Standard-setting bodies and regulatory authorities

Standard-setting bodies

• Professional organization of accountants and auditors to set financial reporting standards
• Financial Accounting Standards (FASB) – in US, FASB sets Generally Accepted Accounting Rules (US GAAP);
• International Accounting Standard Board (IASB) – outside US, IASB set International Financial Reporting Standards (IFRS)

Notes:

• Many other national standard-setting bodies (including FASB) are working toward convergence with IFRS.

Regulatory authorities

• Government agencies with legal authority to enhance compliance with financial reporting standard
• Securities and Exchange Commission (SEC) in US
• Financial Services Authority (FSA) in UK

The International Organization of Securities Commissions (IOSCO)
An international association of securities regulators to create a co-operative environment between different countries aiming at:

• Promoting high standards of regulation in order to maintain just, efficient and sound markets
• Exchanging information on respective experiences in order to promote the development of domestic markets
• Uniting efforts to establish standards and effective surveillance of international securities transactions
• Providing mutual assistance to promote the integrity of the markets by a rigorous application of the standards and by effective enforcement against offences.

The Financial Accounting Standards Board (FASB)
A non-governmental body sets the accounting standards for all companies that issue audited U.S. GAAP-compliant financial statements.

The International Accounting Standard Board (IASB)
This organization was created to set international accounting standards in an effort to bridge the gap between the accounting standards of different nations.

GAAP comprises a set of principles that are patterned over a number of sources including the FASB, the Accounting Principles Board (APB) and the AICPA research bulletins.

Prior to the creation of the FASB, the Accounting Principles Board (APB) set the accounting standards. As a result some of these standards are still in use.

Securities and Exchange Commission (SEC)
The form and content of the financial statements of public companies are governed by the SEC. Even though the SEC delegates most of the authority to the FASB, it frequently adds its own requirements, such as the requirement for a company to provide a management discussion and analysis with its financial statements, quarterly financial statements (10-Q) and current reports (8-K). These discussions indicate things like changes in control, acquisition and divestitures, etc.)

3 approaches to standard setting:
Principles-based

• Provide a conceptual basis for accountants to follow instead of a list of detailed rules.

Rules-based

• Characterized by a list of specific rules, numerical tests for classifying certain transactions, exceptions, and alternative treatments.
  
  Objective-oriented
  · blends the other two approaches
  
  IFRS – largely principle based
  US GAAP – traditionally rules-based. FASB is now moving toward to objectives-oriented.