Understanding the Role and Function of the International Accounting Standards Committee (IASC)

Posted In | Finance | Accounting Software

The International Accounting Standards Committee (IASC) was established in 1973 with the primary objective of formulating and promoting the use of international accounting standards (IAS) for global financial reporting. The IASC was initially formed by accounting bodies from nine countries, including the United States, the United Kingdom, Canada, and Australia. However, its membership expanded over time, and the organization eventually became the International Accounting Standards Board (IASB) in 2001. Despite the change in name and structure, the mission of the IASC/IASB remains to promote a single set of high-quality, globally accepted accounting standards.

 

 

The Functions of the IASC

The main functions of the IASC were to develop and maintain IAS and to promote their worldwide acceptance and application. To achieve this, the IASC:

 

• Formulated and published IAS that set out the recognition, measurement, presentation, and disclosure requirements for financial statements.
   
• Provided guidance on the application of IAS through interpretations and other publications.
   
• Encouraged national accounting standard-setters to adopt IAS or to converge their national standards with IAS.
   
• Promoted the harmonization of accounting standards and practices across different jurisdictions.
   
• Collaborated with other international organizations, such as the International Organization of Securities Commissions (IOSCO) and the World Bank, to enhance the quality and consistency of financial reporting worldwide.

 

Why International Accounting Standards are Important

International accounting standards are essential for several reasons:

 

1. Globalization: With the increasing interconnectedness of economies and businesses, having a single set of accounting standards promotes consistency and comparability in financial reporting across borders.
    
2. Investor Confidence: Adoption of IAS enhances the credibility and transparency of financial statements, which in turn boosts investor confidence and facilitates cross-border investment.
    
3. Reduced Complexity: By converging national accounting standards with IAS, the complexity of financial reporting is reduced, making it easier for companies to prepare financial statements and for users to understand them.
    
4. Improved Corporate Governance: International accounting standards promote good corporate governance practices by setting high-quality financial reporting requirements that encourage accountability and transparency.

 

Transition from the IASC to the IASB

In 2001, the IASC underwent a major reorganization and was replaced by the IASB. This change was aimed at further enhancing the credibility and independence of the standard-setting process. The IASB is overseen by the IFRS Foundation, an independent, not-for-profit organization. The IASB has continued the work of the IASC in developing and promoting the adoption of International Financial Reporting Standards (IFRS), which have replaced the original IAS.

 

International accounting standards play a crucial role in promoting transparency, consistency, and comparability in financial reporting across the world. The IASC, and later the IASB, have been instrumental in developing and promoting these standards to enhance the quality of financial reporting and facilitate cross-border investment. The ongoing collaboration between the IASB and national accounting standard-setters is essential to ensure the continued harmonization of accounting standards and practices, ultimately leading to a single set of high-quality global accounting standards.