance with International Accounting Standards

There are various levels of noncompliance with IAS
- IAS 1 (1998) precludes a firm from claiming to be in compliance with IAS
unless it complies with all requirements (including disclosure) of each standard
and each applicable interpretation
o Prior to 1998 companies claimed to follow IAS when it apparently did not

CHALLENGES TO THE IASC

The challenges face by IASC over the years:
- 1970s and 1980s: UN and OECD were concerned that IASC lacked legitimacy
o It was created by the accounting profession with its self-interests
- Problems of legitimacy with regard to constituent support, independence, and
technical expertise
o Board members only worked at IASC part-time and were not necessarily
selected because of their expertise
 Lack of individual commitment on the part of IASC
- IFAC tried on two occasions during the 1980s to bring the IASC under its
control (unsuccessfully)
 - 1993-1994: UK, US, Canada, and Australia began meeting quarterly to discuss
issues related to international standard-setting
o Secretary-general of the IASC attended as an observer

CREATION OF IASB
December 1998: publication of “Shaping IASC for the future” by strategy working
party (appointed in 1996)
- Proposed a vastly different structure and process for the development of
international accounting standards
o Designed to deal with issue of legitimacy
o Attempted to balance calls for a structure based on geographic
representativeness with those based on technical competence and
independence
 Trustees would be provided by geographic distributions
 Board members would be selected based on their expertise

April, 2001: IASB takes over from the IASC as the creator of international
accounting standards (IFRS)
- Change in focus from harmonization to convergence or global standard-
setting

The Structure of the IASB

The IASB is organized under the IFRS foundation

Monitoring Board
The monitoring board comprises the relevant leaders of
o the European Commission,
o the Japanese Financial Services agency o the US SEC
o the emerging markets committee of IOSCO
o technical committee of IOSCO
- The chairman of the Basel Committee on banking supervision is a nonvoting
observer
- Specific functions:
o Enhance public accountability of the IASC foundation
o Participate in the trustee nomination process and approval of appointments to
the trustees
o Carry out oversight responsibilities in relation to the trustees and their
oversight of the IASB’s activities

Trustees of the IFRS Foundation

The IFRS foundation consists of 22 trustees
- Represent different geographical areas
o The constitution requires an appropriate balance of professional backgrounds
 o 2 trustees are normally senior partners of prominent international accounting
firms

- Responsibilities:
o Appoint the members of the IASB and establish their contracts of service
and performance criteria
o Appoint the members of the international financial reporting interpretation
committee and the IFRS advisory council
o Review annually the strategy of IASC and IASB and its effectiveness of the
IASB’s agenda
o Approve annually the budget of the IFRS foundation and determine the basis
of funding o Review broad strategic issues affecting accounting standards
o Establish and amend operating procedures, consultative arrangements, and
due process for the IASB, international financial reporting interpretations
committee, and the standards advisory council (SAC)
o Review compliance with the operating procedures, consultative
arrangements, and due process procedures
o Approve amendments to the constitution after following a due process
o Exercise all powers of the IFRS, except those expressly reserved for the
IASB, the IFRS interpretations committee, and the IFRS advisory council
o Foster and review the development of educational programs and materials
that are consistent with the IFRS foundation’s objectives

International Accounting Standards Board

The principal responsibilities of the IASB:
- Develop and issue IFRS and exposure drafts
- Approve interpretations developed by the international financial reporting
interpretations committee (IFRIC)
The board:
- Consists of 16 members:
o 13 serve full-time
o 3 serve part-time
- Selected on the basis of professional competence and practical experience
o Expected to represent a geographical mix and ensure a broad
international diversity
Due process procedures followed by the IASB include:
1) Ask the staff to identify and review the issues associated with the topic and
to consider the application of the framework to the issues
2) Study national accounting requirements and practice and exchange views
about the issues with national standard-setters
3) Consult the SAC about the advisability of adding the topic to the IASB’s
agenda
4) Form an advisory group to advise the IASB
5) Publish for public comment a discussion document
6) Publish for public comment an exposure draft
a. Needs approval of at least 9 IASB members
7) Publish within an exposure draft a basis for conclusions
8) Consider all comments received within the comment period on discussion
documents and exposure drafts
9) Consider all comments received within the comment period on discussion
documents and exposure drafts
10) Consider the desirability of holding a public hearing and conducting field
test and holding such hearings and conducting such tests
11) Approve a standard by the votes of at least 9 IASB members
12) Publish within a standard a basis for conclusions, explaining, among other
things

FROM HARMONIZATION TO CONVERGENCE OF FINANCIAL

REPORTING STANDARDS
International convergence of accounting standards refers to both a goal and process
adopted to achieve it
- The goal convergence
o Refers to the enforcement of a single set of accepted standards by several
regulatory bodies (strict interpretation)
o Refers to diminishing differences among accounting standards issued by
several regulators (soft interpretation)
o Refers to a situation where two or more jurisdictions agree on a core set of
common standards, allowing varying interpretations regarding on-core issues

3 fundamental approaches can be adopted to implement convergence:

1) Aim to merge all standard-setting bodies into a unified “global” body
 2) Recognize each of the existing standard-setting bodies as the sole authority in
its respective jurisdiction
3) Recognize that a national standard-setting body can coexist with international
coordination bodies

IASB main objective is to achieve international convergence with its standards

- Efforts directed toward developing a high-quality set of standards for use
internationally for financial reporting purposes (global standard-setting)
o Identify the best standards around the world
 Build a body of accounting standards that constitutes the “highest
common denominator”

IASB has adopted a principles-based approach to standard-setting

- The major concerns in achieving IFRS convergence include:
o The complicated nature of particular standards, especially those related to
financial instruments and fair value accounting
o For countries with tax-driven national accounting regimes, using IFRS as
the basis for taxation may be a problem
o Disagreement with certain significant IFRS, especially those related to
financial statements and fair value accounting
o Insufficient guidance on first-time application of IFRS
 Solved by issuance of IFRS 1
o For countries with limited capital markets, there is little benefit to be
derived from using IFRS
o Investor/user satisfaction with national accounting standards
o IFRS language translation difficulties

Many countries now use IFRS in preparing their financial statements

- Important initiative was IASB’s decision to hold a series of public roundtable
forums to provide opportunities for those who has commented on an exposure
draft to discuss their view on the proposals with members of the IASB
- A significant number of board members had direct liaison responsibility with
national standard-setters
o IASB was formally linked to national standard-setters in at least some
countries
 Were able to coordinate agendas and ensure that the IASB was
working towards convergence
PRESENTATION OF FINANCIAL STATEMENTS (IAS 1/IFRS 1)
IAS 1 is a single standard providing guidelines for the preparation and presentation
of financial statements
- It provides guidance on the following areas:
o Purpose of financial statements
 To provide information for decision making
o Components of financial statements
 Must include
 Balance sheet
 Income statement
 Statement of cash flows
 Statement of changes in equity
 Notes, comprising a summary of significant accounting policies
and other explanatory notes
o Overriding principle of fair presentation
 Financial statements shall present fairly the financial position,
financial performance and cash flows of an entity
 Requires the faithful presentation of the effects of transactions
o Compliance with the IFRS generally ensures fair presentation
o Accounting policies
 Management should select and apply accounting policies to be in
compliance with all IASB standards and all applicable interpretations
 If guidance is lacking, management should refer to
 The requirement and guidance in other IASB standards regarding
similar issues
 The definitions, recognition, and measurement criteria for assets,
liabilities, income, and expenses set out in the IASB framework
 Pronouncements of other standard-setting bodies and accepted
practices if they are consistent with the above
o Basic principles and assumptions
 IAS 1 reiterates the accrual basis and going-concern assumptions and
the consistency and comparative information principles found in the
framework
 Adds guidance to what is provided in the framework
o Structure and content of financial statements
 Provides guidance with respect to
 Current/noncurrent distinction
  Items to be presented on the face of financial statements
 Items to be disclosed in the notes

A PRINCIPLES-BASE APPROACH TO INTERNATIONAL FINANCIAL

REPORTING STANDARDS

The IASB uses a principles-based approach in developing accounting standards,

rather than a rules - based approach
- Focusses on establishing general principles derived from the IASB
framework
o Tends to limit guidance for applying the general principles to typical
transactions and encourage professional judgment in applying the general
principles to transactions specific to an entity or industry
o Rules-based approach adds unnecessary complexity, encourages financial
engineering, and does not necessarily lead to a true and fair vie or fair
presentation
 Volume of rules would also hinder the translation into different
languages

ARGUMENTS FOR AND AGAINST INTERNATIONAL CONVERGENCE

OF FINANCIAL REPORTING STANDARDS

Arguments for Convergence

1) Comparability of financial statements worldwide is necessary for the
globalization of capital markets
a. Easier for investors to evaluate potential investments in foreign securities
2) Accounting convergence would simplify the evaluation by multinational
companies of possible foreign takeover targets
3) Would reduce financial reporting costs for companies that seek to list their
shares on foreign stock exchanges
4) National differences in corporate reporting cause loss of investor
confidence a. Affects the availability and cost of capital
5) Would reduce the cost of preparing worldwide consolidated financial
statements and the auditing of these statements would be simplified
6) Multinational companies would find it easier to transfer accounting staff to
other countries
7) Would help raise the quality level of accounting practices internationally
 a. Increasing the credibility of financial information
b. Developing countries would be able to adopt ready-made set of high-
quality standards with minimum cost and effort
Arguments against Convergence
The greatest obstacle to convergence is the magnitude of the differences that exist
between countries and the fact that the political cost of eliminating those
differences would be enormous
- Obstacles:
o Nationalism
A well-developed global market already exists without a uniform accounting
standard
- Unnecessary to force all companies worldwide to follow a common set of
rules
o Would lead to standards overload and companies being required to
comply with standards not relevant for them
- Because of different environmental influences, differences in accounting
across countries might be appropriate and necessary
o Different stages of economic development
o Different sources of financing
o Differently oriented accounting systems

THE IASB CONCEPTUAL FRAMEWORK

The Need for a Framework
With no conceptual framework, accounting standards are developed
unsystematically
- May be inconsistent and bas accounting practices will triumph over good
practices
- A principle might be chosen because it is generally accepted but might not be
“right”

The “framework for the preparation and presentation of financial statements” was
first approved by the IASC board (1989) and reaffirmed by IASB (2001)
- Objective: establish the concepts underlying the preparation and presentation
of IFRS-based financial statements
o Deals with the following:
1) Objective of financial statements and underlying assumptions
2) Qualitative characteristics that affect the usefulness of financial statements
 3) Definition, recognition, and measurement of the financial statements elements
4) Concepts of capital and capital maintenance
- Purpose:
o Assist the IASB in developing future standards and revising existing
standards o Assist preparers f financial statements in applying IFRS and in
dealing with topics that have not yet been addressed in IFRS
- Concludes that financial statements are designed to meet the needs of investors
(useful for investment decisions)
o But will also meet most of the information needs of other users
Objective of Financial Statements and Underlying Assumptions
Financial statements also show the results of management’s stewardship of
enterprise resources
- Focus on providing information for decision making
o Must be prepared on an accrual basis
 The enterprise is a going concern

Qualitative Characteristics of Financial Statements

The 4 characteristics that make financial statements useful:
1) Understandability
2) Relevance
a. Affected by its nature and its materiality
3) Reliability
a. When information is neutral and represents faithfully what it purports
b. Report economic substance rather than their legal form
4) Comparability

Elements of Financial Statements: Definition, Recognition, and Measurement

Assets= resources controlled by the enterprise from which future economic

benefits are expected to flow to the enterprise
- Recognizes several different measurement bases to measure assets
o Historical cost, current cost, realizable value, present value

Liabilities= present obligations arising from past events that are expected to be
settled through an outflow of resources
- Recognizes several different bases for measuring liabilities
 o Amount of proceeds received in exchange for an obligation, the amount that
would be required to settle the obligation currently, undiscounted settlement
value in the normal course of business, present value of future cash outflows
expected to settle the liability

The framework identifies income and expenses as 2 elements that constitute profit
- Income = increases in equity other than transactions from owners (both
revenues and gains)
- Expenses = decreases in equity other than through distribution of owners
(includes losses)
- Equity = assets minus liabilities
o Income should be recognized when it increases an asset or decreases a
liability
 The framework does not provide specific guidance to income recognition
o Expenses are related to decreases in assets or increases in liabilities
 The framework acknowledges the use of the matching principle

Concepts of Capital Maintenance

The framework describes different concepts of capital maintenance
- financial capital maintenance versus physical capital maintenance
o each leads to a different basis for measuring assets
 does not prescribe one measurement over another

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The IASC has issues 41 IAS, of which 15 IAS have been superseded mainly by
IFRS - only 26 IAS are still in force
- 17 IFRS

Because the IASB is a private body, it does not have the ability to enforce its
standards
- IASB develops IFRS for the public good, making them available to any country
or company that might choose to adopt it Adoption of IFRS There are a number of
different ways a country might adopt IFRS:
1) All companies a. IFRS replaces national GAAP
2) Parent companies in preparing consolidated financial statements
a. National GAAP is used in parent company-only financial statements
3) Stock exchange-listed companies in preparing consolidated financial statements
a. Nonlisted companies use national GAAP
4) Foreign companies listing on domestic stock exchanges
a. Domestic companies use national GAAP
5) Domestic companies that list on foreign stock exchanges
a. Other domestic companies use national GAAP

IAS/IFRS in the European Union

In July 2002, the EU issued a directive requiring all listed companies of member
states to prepare consolidated financial statements based on IFRS beginning in
2005

- Aim: improve quality of corporate financial reporting

o Increase comparability and transparency to promote the development of a single
capital market in Europe

!! only for the consolidated financial statements by listed companies

- Nonlisted companies continue to apply national GAAP

o Plan is to converge national GAAP to IFRS

Considerable challenges regarding the enforcement of accounting standards in EU

- The application of the standard is not mandatory and the committee of European
securities regulators (CESR) relies on the cooperation of member states in adopting
the principles

IAS/IFRS in the United States

In 1996, US SEC announced 3 criteria IAS must meet to be acceptable for cross-
listing purposes, namely:
1) Constitute a comprehensive, generally accepted basis of accounting
2) Be of high quality, resulting in comparability and transparency, and providing
for full disclosure
3) Be rigorously interpreted and applied

Support for a Principles-Based Approach

US regulators have supported the principles-based approach
The SEC and IFRS Convergence
November 2007: Sec decided to remove the requirement that foreign private
issuers using IFRS reconcile their financial statements to US GAAP
- Recognition that IFRS is
o high-quality set of accounting standards that is capable of ensuring adequate
disclosure for the protection of investors
o promotion of fair, orderly, and efficient markets

Elimination of the reconciliation requirement for foreign filers who prepare their
financial reports in accordance with IFRS creates an asymmetric situation, as
domestic filers do not have the option of preparing their financial reports in
accordance with IFRS
- 2009 gradual total convergence to IFRS in US

AICPA and IFRS Convergence

The AICPA announced in may 2008 that private companies were allowed to adopt
IFRS ahead of publicly traded companies

The 2008 financial crisis has an impact on the convergence process, it prompted
debated on the fundamentals:
1. How to report information about financial instruments
2. The appropriateness of fair values
[Link] perimeter of consolidation in cases of “special purpose” business
combinations

The FASB and IFRS Convergence

The FASB’s mission is to improve US accounting standards for the benefit of
present and potential investors, lenders, donors, and other creditors

The Norwalk Agreement

September 2002 (Norwalk): FASB and IASB pledged to use their best efforts to:
- Make their existing financial reporting standards fully compatible as soon as
is practicable
- Coordinate their wok program to ensure that once achieved, compatibility
will be maintained
The following are key FASB initiatives to further convergence between IFRS and
US GAAP:
1) Joint projects
a. Revenue recognition, business combination, and review of the conceptual
framework are 3 major topic covered by joint projects
2) Short-term convergence project
a. To remove a variety of differences that exist between IFRS and US GAAP
b. Scope is limited to differences between the 2 sets in which convergence is
likely to be achieved in the short-term
3) Liaison IASB member
a. A full-time IASB member is in residence at the FASB offices
b. Facilitates information exchange and cooperation between the FASB and
IASB
4) Monitoring of IASB projects
a. The FASB monitors IASB projects according to the FASB’s level of interest
in the topic being addressed
5) The convergence research project
a. The FASB staff have embarked on a project to identify all the substantive
difference between US GAAP and IFRS
i. Catalog differences for resoling them
6) Consideration of convergence potential in board agenda decisions
a. All topics considered for addition to the FASB are assessed for potential
cooperation with the IASB

Following the global financial crisis (GFC), the financial crisis advisory group
(FCAG) was established
- A group of recognized leaders with broad experience in international financial
markets
- Formed at the request of FASB and IASB
- Aim: consider financial reporting issues arising from the crisis

July 2009: published a report that articulates 4 main principles and contains a
series of recommendation to improve the function and effectiveness of global
standard-setting.
- Main areas addressed:
o Effective financial reporting
o Limitations of financial reporting
 o Convergence of accounting standards
o Standard-setting independence and accountability

The debate about fair value system between the IASB and FASB was based on 2
competing world view:
- FASB: assumes that markets are relatively perfect and complete
o Financial reports should meet the needs of passive investors and creditors by
reporting fair values derived from current market prices
o Usefulness for economic decision is the sole objective of financial reporting
o Present and prospective investors and creditors are the reference users for
general-purpose financial statements
 Present shareholders have no special status
o Relevance more important than reliability
 Could better be replaced by representational faithfulness
 Past transactions and events only peripherally relevant
- IASB: assumes that markets are relatively imperfect and incomplete
o Financial reports should also meet the monitoring requirements of current
shareholders by reporting past transactions and events using entity-specific
measurements that would reflect the opportunities actually available to the
entity
o Accountability to present shareholders (stewardship) as distinct objective
together with decision usefulness
o Present shareholders have a special status as users of financial statements o
Reliability is an essential characteristic
 Past transactions and events are relevant and together with reliability of
measurement and probability of existence are critical requirements for the
recognition to achieve reliability

Challenges to International Convergence

The challenges that continue to be confronted by the international convergence of
financial reporting standards include the following:
- In different countries there are different view on what is or should be the primary
purpose of financial statements
o Led to the use of a variety of definitions of the elements of financial
statements - Some politicians in the US and UK blame IFRS for the recent
financial crisis
 o IASB must consider an IFRS world without the US, where the SEC is the
world’s most respected securities market regulator
- The IASB needs to balance and manage the diverse feedback from the regional
standard setter groups
- There is a great deal of variability in the effectiveness of enforcement of IFRS in
different countries within the EU and developing countries
- In countries where IFRS is adopted
o The affirmation of compliance with IFRS may refer to the financial reporting
framework in such a way that makes in unclear whether is corresponds with the
IFRS
- Taking proper cognizance of the fundamentally different way in which business
is done in different countries is necessary when developing standards
- Impossibility of determining a clear winner between 2 approach to accounting
o Rules-based vs. concept-based
- Use of IFRS could be expected to have visible repercussions for the financial
statements of listed firms in different countries
o Cultural and institutional differences
- Standardization cannot be expected to resolve dilemmas in accounting education
- Ongoing debate concerning the efficacy of mandating high-quality accounting
standards in unsuitable contexts with inadequate institutional infrastructures

FASB AND IASB JOINT CONCEPTUAL FRAMEWORK PROJECT

October 2004: FASB and IASB commenced a joint project to develop an updated
and improved common conceptual framework that would build on their existing
frameworks
- Single document rather than a series of concepts statements
- Aim: reflecting changes in markets, business practices, and the economic
environment since the concepts were developed

US GAAP defines a reporting entity as:

- A circumscribed area of economic activities whose financial information has the
potential to be useful to existing and potential equity investors, lenders, and other
creditors who cannot directly obtain the information they need in making decisions
about providing resources to the entity and assessing whether the management and
the governing board of the entity have made efficient and effective use of the
resources provided
IFRS defines reporting entity as:
- An entity for which there are users who rely on the financial statements as their
major source of financial information about the entity.