Tag: International Accounting Standards Board

The Clarity Project
The International Accounting Standards Board (IAASB) initiated a campaign in 2004 to improve the clarity (readability) of the ISAs.

This Clarity Project’s overarching objective was to make the ISAs more understandable, which would, in turn, make it easier to apply the standards consistently and lead to an improvement in the overall audit quality on a global scale.

After a string of corporate scandals that received widespread media attention and a widespread erosion of trust within the auditing profession, this was a vital task to carry out.

As a result of the Clarity Project, each standard now possesses a transparent structure with clear objectives, definitions, and requirements, in addition to the application and other explanatory material that provides a deeper dive into the requirements of the ISAs.

Because of how the new standards are organised, it is much simpler to comprehend what is needed and what is considered recommendations.

In addition, ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements has been rewritten, and the revised guidance on quality control procedures went into effect at the same time as the clarified ISAs did.

These updates were made in conjunction with the International Standards on Auditing. The following constitutes the structure of each standard:
- Introduction
- Objective
- Definitions
- Requirements
- Application and Other Explanatory Material
Introduction

This paragraph contains information concerning the standard, including the ISA’s purpose, scope and subject matter. It also contains information regarding the responsibilities of the auditor and others in the context in which the ISA is set.

Objective

Each ISA contains a statement of the auditor’s objective in the audit area in which the ISA is set.

Definitions

The Clarity Project included adding an element for a greater understanding of the ISAs, and as such applicable terms contained within the ISAs have now been defined.

Requirements

Clearly stated requirements support each ISA.

Phrases such as ‘the auditor should …’ have now been replaced by ‘the auditor shall …’.

The profession welcomed this improvement because it cleared any ambiguity.

The word ‘shall’ indicates that the standard expects the auditor to do something rather than ‘should’, which implies that the standard ‘may’ expect something of the auditor in certain circumstances.

Application and other explanatory material

Each ISA clearly explains more precisely what the auditor is required to do to achieve the objective of the ISA in question.

Where applicable, the ISA may also contain illustrative examples of procedures that may apply in certain circumstances.

Other explanatory material may be contained within an ISA to help the auditor understand the ISA’s overall objective and application.

The impact of the Clarity Project contributed significantly to the enhancement and uniformity of audit quality worldwide.

The IAASB set out to undertake the project to encourage international convergence and assist audit firms that operate internationally by harmonising auditing standards.

In summary, the Clarity Project had the following effect on the ISAs and ISQC:
- 19 ISAs and ISQC 1 were redrafted.
- 16 ISAs were revised and redrafted to reflect the new clarity convention.
- One new standard was issued:
  - relating to communication, ISA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
- ISA 540 Audit of Accounting Estimates and ISA 545 Auditing Fair Value Measurements and Disclosures were combined in ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
The Clarity Project brought about some significant changes in the work that auditors are required to undertake, which can be seen in the following summaries.
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December 10, 2022
Conceptual Framework for Financial Reporting | 财务报告概念框架
Introduction

Since its founding in 2001, the International Accounting Standards Board (IASB) has had a profound impact on the global landscape of financial reporting for companies.

But it was the International Accounting Standards Committee (IASC), during its 27 years of existence from 1973 to 2000, that laid the groundwork for the International Accounting Standards Board (IASB).

自2001年成立以来，国际会计准则理事会已经对公司财务报告的全球格局产生了深远的影响。

但是，正是国际会计准则委员会（IASC）在其1973年至2000年的27年存在期间，为国际会计准则理事会（IASB）奠定了基础。

International Accounting Standards Committee (IASC) | 国际会计准则委员会

After the end of World War II, each country developed its own set of Generally Accepted Accounting Principles (GAAP, the name used in the United States), sometimes known as the proper accounting practice.

The International Accounting Standards Committee (IASC) was established in 1973 with the objective of developing and issuing international accounting standards and promoting international convergence of national accounting practices.

国际会计准则委员会（IASC）成立于1973年，主要的目的是为了制定和发布国际会计准则，以促进各国会计实务的国际趋同。

从1973年成立到2001年解散，它制定了一套国际会计准则（IAS），并逐渐在世界各国获得了一定程度的认可。

The Evolution of the IASC into the IASB | IASC 演变为IASB 的过程

During the period from its founding in 1973 to its dissolution in 2001, the IASC developed a set of International Accounting Standards (IAS) that gradually acquired a degree of acceptance in countries around the world.

In their consolidated financial statements, a number of European multinational companies started using International Accounting Standards (IAS) rather than their national generally accepted accounting principles (GAAP) between the years 1987 and 2000.

Corporations such as Nestle, Holderbank/Holcim, Roche, CibaGeigy/Novartis, and UBS were among those involved, as well as companies from Germany such as Schering, Heidelberger Zement, Bayer, Hoechst, and Deutsche Bank.

CPC International, Salomon Inc., and Microsoft are three of the biggest companies in the United States that have begun to confirm that their financial statements correspond to IAS.

In May 2000, the IASC was reorganised. A new IASB Constitution took effect on 1 July 2000. The standards-setting body was renamed the International Accounting Standards Board (IASB). It would operate under a new International Accounting Standards Committee Foundation (IASCF, now the IFRS Foundation).

The IASB is responsible for the research and development of accounting standards. This reorganisation has changed the IASC from being, in a sense, the ‘coordinator’ of national accounting standards to being the ‘setter’ of global accounting standards.

从 1973 年成立到 2001 年解散这段期间，IASC 制定了一套国际会计准则（IAS），并逐渐在世界各国获得了一定程度的认可。

在1987年至2000年期间，一些欧洲跨国公司在其合并财务报表中开始使用国际会计准则（IAS），而不是其国家公认的会计原则（GAAP）。

雀巢、Holderbank/Holcim、罗氏公司 [(Roche)是以研究为导向的健康事业公司，创立于1896年，总部位于瑞士巴塞尔。罗氏两大核心业务：药品和诊断为人类健康提供了预防、诊断以及治疗的创新产品和服务，从而提高了人类的健康水准和生活品质]、CibaGeigy/Novartis [诺华公司成立于1996年，由位于巴赛尔的两家化学品及制药公司“汽巴-嘉基”（Ciba-Geigy）和“山德士”（Sandoz）合并而成。] 和UBS等公司，以及德国的Schering [先灵葆雅（Schering-Plough）是一家总部位于美国新泽西州凯尼尔沃思的制药公司，以生产开瑞坦等抗过敏药物而闻名。]、Heidelberger Zement、Bayer、Hoechst和德意志银行等公司也参与其中。

CPC国际公司、所罗门公司和微软公司是美国最大的三家公司，它们已经开始确认其财务报表与国际会计准则相一致。

2000年5月，IASC 进行了改组。新的国际会计准则委员会章程于2000年7月1日生效，该准则制定机构被重新命名为国际会计准则委员会（IASB）。它将在一个新的国际会计准则委员会基金会（IASCF，现在的IFRS基金会）下运作。

IASB 负责会计准则的研究和开发，这一重组使 IASC 从某种意义上说，从国家会计准则的 “协调者 “变成了全球会计准则的 “制定者”。

Conceptual Framework | 概念框架

In April 1989, the IASC Board approved a document entitled “A Framework for the Presentation of Financial Statements“, which was issued in July of the same year.

The Conceptual Framework for Financial Reporting (the “Conceptual Framework”) :
- is a basic document that sets objectives and the concepts for general purpose financial reporting.
- has played an important role in guiding the development of international standards and the evaluation of existing standards.
In 2001 the IASC reorganised itself to form the new International Accounting Standards Board, the IASB, which has been working on updating the Conceptual Framework and developing global accounting standards since its inception.

The first phase of the Conceptual Framework for Financial Reporting was completed in September 2010, while the relevant sections of the Financial Reporting Framework published in 1989 will be replaced, however, it was a bit unfinished as a few concepts and chapters were missing.

The newest and completed Framework published in 2018 comprises 8 chapters.

The Framework addresses:
1. the objective of general-purpose financial reporting
2. qualitative characteristics of useful financial information
3. financial statements and the reporting entity
4. the elements of financial statements
5. recognition and derecognition
6. measurement
7. presentation and disclosure
8. concepts of capital and capital maintenance
1989年4月，国际会计准则委员会（IASC）批准了一份题为《财务报表编报框架》的文件，该文件于同年7月发布。

财务报告的概念框架（”概念框架”）:
- 是一份基本文件，规定了一般通用财务报告的目标和概念；
- 在指导国际标准的制定和现有标准的评估方面发挥了重要作用。
2001年，国际会计准则委员会（IASC）改组为新的国际会计准则理事会，即 IASB，该理事会自成立以来，一直致力于修订概念框架（Conceptual Framework）和制定全球会计标准。

财务报告的概念框架的第一阶段已于2010年9月完成，而1989年出版的财务报告框架的相关部分将被取代，然而，它依然有点不够完善，因为缺少一些概念和章节。

2018年出版的最新完成的《框架》包括8个章节。

该框架涉及:
1. 一般目的财务报告的目标
2. 有用财务信息的质量特征
3. 财务报表和报告主体
4. 财务报表的要素
5. 确认和终止确认
6. 计量
7. 列报和披露
8. 资本和资本保全的概念
230.1-Conceptual-Framework-for-Financial-Reporting Download

Is the Framework equivalent to the Standard? | 该框架是否等同于标准？

Allow me to elaborate on one particular point:
- The framework itself is NOT a Standard.
Therefore, if you want to decide on the financial reporting of a certain transaction, you need to explore a suitable standard, which could be IFRS or IAS [MFRS in Malaysia].

It is possible that there will be instances when the rules in that IFRS or IAS [MFRS] standard will be in direct contradiction to what is stated in the Framework.

In this particular scenario, we should use the standard rather than the Framework.

请允许我先说明一个特别重要的事情：
- 该框架本身并不是一个标准
因此，如果你想决定某项交易的财务报告，你需要寻找一个合适的标准，而这个合适的标准可以是 IFRS 或 IAS [马来西亚 – MFRS/MPERS]。

然而，不排 IFRS 或 IAS [MFRS / MPERS] 标准中的规则，可能在某些情况下会与框架中的规定直接相抵触。

在这种特殊情况下，我们应该使用该准则而不是该框架。

When is the appropriate time to use the Framework? | 什么时候是使用该框架的适当时机？

When there are no specific rules for your transaction and you need to build your accounting policy, you should look to the Framework as a starting point because you cannot deviate from its fundamental principles and definitions.

当你需要建立你的会计政策时，而你的交易没有具体的规定，此时你应该把《框架》作为一个起点，因为你不能偏离其基本原则和定义。

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August 1, 2022
Improving Audit Quality 2: What is Audit Quality?
Sadly, there is no one agreed-upon definition of what constitutes a quality audit. The Center for Audit Quality (CAQ) identifies the following as the two primary pillars around which audit quality is built:
- Auditor Expertise; and
- Independence (*)
(*) Independence refers to external auditors’ interests being independent of those of company management

Several elements determine the quality of an audit; nevertheless, the combination of these two cornerstones increases the level of trust and confidence in business financial statements and serves as the foundation for the quality of an audit.

CAQ-Value-of-the-Audit Download
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About the Center for Audit Quality (CAQ) 
The Center for Audit Quality (CAQ) is an autonomous public policy organisation dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high-quality performance by public company auditors; convenes and collaborates with other stakeholders to advance the discussion of critical issues that require action and intervention; and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. 
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According to the International Auditing and Assurance Standards Board (IAASB), a quality audit is more likely to have been accomplished by an engagement team that:-
- Exhibited appropriate values, ethics, and attitudes,
- Was sufficiently knowledgeable, skilled, and experienced, and had sufficient time allocated to perform the audit work,
- Applied a rigorous audit process and quality control procedures that complied with the law, regulation, and applicable standards,
- Provided valuable and timely reports, and
- Interacted appropriately with relevant stakeholders.
Audit Quality Standards

According to International Forum of Independent Audit Regulators (IFIAR), a robust quality control system is vital to enhancing and sustaining audit quality. As a result, quality control systems are a primary focus of many inspection Programmes.

A matter of particular concern is that inspectors’ results about quality control inspections have fluctuated widely over time. Because of this, the International Accounting Standards Board (IAASB) issued two new standards in December 2020 to reinforce and modernise how firms use quality management:-
- ISQM 1 Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements
- ISQM 2 Engagement Quality Reviews
These standards direct audit firms to improve the robustness of their monitoring and remediation, embed quality into their corporate culture and the “tone at the top,” and improve the robustness of engagement quality reviews.

In June of 2022, the Auditing Standards Board (ASB, which is the AICPA’s senior committee for auditing, attestation, and quality control applicable to the performance and issuance of audit and attestation reports for non-issuers.) adopted comparable standards.

In Malaysia

These two new Quality Management Standards have also been approved by the Malaysian Institute of Accountants on 17 September 2021

These standards will come into effect on 15 December 2022, in line with all major jurisdictions adopting the ISQM and ISAs.

17
July 23, 2022
MFRS 116 Amendments – what does this mean for your accounts?
International Accounting Standards Board

The International Accounting Standards Board (IASB) published an amendment to IAS 16 in May 2020, and it became effective for accounting periods that begin on or after January 1, 2022.

Malaysian Accounting Standards Board

In the meantime, on June 5, 2020, the Malaysian Accounting Standards Board (hereafter referred to as “MASB”) released amendments to MFRS 116 Property, Plant and Equipment. The amendments concern the proceeds that an entity receives before the time when that entity intends to use an asset.

The amendments will become effective for any financial year that begins on or after January 1 2022. However, early adoption is allowed by the MASB.

The amendments to MFRS 116 restrict an entity from deducting from the cost of an item of PPE any proceeds from selling items generated while making that item of PPE available for its intended use, such as during a necessary testing or commissioning period. Consequently, an entity would record the proceeds of such sales directly in its profit or loss.

The prior treatment required that any costs incurred, as well as revenue recognised up to the point that the asset is ready for use, be capitalised or in the case of revenue, offset against the cost of an asset.

The amendments will most impact the extractive and petrochemical industries.

Summary: What’s important to know
- Proceeds from the sale of the items produced by the property, plant, and equipment (PPE) before its intended use are no longer deducted from the cost of PPE.
- A rise in the costs of a company’s assets, as shown in its financial statements.
- Potential tax consequences of new recognition and presentation of profit
Illustration

It is common practice to carry out a series of tasks after acquiring a particular asset to be able to use that asset in the manner that is wanted.

For instance, you are required to install the asset or carry out the testing procedures.

Additionally, there are occasions where it is possible to produce certain goods while carrying out these procedures.

Prior to the adoption of the new amendment, it was not entirely obvious what should be done with the proceeds obtained from the sale of these goods that were produced while the asset was not put into normal operations.

Because of this, some entities recorded these proceeds as revenue in their income statement, while others subtracted the sale proceeds from the cost of an asset. This distinction is because some entities recognised these proceeds as income while others did not.

After the new amendment, the second alternative is no longer permissible, and sales proceeds can only be recognised in profit or loss.

Example

ABC Company has acquired a machine to facilitate the production of the product glove.

The buying price is RM 10,000, including the installation cost and other directly attributable expenses.

Testing must be performed to ensure that the machine satisfies the safety conditions before it can be put into normal operation.

During the course of the testing that the ABC Company does on the machine, the machine produces a total of 100 units of gloves, each of which is put up for sale at a price of RM 3 per unit.
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How do you account for the revenue from selling one hundred of your products? 

Can you tell me What is the acquisition cost of a machine now?
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In the past, ABC Company was able to reduce the cost of the machine by using the proceeds it made from the sale of the products it produced.

As a result, the acquisition cost of the machine would be RM 9,700, equivalent to RM 10,000 less RM 300 (RM3 * 100).

However, this is no longer permitted due to a recent amendment to MFRS 116.

Instead, ABC Company must record the revenue in its income statement:

The cost to acquire the machine is then RM 10,000 (no deduction of proceeds from the sale).

What can you do now?

The difficulties that may arise from implementing the amendments can be complex. The process of allocating costs can be challenging and requires much estimation and judgement. You ought to initiate your preparations for this challenge right now.

Make sure that you have a clear awareness of which facts are required, which can only come from in-depth knowledge of the applicable accounting standards.

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July 8, 2022