The International Accounting Standards Board (IASB) is a not-for-profit organization that develops and sets accounting standards to be followed by companies in different countries.
The IASB’s goal is to establish a common set of financial reporting standards that are globally accepted, making it easier for investors and other stakeholders to compare the financial performance of organizations across borders.
The IASB’s functions are critical in ensuring that businesses around the world adhere to sound accounting practices while maintaining transparency and accountability.
IASB is committed to developing and approving a single set of global accounting standards (that is known as International Financial Reporting Standards), which require transparent and comparable information for the general purpose of financial statements.
In this article, you will learn more about the formation of IASB, the purposes of IASB (aims of IASB) and various functions of IASB.
Purposes and Objectives of IASB
The IASB arrogated its privately-funded accounting standard-setting responsibility for the establishment of a single set of global accounting standards (i.e. IFRS) w.e.f. 1st April 2001 From IASC, adopting all International Accounting Standards (IASs) and special interpretation committee in existence. The Board Members of IASB come from nine countries and possess diverse knowledge and skills. Each member has one vote on technical and other matters. IASB comprises more than 100 worldwide accounting and financial organisations from 80+ countries.
The IASB’s primary objective is to promote transparency, comparability, and reliability in financial reporting by establishing clear and concise accounting standards that provide users with useful information about an entity’s financial performance and position.
The objectives of IASB include:
Standardisation: The IASB seeks to develop a set of high-quality, globally accepted accounting standards that can be used by companies worldwide. The objective is to establish uniformity and comparability in financial reporting, enabling investors, creditors, and other stakeholders to make informed decisions.
Transparency: The IASB endeavours to enhance the transparency and reliability of financial reporting. By defining clear and comprehensive accounting standards, the IASB seeks to ensure that financial statements provide relevant and reliable information about an entity’s financial performance, position, and cash flows.
Global Convergence: The IASB seeks to promote the convergence of accounting standards globally. The objective is to reduce the differences between national accounting standards and IFRS, making it simpler for multinational companies to prepare and present their financial statements consistently across various jurisdictions.
Improvement of Financial Reporting: The IASB endeavours to continuously enhance financial reporting standards. This includes addressing emergent issues, filling voids in existing standards, and responding to feedback from stakeholders. The objective is to ensure that the accounting standards remain pertinent and meet the evolving requirements of users of financial statements.
Stakeholder Involvement: The IASB aims to engage with a wide spectrum of stakeholders, including investors, preparers, auditors, regulators, and standard-setting bodies from diverse countries. The objective is to assemble diverse perspectives and input to develop standards that meet the requirements of various users and reflect the best practices in financial reporting.
The IASB supports and cooperates with the European Union and the International Organisation of Security Commission. The purposes of the conceptual framework of IASB are as:
- Assist the board of IASB in the development of future International Financial Reporting Standard (IFRS) and the review of its existing IFRSs;
- Help the board of directors in promoting the concept harmonisation of regulations, Accounting Standards, procedures and methods relating to the presentation of financial statements by reducing the number of alternative accounting treatments permitted by IFRS;
- Helping the National Standard-setting committees in the development of the National Standards;
- Support the financial statements and prepares to apply IFRS while preparing the financial statements;
- Facilitate the auditors to provide an opinion relating to financial statements and whether IFRS guidelines has complied with while preparing the financial statements or not;
- Aid the users (investors, creditors, suppliers, employees, etc) of the financial statements in interpreting the information contained in the financial statements prepared in compliance with IFRSs and provide those interested in the work of IASB about its approach to the formulations of IFRSs.
Functions of IASB or Roles of IASB
There are several functions of IASB. But the most prominent functions of IASB or roles of IASB are as discussed below:
Development and Creation of Global Accounting Standards
The primary objective of the IASB is to develop a single set of high-quality, understandable and enforcement accounting standards that require high-quality, transparent and comparable information in financial statements as well as in other financial reporting to help users of the financial statements to participate in the world’s capital market and to make economic decisions.
The IASB is responsible for ensuring that IFRSs are up-to-date and relevant to the needs of users of financial statements. This involves reviewing and revising the standards regularly to reflect changes in accounting practices, economic conditions, and new business models. The IASB also issues interpretations and guidance to clarify how the standards should be applied in specific circumstances.
Enforcement of Standards
It is one of the most prominent functions of IASB. The IASB committee has the power to enforce the organisation to comply with the accounting standard that promotes the use and rigorous applications of those standards.
Providing guidance on the application of IFRSs
The IASB also provides guidance on how to apply IFRS in practice. This guidance takes the form of interpretations, educational materials, and other resources designed to help companies and other users of financial statements understand how to apply the standards in specific situations.
The IASB has also developed several implementation guides and other tools to help companies adopt IFRSs. These resources are designed to make it easier for companies to transition to IFRSs and to ensure that their financial reporting is consistent with the requirements of the standards.
Systematic and in-depth research on enterprise
The function of the International Accounting Standard Board does in-depth research on the special needs of small and medium-sized enterprises and emerging economies in fulfilling the objective of harmonisation of an accounting standard.
The IASB conducts consultations with investors, regulators, accounting professionals, and other stakeholders to gather feedback on proposed changes to the standards. This feedback is used to refine the standards and to ensure that they are fit for purpose.
Active Convergence of Accounting Standards
The objectives of the IASB bring about the convergence of the National accounting standards and IAS and IFRS to high quality, understandable and enforcement of Accounting Standards that require high quality and transparent information in the financial statements.
We conclude that the primary functions of IASB are more focused on considering the changing global environment, developing and maintaining the universal accounting standard to promote its use and rigorous application of these accounting standards by the financial statements prepared. Several countries, including Brazil, Germany, India, Jamaica, Kenya etc., have taken various approaches to implementing the IFRS with the main objective of enhancing national financial reporting practices in alignment with global standards.
There are some challenges, too in the way of implementing IFRSs. Lack of coherence in regulatory frameworks and insufficient legal backing of IFRS as reporting standard in a country; are some practical challenges that are still posing as barriers to IFRS as a global standard.
I hope this article helps you understand the functions of IASB.