International Accounting Standards Committee (IASC): From Establishment to Global Recognition

Posted In | Finance | Accounting Software

The International Accounting Standards Committee (IASC) was established in 1973 as a result of an agreement between accounting bodies from various countries. Its main objective was to develop a single set of high-quality, understandable, and enforceable global accounting standards. These standards aimed at improving the comparability and transparency of financial information and reducing the cost of capital for companies operating internationally. Over the years, the IASC underwent several transformations and eventually evolved into the International Accounting Standards Board (IASB) in 2001. This article traces the journey of the IASC from its inception to global recognition.

 

Establishment of the IASC

The idea of developing a uniform set of accounting standards gained momentum in the late 1960s and early 1970s due to the increasing globalization of business and capital markets. To address this need, the International Federation of Accountants (IFAC) was established in 1973 as a global organization representing the accounting profession. The IASC was created under the auspices of IFAC with the mission of formulating and promoting the adoption of international accounting standards.

The IASC initially comprised representatives from nine countries: Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, and the United States. The Committee was responsible for developing the International Accounting Standards (IAS), which were intended to serve as a global benchmark for financial reporting. The IASC also provided guidance on the implementation and interpretation of these standards.

 

Development of International Accounting Standards

During its tenure, the IASC developed a comprehensive set of accounting standards, known as the International Accounting Standards (IAS). These standards covered a wide range of topics, including financial statement presentation, revenue recognition, inventory valuation, property, plant and equipment, intangible assets, and financial instruments.

The IASC followed a due process in developing the IAS, which involved extensive consultation with stakeholders, such as accountants, auditors, regulators, and investors. The process included the issuance of discussion papers, exposure drafts, and final standards. The IASC also established a Standing Interpretations Committee (SIC) to provide guidance on the application of IAS and resolve any ambiguities or inconsistencies.

 

Global Recognition and Adoption of IAS

The IASC's efforts to promote the global adoption of IAS met with mixed success. While some countries, such as Australia and South Africa, adopted IAS as their national accounting standards, others, like the United States, continued to rely on their own Generally Accepted Accounting Principles (GAAP). However, the IASC gained significant traction in the European Union (EU), which decided to require all its listed companies to prepare their consolidated financial statements in accordance with IAS from 2005 onwards.

This decision by the EU marked a major milestone for the IASC and significantly enhanced the global recognition of IAS. Other countries, including Canada, Japan, and India, also began to consider the adoption of IAS or convergence with their national accounting standards.

 

Transformation of the IASC into the IASB

In response to the growing demand for a more robust and independent standard-setting process, the IASC underwent a major restructuring in 2001. The organization was reconstituted as the International Accounting Standards Board (IASB) and was given the responsibility of developing and promoting the adoption of a new set of standards called the International Financial Reporting Standards (IFRS).

The IASB adopted the existing IAS as part of its initial IFRS and continued the work of the IASC in developing new standards and interpretations. The IASB also established the International Financial Reporting Interpretations Committee (IFRIC) to replace the SIC and provide guidance on the application and interpretation of IFRS.

 

The International Accounting Standards Committee (IASC) played a crucial role in the development of a single set of global accounting standards that aimed at enhancing the comparability and transparency of financial information. Over the years, the organization evolved from a modest committee representing nine countries to a globally recognized standard-setting body. Today, the International Accounting Standards Board (IASB), which succeeded the IASC, continues to carry on its mission of developing high-quality, enforceable, and universally accepted accounting standards.