Course : F0812 Accounting Theory

Year
: February 2011

Emerging Issues in International

Accounting
Session 13

GODFREY
HODGSON
HOLMES
TARCA

CHAPTER 14
EMERGING ISSUES IN
ACCOUNTING AND
AUDITING

XBRL
XBRL = Extensible business reporting
language
Allows financial information to be
presented in an interactive way that in
turn allows individual items of data to be
extracted by software to produce reports
custom designed by individual users
SEC (2008)
500 of largest US companies
2009 financial reports
4

XBRL
XBRL will loosen the control
managers currently have on data
aggregation decisions and place their
performance under greater scrutiny

The effects of corporate

collapses and Sarbanes-Oxley
Act
(2002)
High
profile collapses in early 2000s
changed the image of accounting and
auditing and its regulatory environment
Criticism of auditor independence and
corporate governance
SOX
peer reviews replaced by PCAOB inspections
restrictions on provision of non-audit
services by audit firms to their audit clients
6

Issues surrounding the application

of fair
value accounting during the
global
financial crisis
Some believe the practice of fair
valuing assets was contributing factor
it requires the write-down in the value of
some assets when markets are turbulent
marking financial assets to market

Considerable dispute about this

SEC investigation (2008)
recommendations offered for improving fair
value accounting
7

Is the criticism leveled at

fair value measurement
fair?

Reactions by standard
setters
IASB (October, 2008) changed rules so that
losses from changes in market values of
financial assets could be reclassified under
certain circumstances avoiding charging
mark-to-market losses to the income
statement
FASB (2009) introduced a ruling to allow
banks to use their own judgement in
determining the fair value of assets, rather
than using markets
9

Auditors and the global

financial crisis
The GFC could lead to regulatory
action affecting auditors
relatively little attention paid to the
auditors role in the crisis
the accounting profession and regulators
have proactively issued guidance
auditors of banks later suffering financial
difficulties can expect to come under
scrutiny
10

IASB and FASB

convergence
project
2002 and 2006 convergence agreements
SEC issued (2008) a roadmap for the use
of IFRS by US companies by 2014
markets becoming increasingly global
new investment opportunities to US investors
would make firms from different countries
easier to compare
progress toward 7 milestones to be assessed
in 2011

11

Issues in IFRS-US GAAP

convergence
It is not certain that the US will adopt
IFRS
Some argue that competition
between standard setters is desirable

12

International auditing
standards
Auditing standards are also being
internationalised
have been redrafted
growing international acceptance

A move to IFRS would require US

auditing standards to change from
assessing conformity with rules to
assessing true and fair
13

International auditing
standards
Both the auditing and accounting
standards boards must deal with
issues relating to their independence
and governance before both sets of
standards are truly global

14

Sustainability
accounting, reporting and
Companies are issuing sustainability
assurance
reports
Sustainability accounting is a subset of
social accounting
Sustainability can be regarded as meeting
the needs of the present without
compromising the ability of future
generations to meet their own needs
environmental protection
justice between peoples and generations
15

Recent developments in
sustainability reporting
Global reporting initiative (2006)
Accounting for carbon emissions
Sustainability reports are increasingly
being either audited or reviewed by
independent auditors
companies with the most to gain from
increasing the credibility of their reports are
more likely to seek assurance
little authoritative guidance

16

Trends in sustainability
reporting
Some companies are now seeking
assurance for their sustainability
reports

17

Other non-financial
accounting and reporting
Water accounting applies accrual
issues

accounting concepts to water

resources
Greenhouse gas emission accounting
Both attempt to provide data on
scarce resources other than those
traditionally captured by financial
accounting systems
18

Summary
One of the major influences on accounting
and auditing practice and research is the
growing internationalisation of accounting
and auditing standards
There have been recent developments in
sustainability reporting and assurance
Water accounting and greenhouse gas
emission accounting are new
developments
19

Key terms and concepts

XBRL
Sarbanes-Oxley Act 2002
Fair value accounting and the GFC
Auditors and the GFC
Convergence project
Sustainability accounting and assurance
Water accounting
Greenhouse gas emission accounting
20

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