Day 4 - IASB : Structure & Constitution, standard setting process

Looks like this topic is quite popular and important. I believe that it always has a high chance to be examined.

You can immediately divide it to 3 sub-parts and study them in any order u want:

- Structure of IASB;

- IASB’s constitution;

- Standard –setting process.

Theory might become excessive and a bit boring, but I suggest that you note for yourself only certain key details (names of parts of structures, key terms, key functions, main steps, numerical data etc) and the most important – to get the logic, to UNDERSTAND what it’s all about. Make associations, draw tables of graphs , mind maps – anything that helps you to memorize more efficiently, and revise all this stuff regularly till u feel absolutely okay about it. I remarked that even a very small revision of the same thing EACH DAY makes real miracles. In brief, you can memorize absolutely anything in just a week.

After studying materials presented the site of IFRS Foundation I got inspired and decided to draw some simple diagrams, see below.

1. Constitution

Somehow I think that it’s more logic to start studying IASB from this topic, as constitution will guide you from general issues about IASB to it’s structure.

CONSTITUTION is open for public and can be easily downloaded here. That is the constitution of IFRS Foundation and IASB’s part is simply placed inside it.

It includes: preface, objectives of IFRS Foundation and an excessive description of Foundation’s governance and structure. It finishes by the annex describing criteria for IASB members.

And here all the attention should be placed on IASB, IASB and again IASB. In other words, I suggest to memorize everything related to IASB and simply to read all the rest. Somehow it looks like for exam purposes IFRS Foundation and IASB are considered almost like the same thing. But it’s nothing but my personal opinion.

• Preface describes how and when the Constitution of IFRS Foundation (former International Accounting Standards Committee – IASC) was set initially, then how it was revised due to change in the organization (we don’t need to know more then the fact that name was changed : )). It states that constitution should be revised each 5 years by Trustees and describes how and when it was reviewed.
• Now an important part : objectives! Those are an absolute must to memorize. See page 2 of constitution. They are the same for IFRS Foundation and IASB and there are 4 of them. You can see an alternative shorter version here.
• Governance by Trustees and structure(see below).
• Administration – held by admistrative office located in location determined by Trustees.
• ANNEX

2. Structure

After analyzing the structural diagram presented on the site of IFRS Foundation and by adding some bits from Constitution, I composed my own diagram to avoid lengthy descriptions.

For every part of structure it’s important to memorize the name (yea, it will be the hardest : )) and it’s main responsibilities and functions. They all can be found in details in Constitution. Actually that’s what the Constitution is mainly about.

MONITORING BOARD is important because it approves and appoints Trustees and it serves as a link between those Trustees and public authorities.

Who are Trustees? Well those are smart and experienced guys who govern IFRS Foundation.

There goes IFRS Foundation itself which consists of : IASB, IFR Interpretations Committee and IFRS advisory Council. Foundation Trustees select, approve and appoint members of those sub-structures and monitor their work on regular basis. They should be no more 22 trustees from different parts of the world to maintain geographical balance. Current “head count” gave result of 20, though in fact they are 21. Former Chairman passed away last year, now they are in the process of selecting a new one.

Trustees are appointed for a renewable term of three years.

It should not be forgotten that Foundation is responsible for financing part: that is approval of budgets, and secure of funding. They determine rates of pay and in simple words, determine how much money should go to this or that activity.

Main objective of IFRS Foundation is to prepare a set of high quality standards and it performs via International Accounting standards Board (IASB).

Well that is our main sub-structure. That is the body that prepares and issues standards after the long and tough standard setting process. It consists of 16 members. Current chairman – Sir David Tweedy will leave this July and he will be replaced by Mr. Hans Hoogervorst. They are appointed by Trustees for an initial term of 3-5 years. Chairman automatically becomes a Chief executive of IFRS Foundation, responsible for establishment of senior staff management team of Foundation.

Main responsibilities are shown on the diagram and described in Constitution.

IFRS Interpretations Committee is appointed by Trustees and serves to interpret existing standards and to give guidance. They develop IFRICs and SECs which are later approved and issued by IASB.

IFRS Advisory Council is again appointed by Trustees and serves as a body that gives advice to both IFRS Foundation and IASB. Once there is a standard setting process or another major project, that’s when everyone needs to consult this body first , and hardly anything can be issued without it’s advice. Why? Well first of all because it’s part of Consitution to use it’s advice. Secondly, because it administers a forum where it collects views of interested parties. And those views are extremely important for issuing this or that standards for example.

Meanwhile IASB forms working groups that serve as minor advisory councils providing their advice and views on agenda projects.

And at the bottom of this tower lies all possible support operations that IFRS Foundation sets and keeps daily.

I think it’s also good to know at least little bit about the criteria for IASB members (last two pages of Constitution).

So how do u think, who can become an IASB member … maybe you or me? Yea , sure … : )

Of course a high level of education, experience, expertise and personal qualities is required from those. And in brief those guys should be ..bloody experienced : ) You can read about each of current members on the site to get the idea. Well, 8 main qualities are listed:

• Technical competence and knowledge of financial accounting and reporting (the second part makes me smile : ) );
• Ability to analyze;
• Communication skills (yea, they need to be able to talk, as during their work they will mostly be talking talking talking talking talking … ) ;
• Judicious decision-making;
• Awareness of the financial reporting environment;
• Ability to work in a collegial atmosphere;
• Integrity, objectivity and discipline;
• Commitment to the IFRS foundation’s mission and public interest.

3. Standard setting process

Standard setting process is described on the site of IFRS Foundation. But to my opinion this description is a bit confusing. However, you still can get the main idea.

I summarized main ideas in the diagram below.

6 main stages, which should be learnt by heart:

1) Setting the agenda.

Well before that various research are held, which reveal the necessity of setting a common rule in this or that area. And so , issues revealed and the whole work starts.

Firstly they meet meet meet and meet, discuss a lot, consult IFRS Advisory Council and after that issue the agenda . 

2) Project planning

Well they got agenda, so they have the idea in mind of what they are going to do. But now they need to decide: how, who will be responsible for this and that, set a budget etc.

And first of all they decide whether they will conduct project alone or with another standard –settler. And further steps will be similar but will still differ depending on this choice.

Then working group is formed, which consists of members of IFRS Foundation, but it might also include members of staff from other accounting standard – settlers if appropriate.

3) Development and publication of Discussion paper

Well this DP is something like an embryo of the future standard, though, it’s OPTIONAL to issue it. If the project is held by IASB alone then DP comes from agenda, if another standard settler is involved then it may result form research project of the latter. So if standard setter is involved, that is him, who publishes the draft of DP.

DP includes mostly ISSUES, related to IFRS, which by use of DP are reviewed and are published for PUBLIC COMMENTS.

Working groups and standard settlers are involved and surely suggestions of Advisory Council are taken into account.

All discussions are held in public sessions. Publication of DP requires a simple majority vote by the IASB. Constitutional requirement that no less then 60% or Board members are present at that meeting.

4) Development and publication of an Exposure Draft

So the baby IFRS starts to be recognizable. ED is a MANDATORY step in this whole due process, it’s publication is required by Constitution. And now it’s not a collection of issues, it is a first version of the future standard, it also includes additional provisions.

Before publishing issues on the basis of staff researches and recommendations are considered, comments received on DP are collected together with suggestions from our beloved Advisory Council , working groups and standard – settlers.

Once all the issues are collected and resolved, ED’s draft is published. Later on IASB ballots on it. Final publication of ED requires approval of 10 of the 16 IASB members. Once being published, this document is open for PUBLIC COMMENTS.

The period of this comment should be no less then 60 days, usually it lasts 90 – 120 days. 

5) Development and publication of IFRS

Yay, standard is going to be born before you finish reading this sentence :P

Sigh …well, not really. Once comments on ED are received, how do u think what those guys do. 3 attempts. Indeed, they will meet and discuss , discuss , discuss.

Things don’t always go well, plus first ED might be not so ideal, so re-exposure of ED might be considered. This decision to publish second ED should be taken by IASB. And once IASB ensures that all ED issues are solved, they start to prepare a draft of IFRS.

They issue it, then vote. IFRIC reviews it. After that almost a final version is published on the site.

And at the end of the whole due process IFRS IS FINALLY ISSUED!

6) After IFRS is issued

You might think that what we discussed above is so complicated, lengthy and effort consuming. But well, honestly, I believe that a much harder work starts once IFRS is published and put to practice.

Now IASB has to hold regular meetings with interested parties to figure out which issues are not covered by IFRS, which issues require reconsideration and improvement, which are too hard to put to practice etc. It also has to monitor changes in financial environment and regulatory requirements. IFRIC starts it’s work on interpretations and guidance, Advisory council monitors comments on forum etc. All this work may result in amendment of existing IFRS, or publication of another IFRS, that will either replace existing one or will be added to other standards.

So that should be enough about standard setting.

And I believe after Foundation’s objective, this is the second most important topic!

It gives the examiner so much freedom of which issue to examine: any stage of the process, brief description of the whole process, anything about DP and/or ED, discussion of differences between those two and draft of standard, how pre-ballot draft is issued and how the standard is finally issued, all the procedures after it is issued, how IASB cares about consistency in interpretation and / or application of IFRSs etc.

All possible questions should be analyzed and adequate answers should be prepared.

Day 3 – Need / barriers for development of IFRS

In this and further posts I am not going to copy long chapters of books. First of all, it’s illegal, second, it’s not really the exchange of experience and finally, it will make posts unreasonably lengthy.

Okay, so the first enthusiasm goes away quite quickly once u open first chapter of your book and start reading it. At first u think:  mmm, that’s okay …that’s also okay. But then u start to fall asleep and count how much pages are still left to read.

Indeed, that’s plain theory. It’s good if u are working in accounting related field , then most likely you already have an idea about those first topics. Otherwise, everything will be new and almost everything will be boring. I don’t generalize, but I’m just sure it will be. Because most of u are definitely so much eager for calculations.

Anyway, you can skip those topics and you won’t fail exam. But you will lose the opportunity to get some easy marks on theoretical parts of questions in case if those topics will be examined.  Right now we have lots of time before exam, so why not?  I would suggest : go for it.

So take a deep breath, smile and let’s start our construction of IFRS skyscraper.  And however boring it might feel at time, remember it’s EASY and USEFUL.

Chapter 1 of syllabus asks to discuss the need for international accounting standards and possible barriers to their development.

Need for international accounting standards.

Good question. Why do we need, and do we actually need them at all ? : )

Well, in simple words, each country speaks it’s language. And each country has it’s laws and accounting principles.  Now imagine something like the construction of Babel tower when every worker speaks his own language. A bit of chaos, isn’t it?

National accounting principles are great within certain countries / regions but when it comes to talk to “foreigners”, they might fail to understand that language of reporting.

A simple solution is “to develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles”. Huf ..sounds magnificent : ) Well, this heroic idea happens to be the main objective of IFRS Foundation, and those high quality standards appear to be IFRS.

So that’s the main idea, now all you is to formulate it in technical words and develop this idea further.  Here is what can be added :

-  IFRS were developed in attempt to deal with subjectivity (of national accounting systems) and to achieve comparability between different organizations.  Remember that IFRS ideally should allow a company to prepare a set of clear, transparent reports, which show a true and fair picture of the business.

- IFRS serve to harmonize financial reporting . They remove or significantly reduce differences in methods used to prepare accounting reports. 

- IFRS serve to present a single set of accounting standards that will be clear for stakeholders in different countries.  Financial reports prepared under IFRS are deemed to be clear for different groups of stakeholders (including foreign, e.g. foreign investors).

The idea to create standards appeared and was successfully developed implemented to practice. Nowadays more and more countries adopt or permit the use of IFRS.  Some countries like Australia and New Zealand have accepted IFRS as their main accounting principles already since 2005. UK GAAP is almost completely replaced by IFRS adopted by EU.  US  Financial Accounting Standards Board is constantly working with IASB on their project of convergence of US GAAP and IFRS.  Of course they could simply accept IFRS as it is ,but US accounting system is already too good. Would be pity to simply cancel this one. But those guys are working at this project day and night, so I believe in the nearest future they will give birth to something nice : ) More about convergence of US GAAP and IASB  here and here.

 More about the use of IFRS around the world here.

However, nothing is ever perfect and so implementation of IFRS faced and still facing lots of barriers.

Barriers to development of IFRS.

In previous part I mentioned how great IFRS are,  how they are needed and helpful.  So everyone is should be happy: IASB, companies, governments etc. Well, they are. But everything has a price to pay. Development of brand new and amendment of existing standards is already a hard work, meanwhile there many additional barriers occur that slow down or complicate the whole standard-setting process.

And for us accountants, it’s quite clear why :

- Many national accounting systems are very tax driven.  Till the point that there exist simultaneously two systems of reporting :  accounting and tax.  So every change in accounting system poses a dilemma: what do to with tax one? Tax guys are often not happy with new rules. So introduction of IFRS will cause bigger and bigger differences between those two systems;

- Those who are engaged in the process of standard setting should understand them well.  In other words, how e.g. you can comment on standards and make proposals if u don’t even understand what it is about. We are humans, not robots, so it all takes time and efforts.

- Cost.  Nothing is free, well IASB members are not volunteers as well : ) And as usual financing is limited. So good budgeting system is required. But it all again takes time and slows down the whole process and poses some limits on activity.

- The process of developing a standard, discussing it and elaborating certain rules is sometimes and often quite tough. Everyone has his viewpoint, his background, experience and vision.  It’s hard to come to an agreement and to satisfy everyone.

- As it’s been mentioned before, stakeholders are not always happy with new additional workload caused by IFRS. Implementation of new standards creates a lot of additional work for them.  IFRS departments have to be created, specialists need to be trained, accounting departments need to familiarize with IFRS, software should be choosen and adjusted, chart of account s, accounting policy and all the drafts of documents are to be created etc etc etc. Not saying about the situation when implementation of IFRS within the country causes changes in national standards.  So imagine a usual 45 + aged accountant who got used to work in one way now has to forget all the principles that he followed before and changed his mindset for something brand new and in fact doubtful for him.  In addition, not every company will be ready to disclose more information in it’s reports then it usually does.

- Sometimes standards might cause a real complexity. Not only they become complex themselves, but they also appear to be too complex to apply. 

  Well, that’s it in brief.  Looks like, it’s better to revise theory again and again. I remarked from past exams that sometimes it’s easy to remember some points but so hard to formulate those points clearly in exam.  Definitely better to read and reread and reread.

Day 2 – Exam structure and general information

While your books are still on their way, I believe it’s a good thing to familiarize with exam structure and at least take a look at syllabus.

The exam lasts 3 hours + 15 min additional reading time (3 h 15 min total time). 

During reading time u can literally do whatever you want with the question paper (you are not allowed to touch the answer booklet). Options : make some nice drawings on it, in case if your inspiration comes during exam, chew it, in case you are hungry or there is another nice option : READ IT and make your notes, outlines and quick calculations.   

Many tutors recommend to concentrate on requirements for each question during this time. This is to ensure that you don’t miss key words and understand very clearly what examiner wants. Another thing that might be useful to do is to do mark time limit for each section . Remember u have 100 marks and 3 h (180 min). That means 1.8 min per mark.

After first 15 minutes by the order of invigilator your torture starts. With trembling hands u will start writing your first reply and will try to present it in the best possible way, almost like you are making report to a President. You will spend 1 h on it  and will realize that u are absolutely out of time and u didn’t even get the point of that first question : )) As a result – exam stress, panic, mistakes , decrease in quality of handwriting and the feeling that you don’t know anything at all. Well, just kidding. I am sure it won’t happen to you. But what I outline above is highly possible for unprepared students.  Anyway, back to subject.

The exam is composed of two sections. Section A includes a mainly computational question and Section B contains a mix of computational and discursive questions. See below:

	No of marks
Section A: One group accounting question	40
Section B: Three compulsory questions (20 marks each)	60
	----
	100
	==

All the above mentioned information and more details can be found here. Those who sit exam not the first time, pay attention that exam structure has changed.

Section A – one question for 40 marks! Wow, imagine u will settle it and write just minor theoretical bits from any of other 3 questions and that’s it, you got your desired 50% marks.  Yea (sigh), I wish it was so. In reality first question is the hardest.   You will need to prepare consolidated Statement of Financial Position and/or Statement of Comprehensive Income AND additionally may include requirement to make a statement of changes in equity. To do this you will need to make various adjustments to given transactions. 

If it still doesn’t sound hard, well simply take a look at pilot paper  question 1 : )  Those with weak nerves – don’t look at it now  ; ) 

More about content of questions can be found in Examiner’sapproach article.  It’s short , just 2 pages and absolutely worth reading. 

Another document that I suggest to print out and refer to all the time during your preparation is SYLLABUS.  Surprisingly, many students ignore syllabus. They simply pay for tuition or purchase hard copy materials and trust whatever they are being told or taught.  Without knowing the syllabus you won’t have the full picture of what is going to be examined.

However, now syllabus is often included to contents of books. But before u purchase them, you can still take a look at syllabus on your own. 

If u explore ACCA website further you might find an article called Examinable documents.  If u take a look at it , you will discover that almost IASs and IFRSs are going to be examined (except IFRS 4 -Insurance contracts), plus conceptual framework. We are lucky, now various interpretations (IFRICs and SECs are not examined anymore, yay!). 

If you are studying ACCA, you must be asking yourself, what is that DipIFR all about. There are papers based on IFRS inside ACCA. What makes DipIFR different. Is DipIFR simply like F7 paper?  Well, not really, DipIFR’s level of difficulty lies between F7 and P2. From my brief analyze, many theoretical bits , specially those about Framework and the structure of IASB, convergence between IFRS and US GAAP are taken from P2. The rest DipIFR is closer to F7. However , still a bit harder.  

Questions involving the preparation of the consolidated statement of cash flows will not be set!  Mmmmm, sounds good!

Well , I guess that’s enough for this very start. 

Sometimes the image of this  big work in front of u might be demotivating. But think of it from different angle : just in 6 months you’ll master it! Yes, u will, because u will pay your exam fee earlier then you will realize that u just can’t prepare well : ) So, there will be no way back.  

Exam fee is £167.

I doubt there is anyone who will let those money just vanish in the air without even attempting the exam. No matter how prepared he finds himself.

Don’t forget the deadlines!

15 April - for the June exams
15 October - for the December exam

 

Before this deadline you need to present the FULL package of documents to ACCA.  You can read more about them in the application form, pages 6-7

 The quickest way to apply for DipIFR is to do it online.

Note the following :

-  if some of your documents are not originally composed in English (e.g. relevant degrees, documents certifying working experience), translation should be enclosed.  That means,  additional efforts and TIME;

- 15 of April/October is a unite deadline for AL ACCA students. Currently there are about 400.000 and this number increases in almost geometrical progression.  Due to this, in the last few days before deadline site becomes too busy and sometimes simply irresponsive or down. Well about being down I might be exaggerating, but be sure that it will be slow (at best). And u know what? It is not the guilt of ACCA, and no need to blame them afterwards.

So if you start thinking of registration on October, then I guess you lack some adrenaline in your blood.

Conclusion : Register beforehand and sleep peacefully!

Day 1 - Introduction

Well let's start from overview of resources and materials that will be handy for exam.

1. ATC : http://www.atc-international.com/

I believe this company has the biggest experience in proving a range of materials for DipIFR.

Previously, it was administering DipIFR Rus exam, so those guys obviously have a solid insight into what it's all about :)

From first sight, materials are not easy to find at their website, however all u need is to click : order online.

Optimal combination : DipIFR Materials package + audio lectures.

However just having materials package will be more then enough , and the cheapest is to buy e-package. You will get access to PDF files which u can download as many times as u want and print as many times as u want, which is absolutely fantastic nowadays.

2. BPP : http://www.bpp.com/learning-materials.aspx

Great publishing and educational company.

From my experience with them , I can say that their materials are simply excessive.

That means there is hardly anything that u can't find in their books.

However sometimes language is too technical , which isn't a critic at all. It simply means that studying solely from bpp books, without additional materials or lectures isn't quite easy. There is a high chance to loose interest in subject.

But the biggest advantage is , if u manage to work out their books and kits u can be sure that any exam will seem easy for u:)

For DipIFR they provide a nice book and a kit. You can view them here.

And again u can purchase e-materials, but since the start of this year, BPP reduced the printing allowance down to just 15% of a book. Which is ..............sigh ...very sad.

3. Kaplan Financial : http://financial.kaplan.co.uk/pages/default.aspx

To my surprise they don't issue any separate books for DipIFR exam.

The only book that can be handy is their Guidance to IFRS.

It's cheap and has very positive comments from students all the world.

Indeed, it's very user friendly.

But it's not designed for DipIFR exam and it's dated 2008. So if u can get it from a friend , it could be a nice additional material. Otherwise, i would recommend to concentrate on updated materials designed solely for DipIFR.

4. IFRS foundation: http://www.ifrs.org/Home.htm

Almost everything related to IFRS depend on those guys. It's them who issue International Financial Reporting Standards , and thus when u will need to learn about their structure or access standards , welcome to their site.

Standards could be downloaded from here

Registration is required but it's simple and free.

5. IAS Plus: http://iasplus.com/index.htm

A perfect site created by Deloitte's team . Contains news about accounting and anything that happens in IFRS world.

Also it has excellent free learning modules for IFRS. You can access them here.

(just put any data to this form, it doesn't matter at all ;))

Whenever u feel difficulty studying this or that IFRS, these modules will surely help.

6. Big Four Guidances

On top of those is "IFRS in your pocket" booklet issued by Deloitte's team.
Why on the top ? Because to my opinion it's more complete and most importantly it is already updated for 2011.

Then you can take a look at "IFRS pocket guide" issued by PWC.
Well, this one is still 2010.  They have 2011 IFRS manual, but it's not available for free.

And finally there is a nice IFRS portal created by Ernst & Young, where you can find plenty of interesting materials.  I recommend to subscribe for IFRS outlook, which will allow you to received all recent updates in IFRS world.

 

All those materials are updated regularly. Some companies do it earlier , some later. But for DipIFR purposes we can use 2010 materials without any problem.
 

So those are your 6 steps to success with DipIFR. Benefit from as many resources as u can. Now all you need is a good schedule, time management and regular practice :)

Best of luck!