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1 IFRA Introduction

The document discusses the objectives and users of international financial reporting and auditing. It explains that financial reporting aims to provide useful information to stakeholders like investors, creditors, employees and the public. International standards are important for international trade and investment but national differences still exist in accounting and auditing approaches. Accurate, transparent and consistent financial reporting relies on strong accounting standards, practices, and regulatory frameworks.

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Dayana Mastura
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76 views

1 IFRA Introduction

The document discusses the objectives and users of international financial reporting and auditing. It explains that financial reporting aims to provide useful information to stakeholders like investors, creditors, employees and the public. International standards are important for international trade and investment but national differences still exist in accounting and auditing approaches. Accurate, transparent and consistent financial reporting relies on strong accounting standards, practices, and regulatory frameworks.

Uploaded by

Dayana Mastura
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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UoT BAAF

INTERNATIONAL FINANCIAL
REPORTING & AUDIT

PURPOSE & OBJECTIVE


FINANCIAL REPORTING

 OBJECTIVE:
 “Put simply, the objective of
Financial Statements is to
provide information to those for
whom they are prepared’
(International Accounting
Standards Board)
 Who are the users?

 What information do they require?


FINANCIAL STATEMENTS-
USERS
 Those having reasonable
right to information
concerning the reporting
entity
USERS OF FINANCIAL
STATEMENTS / REPORTS
 Equity investors
 Loan creditors
 Employees
 Analyst-Adviser
 Business Contacts
 Government
 General Public
EQUITY INVESTORS

 Existing and potential


shareholders
 Decisions to buy, sell or hold
shares
 The effect of expectations
 Historic, current and future
earnings
LOAN CREDITORS

 Long term, medium, short term


lenders
 Will they get their money back?
 Current and future cash
positions
 Realizable value of assets
 Economic stability and
vulnerability of the borrower
EMPLOYEES
 Existing, potential and past employees
 Fair and open collective bargaining
 Present and future job security and
progression
 Information requirements:
 Local level
 Simple, non-technical, some non-financial
ANALYST-ADVISER
 Experts who provide information
or advise other groups
 Stockbrokers and analysts
 Trade union advisers
 Government statisticians
BUSINESS CONTACTS
 Suppliers and Trade Creditors:
 Short and long term prospects-especially
liquidity – may be via agencies e.g Dun &
Bradstreet (credit rating agency & major user of
financial reports)
 Customers:
 Ability to sustain long term relationships and
contracts
 Ability to act in a way consistent with the
customer’s ethical and environmental standards
 Competitors:
 Right to keep information on competitive
advantage
GOVERNMENT

 Taxation-verification purposes
 Economic decisions

 Government as a purchaser
or creditor
GENERAL PUBLIC

 Employment
 Environment;
 Energy usage
 Sustainability
 Pollution
 Ethical supplier
 Health & Safety
WHY WE NEED IAS?
 Helps with international trade
 Reassures overseas customers on
credit status
 Helps international borrowing
 Saves time and effort in meeting
local accounting rules
 Meets listing requirements of major
stock exchange
 Having different accounting
systems for different companies
can cause confusion
AGAINST GLOBAL
STANDARDS
 Many companies do not operate
outside their own country
 Borrowing and invesment takes
place within the country
 National standards can take
account of national characteristics
 Cost of complying with international
standards that may not be
necessary
CHARACTERISTICS OF
USEFUL INFORMATION
 Understandable-readily understood by
target users
 Relevant-Appropriate for the target users
 Objective-Free of bias
 Comparable-Consistently prepared
 Timely-In time to enable decision
making
 Reliable-Consistent high level of
accuracy
 Complete-Covers all required areas
Auditing-origins
 Developed as a means of investors
reassuring themselves as to the
management of their wealth by
agents-investors normally distanced
from business
 Auditor often a shareholder-obvious
conflicts of interest
 Evolved to auditor being an
independent professional with the
necessary competences to express
and opinion on the accounts
Auditing-origins

 So auditing is standard across


the world?
 NO
 For similar reasons to Reporting
there are significant differences
in approach
Auditing - Objectives

 Anglo Saxon countries (e.g UK,


Australia)-statements represent the
economic position of the company
 US-statements ‘fairly represent’ the
situation of the company
 EC directives – ‘true and fair view’
 Roman Law – eg Germany –
‘accounting rules have been
respected’
Auditing - Obligations

 Independent of client and state?


 Audit and non-audit activities
 Audit engagement period
 Relationship with the state
 Audit vs tax responsibilities
 Licence to audit – who grants it?
Framework for financial
reporting
Why should differences in
accounting arises?
 Culture
 Legal system
 Taxation
 Political
 Accounting education
 Accounting profession
THE IMPORTANCE OF
FINANCIAL REPORTING
Why must financial reporting be
accurate, transparent & meaningful?
 To give investors confidence
 Investors investment is being put to
good use
 Investors are fully and accurately
informed
 To enable capital to move freely to
where it can be used most effectively
Paul Volcker’s Three Pillars

 Accounting standards
 Accounting and auditing
practices and policies
 Legislative and regulatory
framework
Paul Volcker’s First Pillar

 Accounting standard and rules


 Conceptual Frameworks:
 Serves as a guide to the
standard setters to establish the
principles and concepts that
underpin financial accounting
and reporting standards
Paul Volcker’s Second Pillar

 Accounting and auditing


practices and policies
 Regulation and authorities
 Ethical foundations : A new
framework for reliable financial
reporting
Paul Volcker’s Third Pillar
 Legislative and regulatory
framework:
 Setting
 Monitoring
 Enforcing accounting standards
 Overseeing the regulatory
activities of professional
accountancy
Paul Volcker’s Three Pillars-
Key requirements
 Harmonization is the key
 Restoring confidence in the
audit profession
 Government must provide
backbone and resources to
regulators
Developments

 Sarbanes Oxley Act 2002


 IASB/FASB joint Conceptual
Framework
 IFRS new version
 Truly International Accounting
standards
 International harmonization and
Standardization

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