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

5
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?

8
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

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 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

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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

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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

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 Sustainability accounting,
reporting and assurance
Companies are issuing sustainability 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

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

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

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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

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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
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