Preface to International Financial Reporting Standards

1
This Preface is issued to set out the objectives and due process of the International
Accounting Standards Board and to explain the scope, authority and timing of
application of International Financial Reporting Standards. The Preface was approved by
the IASB in April 2002 and superseded the Preface published in January 1975 (amended
November 1982). In 2007 the Preface was amended in January and October to reflect
changes in the IASC Foundations
2
Constitution and in September as a consequence of
the changes made by IAS 1 Presentation of Financial Statements (as revised in 2007). In
January 2008 paragraph 9 was amended to update the reference to the body now known
as the IPSASB. In 2010 the Preface was amended to reflect the Constitution as revised in
January 2009 and January 2010 and the publication of the Conceptual Framework in
September 2010.
1 The International Accounting Standards Board (IASB) was established in 2001 as
part of the International Accounting Standards Committee (IASC) Foundation.
In 2010 the IASC Foundation was renamed the IFRS Foundation. The governance
of the IFRS Foundation rests with twenty-two Trustees. The Trustees
responsibilities include appointing the members of the IASB and associated
councils and committees, as well as securing financing for the organisation. The
IASB comprises fifteen full-time members (the IFRS Foundations Constitution
provides for membership to rise to sixteen by 1 July 2012). Approval of
International Financial Reporting Standards (IFRSs) and related documents, such
as the Conceptual Framework for Financial Reporting, exposure drafts, and other
discussion documents, is the responsibility of the IASB.
2 The IFRS Interpretations Committee
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comprises fourteen voting members and a
non-voting Chairman, all appointed by the Trustees. The role of the Committee
is to prepare interpretations of IFRSs for approval by the IASB and, in the context
of the Conceptual Framework, to provide timely guidance on financial reporting
issues. The Committee (then called the International Financial Reporting
Interpretations Committee) replaced the former Standing Interpretations
Committee (SIC) in 2002.
3 The IFRS Advisory Council
4
is appointed by the Trustees. It provides a formal
vehicle for participation by organisations and individuals with an interest in
international financial reporting. The participants have diverse geographical
and functional backgrounds. The Councils objective is to give advice to the IASB
on priorities, agenda decisions and on major standard-setting projects.
4 The IASB was preceded by the Board of IASC, which came into existence on
29 June 1973 as a result of an agreement by professional accountancy bodies in
Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United
1 including IFRIC and SIC Interpretations
2 In July 2010 the IASC Foundation was renamed the IFRS Foundation.
3 Before March 2010 the Interpretations Committee was called the International Financial Reporting
Interpretations Committee (IFRIC).
4 Before March 2010 the IFRS Advisory Council was called the Standards Advisory Council (SAC).
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IFRS Foundation A11
Kingdom and Ireland, and the United States of America. A revised Agreement
and Constitution were signed in November 1982. The Constitution was further
revised in October 1992 and May 2000 by the IASC Board. Under the May 2000
Constitution, the professional accountancy bodies adopted a mechanism
enabling the appointed Trustees to put the May 2000 Constitution into force.
The Trustees activated the new Constitution in January 2001, and revised it in
March 2002.
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5 At its meeting on 20 April 2001 the IASB passed the following resolution:
All Standards and Interpretations issued under previous Constitutions continue to
be applicable unless and until they are amended or withdrawn. The International
Accounting Standards Board may amend or withdraw International Accounting
Standards and SIC Interpretations issued under previous Constitutions of IASC as
well as issue new Standards and Interpretations.
When the term IFRSs is used in this Preface, it includes standards and
Interpretations approved by the IASB, and International Accounting Standards
(IASs) and SIC Interpretations issued under previous Constitutions.
Objectives of the IASB
6 The objectives of the IASB are:
(a) to develop, in the public interest, a single set of high quality,
understandable, enforceable and globally accepted financial reporting
standards based on clearly articulated principles. These standards
should require high quality, transparent and comparable information in
financial statements and other financial reporting to help investors,
other participants in the various capital markets of the world and other
users of financial information make economic decisions;
(b) to promote the use and rigorous application of those standards;
(c) in fulfilling the objectives associated with (a) and (b), to take account of,
as appropriate, the needs of a range of sizes and types of entities in
diverse economic settings;
(d) to promote and facilitate the adoption of IFRSs, being the standards and
interpretations issued by the IASB, through the convergence of national
accounting standards and IFRSs.
Scope and authority of International Financial Reporting
Standards
7 The IASB achieves its objectives primarily by developing and publishing IFRSs
and promoting the use of those standards in general purpose financial
statements and other financial reporting. Other financial reporting comprises
information provided outside financial statements that assists in the
interpretation of a complete set of financial statements or improves users
ability to make efficient economic decisions. In developing IFRSs, the IASB
5 The Constitution was further revised in July 2002, June 2005, October 2007, January 2009, January
2010 and January 2013.
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works with national standard-setters to promote and facilitate adoption of IFRSs
through convergence of national accounting standards and IFRSs.
8 IFRSs set out recognition, measurement, presentation and disclosure
requirements dealing with transactions and events that are important in
general purpose financial statements. They may also set out such requirements
for transactions and events that arise mainly in specific industries. IFRSs are
based on the Conceptual Framework, which addresses the concepts underlying the
information presented in general purpose financial statements. Although the
Conceptual Framework was not issued until September 2010, it was developed from
the previous Framework for the Preparation and Presentation of Financial Statements,
which the IASB adopted in 2001. The objective of the Conceptual Framework is to
facilitate the consistent and logical formulation of IFRSs. The Conceptual
Framework also provides a basis for the use of judgement in resolving accounting
issues.
9 IFRSs are designed to apply to the general purpose financial statements and
other financial reporting of profit-oriented entities. Profit-oriented entities
include those engaged in commercial, industrial, financial and similar activities,
whether organised in corporate or in other forms. They include organisations
such as mutual insurance companies and other mutual co-operative entities that
provide dividends or other economic benefits directly and proportionately to
their owners, members or participants. Although IFRSs are not designed to
apply to not-for-profit activities in the private sector, public sector or
government, entities with such activities may find them appropriate. The
International Public Sector Accounting Standards Board (IPSASB) prepares
accounting standards for governments and other public sector entities, other
than government business entities, based on IFRSs.
10 IFRSs apply to all general purpose financial statements. Such financial
statements are directed towards the common information needs of a wide range
of users, for example, shareholders, creditors, employees and the public at large.
The objective of financial statements is to provide information about the
financial position, performance and cash flows of an entity that is useful to
those users in making economic decisions.
11 A complete set of financial statements includes a statement of financial position,
a statement of comprehensive income, a statement of changes in equity, a
statement of cash flows, and accounting policies and explanatory notes. When a
separate income statement is presented in accordance with IAS 1 Presentation of
Financial Statements (as revised in 2007), it is part of that complete set. In the
interest of timeliness and cost considerations and to avoid repeating
information previously reported, an entity may provide less information in its
interim financial statements than in its annual financial statements. IAS 34
Interim Financial Reporting prescribes the minimum content of complete or
condensed financial statements for an interim period. The term financial
statements includes a complete set of financial statements prepared for an
interim or annual period, and condensed financial statements for an interim
period.
12 Some IFRSs permit different treatments for given transactions and events. The
IASBs objective is to require like transactions and events to be accounted for and
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reported in a like way and unlike transactions and events to be accounted for
and reported differently, both within an entity over time and among entities.
Consequently, the IASB intends not to permit choices in accounting treatment.
Also, the IASB has reconsidered, and will continue to reconsider, those
transactions and events for which IFRSs permit a choice of accounting
treatment, with the objective of reducing the number of those choices.
13 Standards approved by the IASB include paragraphs in bold type and plain type,
which have equal authority. Paragraphs in bold type indicate the main
principles. An individual standard should be read in the context of the objective
stated in that standard and this Preface.
14 Interpretations of IFRSs are prepared by the Interpretations Committee to give
authoritative guidance on issues that are likely to receive divergent or
unacceptable treatment, in the absence of such guidance.
15 IAS 1 (as revised in 2007) includes the following requirement:
An entity whose financial statements comply with IFRSs shall make an explicit and
unreserved statement of such compliance in the notes. An entity shall not
describe financial statements as complying with IFRSs unless they comply with all
the requirements of IFRSs.
16 Any limitation of the scope of an IFRS is made clear in the standard.
Due process
17 IFRSs are developed through an international due process that involves
accountants, financial analysts and other users of financial statements, the
business community, stock exchanges, regulatory and legal authorities,
academics and other interested individuals and organisations from around the
world. The IASB consults, in public meetings, the Advisory Council on major
projects, agenda decisions and work priorities, and discusses technical matters
in meetings that are open to public observation. Due process for projects
normally, but not necessarily, involves the following steps (the steps that are
required under the terms of the IFRS Foundations Constitution are indicated by
an asterisk*):
(a) the staff are asked to identify and review all the issues associated with
the topic and to consider the application of the Conceptual Framework to
the issues;
(b) study of national accounting requirements and practice and an
exchange of views about the issues with national standard-setters;
(c) consulting the Trustees and the Advisory Council about the advisability
of adding the topic to the IASBs agenda;*
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(d) formation of an advisory group to give advice to the IASB on the project;
(e) publishing for public comment a discussion document;
(f) publishing for public comment an exposure draft (including any
dissenting opinions held by IASB members) approved by at least nine
6 Beginning no later than 30 June 2011 the IASB is required to carry out a public consultation on its
agenda every three years.
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votes of the IASB if there are fewer than sixteen members, or by ten of its
members if there are sixteen members;*
(g) normally publishing with an exposure draft a basis for conclusions and
the alternative views of any IASB member who opposes publication;*
(h) consideration of all comments received within the comment period on
discussion documents and exposure drafts;*
(i) consideration of the desirability of holding a public hearing and of the
desirability of conducting field tests and, if considered desirable, holding
such hearings and conducting such tests;
(j) approval of a standard by at least nine votes of the IASB if there are fewer
than sixteen members, or by ten of its members if there are sixteen
members;* and
(k) publishing with a standard (i) a basis for conclusions, explaining, among
other things, the steps in the IASBs due process and how the IASB dealt
with public comments on the exposure draft, and (ii) the dissenting
opinion of any IASB member.*
18 Interpretations of IFRSs are developed through an international due process that
involves accountants, financial analysts and other users of financial statements,
the business community, stock exchanges, regulatory and legal authorities,
academics and other interested individuals and organisations from around the
world. The Interpretations Committee discusses technical matters in meetings
that are open to public observation. The due process for each project normally,
but not necessarily, involves the following steps (the steps that are required
under the terms of the IFRS Foundations Constitution are indicated by an
asterisk*):
(a) the staff are asked to identify and review all the issues associated with
the topic and to consider the application of the Conceptual Framework to
the issues;
(b) consideration of the implications for the issues of the hierarchy of IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors;
(c) publication of a draft Interpretation for public comment if no more than
four Committee members have voted against the proposal;*
(d) consideration of all comments received within the comment period on a
draft Interpretation;*
(e) approval by the Interpretations Committee of an Interpretation if no
more than four Committee members have voted against the
Interpretation after considering public comments on the draft
Interpretation;* and
(f) approval of the Interpretation by at least nine votes of the IASB if there
are fewer than sixteen members, or by ten of its members if there are
sixteen members.*
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Timing of application of International Financial Reporting
Standards
19 IFRSs apply from a date specified in the document. New or revised IFRSs set out
transitional provisions to be applied on their initial application.
20 The IASB has no general policy of exempting transactions occurring before a
specific date from the requirements of new IFRSs. When financial statements
are used to monitor compliance with contracts and agreements, a new IFRS may
have consequences that were not foreseen when the contract or agreement was
finalised. For example, covenants contained in banking and loan agreements
may impose limits on measures shown in a borrowers financial statements. The
IASB believes the fact that financial reporting requirements evolve and change
over time is well understood and would be known to the parties when they
entered into the agreement. It is up to the parties to determine whether the
agreement should be insulated from the effects of a future IFRS, or, if not, the
manner in which it might be renegotiated to reflect changes in reporting rather
than changes in the underlying financial condition.
21 Exposure drafts are issued for comment and their proposals are subject to
revision. Until the effective date of an IFRS, the requirements of any IFRS that
would be affected by proposals in an exposure draft remain in force.
Language
22 The approved text of any discussion document, exposure draft or IFRS is that
approved by the IASB in the English language. The IASB may approve
translations in other languages, provided that the translation is prepared in
accordance with a process that provides assurance of the quality of the
translation, and the IASB may license other translations.
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