International Accounting Standards Committee (IASC) and the Globalization of Accounting Standards

Posted In | Finance | Accounting Software

The International Accounting Standards Committee (IASC) was established in 1973 with the aim of developing and promoting the use of a single set of high-quality, globally accepted accounting standards. The IASC played a significant role in the movement towards the globalization of accounting standards, which has had far-reaching implications for businesses, investors, and regulators worldwide.

 

 

Formation of the IASC

The IASC was formed as a result of a growing need for international accounting standards that would facilitate cross-border financial reporting and investment. In an increasingly globalized world, businesses were expanding their operations across national borders, and investors were looking for opportunities to invest in foreign companies. However, the lack of a common set of accounting standards made it difficult for businesses and investors to compare financial information across countries.

 

To address this issue, the IASC was established as a private-sector organization by the professional accountancy bodies of nine countries: Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. The IASC's mission was to develop a set of high-quality accounting standards that would be acceptable around the world and to promote their use and application.

 

Development of International Accounting Standards

From its inception, the IASC worked diligently to develop International Accounting Standards (IAS), which were intended to serve as a common global language for financial reporting. The IASC issued its first standard, IAS 1, in 1975, and by the time it was replaced by the International Accounting Standards Board (IASB) in 2001, it had issued a total of 41 standards.

 

The IASC's standards were principles-based, which meant that they provided a framework for financial reporting rather than prescribing specific rules. This approach allowed for flexibility in applying the standards to different countries' legal and regulatory environments, making them more universally applicable.

 

Global Adoption of IASC Standards

Over the years, the IASC's standards gained widespread acceptance and were adopted by many countries around the world. In 2000, the European Union (EU) announced that it would require all listed companies in its member states to prepare their consolidated financial statements in accordance with IAS by 2005. This decision greatly increased the global influence of the IASC and its standards.

 

Other countries, such as Australia and New Zealand, also adopted IAS as their national accounting standards. In some cases, countries chose to converge their national standards with IAS rather than adopting them outright, resulting in a greater harmonization of global accounting standards.

 

Establishment of the International Accounting Standards Board (IASB)

In 2001, the IASC underwent a major restructuring, which resulted in the creation of the International Accounting Standards Board (IASB). The IASB was established as an independent, private-sector organization with the mandate to develop and promote the use of International Financial Reporting Standards (IFRS), which replaced the IAS. The IASB continued the IASC's work of establishing a single set of high-quality, globally accepted accounting standards, and it has issued numerous new standards and interpretations since its formation.

 

The International Accounting Standards Committee (IASC) played a crucial role in the globalization of accounting standards, which has had significant benefits for businesses, investors, and regulators worldwide. By developing and promoting a single set of high-quality, universally accepted accounting standards, the IASC facilitated cross-border financial reporting and investment, and contributed to greater transparency and comparability in financial reporting. Although the IASC has since been replaced by the IASB, its legacy and impact on the global accounting landscape continue to be felt today.