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History of

Accounting
Standards

By:Dr.Gholamhossein Davani
IACPA,IIA,CFE,EAA,IMA,AIA
Member of High Council of Iranian
Association of Certified Public
Accountants (IACPA)

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Chairman, Presidents, fellow
accountants, ladies and
gentlemen. Good afternoon. It
is a great pleasure to be here
in Istanbul in the Heart of Asia
and Europe to address the
Ə12th World Congress of
Accounting Historians Ə. Thank
you for your kind invitation
Turkey has a special place in
Asia & Europe because it is the
only land way to access to
Europe by Asian countries. I
myself have studied about
Osmani government and
understand about 150 years
Turkey government was the
governor of west European and
Middle East countries.

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ß Accounting has been called the language of
business and accounting standards are grammar of
this language. we must have a solid grounding in
its fundamentals. Accounting information has been
useful for hundreds of years. The double-entry
framework was first described in a book written by
Luca Pacioli, a fifteenth-century Italian monk and
mathematician, although its origins can be traced
back another 300 years. The formal structure for
processing financial transactions is at least 700
years old.
ß What is the definition of accounting? Accounting is
the process of providing quantitative information
about economic entities to aid users in making
decisions concerning the allocation of economic
resources.
ß The term accounting theory is commonly used, but
it has no unified, standardized definition. Very
closely related to the realm of accounting theory is
the area of measurement. Measurement is
concerned with the process of assigning numbers
to the attributes or characteristics of the elements
being measured.
ß In addition to accounting, accountancy has
emerged as a profession, alongside the professions
of medicine and law.

±
Who have responsibility
for Accounting Standards

ß International Accounting Standards


Board (IASB)
ß Financial Accounting Standards
Board (FSBB)
ß Accounting Standards Board (ASB)
ß Governmental Accounting Standards
Board (GASB)
ß International Accounting Standards
Committee (IASC)
ß International Financial Reporting
Standards (IFRS)
ß International Public Sector
Accounting Standards (IPSAS)

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Who issues standards?
International Accounting Standards
(IASs) were issued by the IASC from
1973 to 2000. The IASB replaced the
IASC in 2001. Since then, the IASB has
amended some IASs and has proposed
to amend others, has replaced some
IASs with new International Financial
Reporting Standards (IFRSs), and has
adopted or proposed certain new IFRSs
on topics for which there was no
previous IAS. Through committees,
both the IASC and the IASB also have
issued Interpretations of Standards.
Financial statements may not be
described as complying with IFRSs
unless they comply with all of the
requirements of each applicable
standard and each applicable
interpretation.

Accountancy Age
timeline: 1969 - 2004

ß 1969: Accountancy Age is launched.


ß DTI inquiry into Robert Maxwell's
Pergamon Press causes its takeover by
LeaseCo to fall apart.
ß Touche, Ross, Bailey & Smart becomes
Touche Ross
ß 1970: ICAEW's proposal to merge with
ICAS, ICAI and other bodies fails
ß 1973: Henry Benson appointed first
chairman of the International Accounting
Standards Committee
ß 1974: The Consultative Committee of
Accountancy Bodies (CCAB) is formed
ß 1977: IFAC is founded
ß 1979: Ernst and Whinney is formed
ß 1980: ACCA's Vera di Palma becomes the
first female president of an international
accounting body
ß 1984: Merger of Deloitte, Haskins & Sells
and Price Waterhouse falls through

ß 1987: Peat Marwick International and KMG
merger forms KPMG
ß 1989: Arthur Andersen/Price Waterhouse
merger collapses in September.
ß Ernst & Young is formed from Ernst & Whinney
and Arthur Young. Touche Ross and Deloitte
Haskins Sells merge to form Deloitte & Touche
ß 1990: The 'Guinness Four' are found guilty of
fraud
ß 1991: Robert Maxwell drowns. BCCI collapses.
Polly Peck and Coloroll scandals lead to Ian
Cadbury's report on good corporate governance
ß 1995: Deloitte & Touche creates Deloitte
Consulting. Barings collapses
ß 1996: Ian and Kevin Maxwell cleared of fraud,
Coopers & Lybrand's audits of Maxwell
companies face JDS investigation. KPMG
produces the first annual report by an
accountancy firm, which reveals senior partner
Colin Sharman earns a total package of
£740,000
ß 1998: Coopers & Lybrand and Price Waterhouse
form PricewaterhouseCoopers.
ß JDS turns the spotlight on Arthur Andersen in
connection with the £50m overstatement of
profits by Wickes

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ß 2000: European Commission announces in July
that it intends to make IAS mandatory from
2005.
ß The IASC completes its three-year restructuring
programme and creates the International
Accounting Standards Board, effective from April
2001.
ß Ernst & Young sells consulting arm to Cap
Gemini
ß 2001: SEC's Enron investigation begins. Big Five
issue a joint statement in December insisting
that self-regulation remains the best policy
following the collapse of Enron
ß 2002: Andersen's Houston office admits to
shredding documents relating to Enron.
WorldCom is accused of $4bn fraud, which drags
Andersen into another scandal. Andersen UK
acquired by Deloitte. SEC implements Sarbanes-
Oxley
ß 2003: Grant Thornton is dragged into ƙ4bn
accounting 'black hole' at Parmalat.
ß Deloitte & Touche rebrands as simply 'Deloitte'.
ß Higgs and Smith reports take an evolutionary
step on from Cadbury and Turnbull
ß 2004: The Financial Reporting Council is
revamped. Inland Revenue merges with
Customs & Excise.

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Who Sets Accounting
Standards in UK?

Who Sets Accounting Standards in USA?


ß The role of the Accounting Standards Board (ASB) is to issue
accounting standards. It is recognized for that purpose under
the Companies Act 1985. It took over the task of setting
accounting standards from the Accounting Standards
Committee (ASC) in 1990.
ß The ASB also collaborates with accounting standard-setters
from other countries and the International Accounting
Standards Board (IASB) both in order to influence the
development of international standards and in order to ensure
that its standards are developed with due regard to
international developments.
ß Accounting standards developed by the ASB are contained in
'Financial Reporting Standards' (FRSs). Soon after it started its
activities, the ASB adopted the standards issued by the ASC,
so that they also fall within the legal definition of accounting
standards. These are designated 'Statements of Standard
Accounting Practice' (SSAPs). Whilst some of the SSAPs have
been superseded by FRSs, some remain in force.
ß Accounting standards apply to all companies, and other kinds
of entities that prepare accounts that are intended to provide
a true and fair view. The Foreword to Accounting Standards
explains the authority, scope and application of accounting
standards.
ü
Who Sets
Accounting
Standards in USA?
The following institutes work together to
create new and amend older standards in
order to establish and maintain a common
language for communicating financial
information:

1-The Financial Accounting Standards Board


(FASB),
2-American Institute of Certified Public
Accountants (AICPA),
3-Securities and Exchange Commission (SEC),
4-International Accounting Standards Board
(IASB)
5-The passage of the Sarbanes-Oxley Act and
the creation of the Public Company
Accounting Oversight Board (PCAOB)
signals many significant forthcoming
changes in GAAP and the current standards
setting process.

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Who Sets Accounting
Standards in EU?
At a joint meeting in September 2002, the International Accounting
Standards Board (IASB) and the Financial Accounting Standards Board
(FASB) agreed to work together to develop high quality, fully compatible
financial reporting standards that could be used for domestic and cross-
border reporting; this co-operative effort is sometimes described as
international convergence of US GAAP and IFRS financial reporting
standards. The IASB-FASB convergence effort involves two kinds of
projects. The first type includes short-term projects that are intended to
remove many of the numerous individual differences between
International Financial Reporting Standards (IFRS, which include
International Accounting Standards (IAS) issued by the predecessor body
to the IASB) and US GAAP. Examples of current and proposed short-term
convergence efforts involve the accounting treatments of no monetary
exchanges, discontinued operations, income taxes and interim reporting.
The second type of convergence project involves longer term joint IASB-
FASB projects and coordinated projects that are intended to provide
major pieces of improved accounting guidance. Examples of the latter
include the joint projects on revenue recognition and purchase method
procedures and the coordinated project on share-based payments. The
goal of the IASB-FASB convergence efforts is to make US GAAP and IFRS
financial reporting standards as nearly as possible the same across
jurisdictions while also improving the overall quality of those standards.

The convergence activities of the IASB and the FASB will of necessity be
directly and indirectly affected by regulatory changes and shifts in
economic conditions throughout the world. The purpose of this paper is
to identify some possible implications for international convergence of a
particularly significant regulatory change, namely, the mandated
adoption of IFRS by listed enterprises in the European Union beginning in
2005. This change will increase the number of enterprises that apply
IFRS to prepare their consolidated reports from several hundred to
several thousand, and will require the use of IFRS by enterprises that
vary considerably in size, ownership structure, capital structure, political
jurisdiction and financial reporting sophistication. The purpose of this
discussion paper is to explore several implications of this major shift in
financial reporting requirements for the overall international
convergence of financial reporting standards and practices.

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IASB Framework

While not a standard, the IASB Framework


for the Preparation and Presentation of
Financial Statements serves as a guide to
resolving accounting issues that are not
addressed directly in a standard. Moreover,
in the absence of a standard or an
interpretation that specifically applies to a
transaction, IAS 8 requires that an entity
must use its judgment in developing and
applying an accounting policy that results in
information that is relevant and reliable. In
making that judgment, IAS 8.11 requires
management to consider the definitions,
recognition criteria and measurement
concepts for assets, liabilities, income, and
expenses in the Framework. The IASB
adopted the Framework in April 2001. It
had originally been adopted by the IASC in
1989. Currently, the IASB is working on a
Project to Revise the Framework.

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What is IFRSsƍ

The term International Financial Reporting


Standards (IFRSs) has both a narrow and a
broad meaning. Narrowly, IFRSs refers to
the new numbered series of
pronouncements that the IASB is issuing, as
distinct from the International Accounting
Standards (IASs) series issued by its
predecessor. More broadly, IFRSs refers to
the entire body of IASB pronouncements,
including standards and interpretations
approved by the IASB and IASs and SIC
interpretations approved by the
predecessor International Accounting
Standards Committee. [On this website,
consistent with IASB policy, we abbreviate
International Financial Reporting Standards
(plural) as IFRSs and International
Accounting Standards (plural) as IASs.]


IFRS

ß International Financial Reporting Standards


Preface to International Financial Reporting
Standards
ß IFRS 1 First-time Adoption of International
Financial Reporting Standards
ß IFRS 2 Share-based Payment
ß IFRS 3 Business Combinations
ß IFRS 4 Insurance Contracts
ß IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
ß IFRS 6 Exploration for and Evaluation of Mineral
Assets
ß IFRS 7 Financial Instruments: Disclosures
ß IFRS 8 Operating Segments Framework for the
Preparation and Presentation of Financial
Statements
ß Framework for the Preparation and Presentation
of Financial Statements


Which are
international accounting
standards(IAS)?
ß IAS 1 Presentation of Financial Statements
ß IAS 2 Inventories IAS 3 Consolidated Financial
Statements
Originally issued 1976, effective 1 Jan 1977.
Superseded in 1989 by IAS 27 and IAS 28.
ß IAS 4 Depreciation Accounting
Withdrawn in 1999, replaced by IAS 16, 22, and 38, all
of which were issued or revised in 1998. IAS 5
Information to Be Disclosed in Financial Statements
Originally issued October 1976, effective 1 January
1997. Superseded by IAS 1 in 1997. IAS 6 Accounting
Responses to Changing Prices
Superseded by IAS 15, which was withdrawn
December 2003 IAS 7 Cash Flow Statements IAS 8
Accounting Policies, Changes in Accounting Estimates
and Errors IAS 9 Accounting for Research and
Development Activities Superseded by IAS 38 effective
1.7.99 IAS 10 Events After the Balance Sheet Date IAS
11 Construction Contracts IAS 12 Income Taxes IAS
13 Presentation of Current Assets and Current
Liabilities
Superseded by IAS 1. IAS 14 Segment Reporting.

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ß Segment Reporting
ß IAS 15 Information Reflecting the Effects of
Changing Prices
Withdrawn December 2003
ß IAS 16 Property, Plant and Equipment
ß IAS 17 Leases
ß IAS 18 Revenue
ß IAS 19 Employee Benefits
ß IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance
ß IAS 21 The Effects of Changes in Foreign
Exchange Rates
ß IAS 22 Business Combinations
Superseded by IFRS 3 effective 31 March
2004.
ß IAS 23 Borrowing Costs
ß IAS 24 Related Party Disclosures

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ß IAS 25 Accounting for Investments
Superseded by IAS 39 and IAS 40 effective
2001.
ß IAS 26 Accounting and Reporting by Retirement
Benefit Plans
ß IAS 27 Consolidated and Separate Financial
Statements IAS 28 Investments in Associates
ß IAS 29 Financial Reporting in Hyperinflationary
Economies
ß IAS 30 Disclosures in the Financial Statements of
Banks and Similar Financial Institutions
Superseded by IFRS 7 effective 2007.
ß IAS 31 Interests In Joint Ventures
ß IAS 32 Financial Instruments: Presentation
Disclosure provisions superseded by IFRS 7
effective 2007.
ß IAS 33 Earnings Per Share
ß IAS 34 Interim Financial Reporting
ß IAS 35 Discontinuing Operations
Superseded by IFRS 5 effective 2005.
ß IAS 36 Impairment of Assets
ß IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
ß IAS 38 Intangible Assets
ß IAS 39 Financial Instruments: Recognition and
Measurement
ß IAS 40 Investment Property
ß IAS 41 Agriculture

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FASB

Since 1973 the FASB has been the


organization designated to establish
authoritative financial accounting
and reporting standards
(Statements of Financial Accounting
Standards, SFAS) for business and
other private-sector entities. Its
mission is to be responsive to the
entire economic community and to
operate in full view of the entire
community through a due-process
system.

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SEC

Under the Securities and Exchange Act of 1934,


the SEC has statutory authority to establish
financial accounting and reporting standards for
publicly-held companies. Recent accounting-
related scandals, such as Enron, prompted the
SEC and Congress to get more directly involved
in the oversight of the standards setting process
and the monitoring of corporate governance. In
August 2002, as part of the Sarbanes-Oxley Act,
the SEC's Public Company Accounting Oversight
Board (PCAOB) was created to crack down on
corporate accounting scandals. Authorized to
conduct inspections and discipline accountants,
the oversight board supplants the self-regulation
of CPAs who audit public companies.


IASB

Formed in January 2001, the ISAB replaced its


predecessor, the International Accounting
Standards Committee (IASC), as the
international standards setting body. Looking
towards greater formalization of international
accounting standards, IASB is structured
similarly to the FASB. It is currently the focus of
the IASB, in collaboration with the FASB and
other accounting focused organizations, to
"converge" standards and develop a single,
universally accepted set of biding international
accounting standards. The IASC, and now IASB,
issue a series of standards known as
International Financial Reporting Standards
(IFRS), formerly called International Accounting
Standards (IAS).

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IASB, IASCF, and IASC
Defined
The International Accounting Standards Board is an
independent, private-sector body that develops and
approves International Financial Reporting
Standards. The IASB operates under the oversight
of the International Accounting Standards
Committee Foundation. The IASB was formed in
2001 to replace the International Accounting
Standards Committee.
IASCF: International Accounting Standards
Committee Foundation
The International Accounting Standards Committee
Foundation is the independent, non-profit
foundation, created in 2000 to oversee the IASB.
Click for more information about the IASCF
Structure.
IASC: International Accounting Standards
Committee
From 1973 until a comprehensive reorganization in
2000, the structure for setting International
Accounting Standards was known as the
International Accounting Standards Committee.
There was no actual "committee" of that name. The
standard-setting board was known as the IASC
Board.
hc
What is IFAC?

The International Federation of Accountants


(IFAC) is an association of national professional
accountancy organizations that represent
accountants employed in public practice,
business and industry, the public sector, and
education, as well as some specialized groups
that interface frequently with the profession.
IFAC works to develop the profession globally
and to harmonies professional standards
worldwide to enable accountants to provide
services of consistently high quality in the public
interest across political borders. Currently, IFAC
has 155 member bodies and associates in 118
countries, representing over 2.5 million
accountants.

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International Accounting
Education Standards
Board

ß The International Accounting Education


Standards Board (IAESB) Ɗ formerly the IFAC
Education Committee Ɗ develops guidance to
improve the standards of accountancy education
around the world and focuses on two key areas:
ß The essential elements of accreditation, which
are education, practical experience and tests of
professional competence; and
ß The nature and extent of continuing professional
education needed by accountants.


International Auditing
and Assurance Standards
Board
International Standards on Auditing (ISAs) are
set by the International Auditing and Assurance
Standards Board (IAASB) -- until 2002 known as
the International Auditing Practices Committee
(IAPC). The ISA on the auditor's report on
financial statements requires that the auditor's
opinion must clearly indicate the financial
reporting framework used to prepare the
financial statements (including the country of
origin of the financial reporting framework when
the framework used is not International
Accounting Standards) and state the auditor's
opinion as to whether the financial statements
give a true and fair view (or are presented fairly,
in all material respects) in accordance with that
financial reporting framework and, where
appropriate, whether the financial statements
comply with statutory requirements.


ß Originally, the AICPA, the memberships association for
CPAs, was the body responsible for defining accounting
standards.
ß 1939-1959 - issues Accounting Research Bulletins (ARB)
ß 1959-1973 - Accounting Principles Board (APB) issues
series of opinions
ß 1973 - Accounting Principles Board dissolved and
standards setting responsibility is transferred to FASB. The
AICPA continues its role as authoritative body for
establishing auditing standards (Statement of Auditing
Standards, SAS)
ß In 1973, the AICPA shifted its focus to supporting it
membership and constituency and bringing to the
attention of the FASB and SEC issues that it determined
important to the accounting and auditing professional
communities. While the AICPA continued issuing auditing
standards, this responsibility is now being assumed by the
Public Company Accounting Oversight Board (PCAOB), a
body created by the Sarbanes-Oxley Act of 2002. The
Oversight Board's recent authorization to become directly
involved with issues auditing standards could have
significant impact on the current standards setting
process.
ß AICPA has given a thumbs Ɗ up to a Securities and
Exchange Commission plan that would allow U.S.
corporations to abandon generally accepted accounting
principles and report their financial results using
international accounting standards.
This concept release was issued on the heels of a separate
SEC proposal that would permit foreign companies filing
with the SEC to use IFRS without reconciling to U.S GAAP.

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Accounting
The House of GAAP
ß The role that accounting standards play in establishing the
rules for disclosing both public and private financial
reporting assumes levels of authority of "more to less"
which guide reliance on and determines the weight of the
standards. Understanding this hierarchy is paramount to
grasping the meaning of "generally accepted accounting
principles" (GAAP), and the many supporting documents.
ß The concept of the "house of GAAP" was introduced in a
1984 article from the Journal of Accountancy. The author
describes and defines the vast universe of accounting
standards as a hierarchy structured along the lines of the
floor plan of a house. "Like any other structure, the house
of GAAP rests on a foundation, in this case a foundation of
the basic concepts and broad principles that underlie
financial reporting, without which, like a house of cards,
the house of GAAP would tumble."
ß In 199I the AICPA's Auditing Standards Board remodeled
the house of GAAP by changing some of the levels of
authority of certain accounting pronouncements and
distinguishing between the standards defining state and
local government entities, established by the Government
Accounting Standards Board (GASB) and those for all
others, falling under the FASB's jurisdiction.

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PCAOB (USA)

ß Formed in 2002 to oversee the audit of public


companies that are subject to the securities laws
in the preparation of informative, fair and
independent audit reports. The Board's authority
includes:
ß ..Registering public accounting firms that
prepare audit reports for issuers
..Conducting inspections of registered public
accounting firms
..Conducting investigations and disciplinary
proceedings and impose appropriate sanctions
..Enforcing compliance by registered public
accounting firms relating to the preparation and
issuance of audit reports and the obligations and
liabilities of accountants
..Establishing auditing, quality control, ethics,
independence, and other standards relating to
the preparation of audit reports for issuers

h[
POB (UK)
ß The Professional Oversight Board contributes to
the achievement of the Financial Reporting
Council's own fundamental aim of supporting
investor, market and public confidence in the
financial and governance stewardship of listed
and other entities by providing:
ß Independent oversight of the regulation of the
auditing profession by the recognized
supervisory and qualifying bodies
ß Monitoring of the quality of the auditing function
in relation to economically significant entities
ß Independent oversight of the regulation of the
accountancy profession by the professional
accountancy bodies
ß Independent oversight of the regulation of the
actuarial profession by the professional actuarial
bodies and promoting high quality actuarial
work.
ß The Professional Oversight Board for
Accountancy has changed its name as of 5 May
2006 to the Professional Oversight Board. This
reflects the extension of its board's remit to
include oversight of the regulation of the
actuarial profession.
hX
AADB (UK)
ß The Accountancy & Actuarial Discipline Board ("AADB") is the
independent, investigative and disciplinary body for
accountants and actuaries in the UK. It has up to eleven
members.
ß The AADB is responsible for operating and administering an
independent disciplinary scheme (the Accountancy Scheme)
covering members of the following accountants' professional
bodies:- the Association of Chartered Certified Accountants,
the Chartered Institute of Management Accountants, the
Chartered Institute of Public Finance and Accountancy and the
Institute of Chartered Accountants in England and Wales; The
Institute of Chartered Accountants of Ireland and the Institute
of Chartered Accountants of Scotland.
ß The AADB will operate & administer a separate independent
disciplinary scheme (the Actuarial Scheme) covering members
of the Faculty & Institute of Actuaries, which will be adopted
as soon as necessary formalities have been completed.
ß The focus of the AADB is on cases of public interest; other
cases will continue to be dealt with by the individual
accountancy body of the member concerned or by the Faculty
& Institute of Actuaries. The normal channel of reference to
the AADB for 'public interest' cases will be the accountancy or
actuarial body primarily concerned. However, the AADB also
has the power to call in cases whether or not they have been
referred to it by an accountancy body. The AADB will also have
the power to call in actuarial cases.
ß The AADB was formerly known as the Accountancy
Investigation & Discipline Board (AIDB). It changed its name
to the AADB on 16/08/2007.


GAAS

Generally Accepted Auditing Standards (GAAS).


Established by the AICPA, these standards
govern the conduct of external audits by public
accountants. The Statement of Auditing
Standards (SAS) provide guidelines for the
auditors' field work and financial reporting. They
frame the format and contents of the Auditor's
Report or Opinion, which is the formal
expression of their examination of a company's
financial statements. In May 2003, the PCAOB
was given the official go-ahead to assume
responsibility for establishing GAAS. It remains
to be seen exactly how the PCAOB's new role
will play out, its impact on the AICPA's
responsibilities, and the form in which the two
entities will co-exist.

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GAS

Governmental Accounting Standards (GAS).


While GAAP defines the accounting for public
and private business entities, there also exist
standards specific to governmental
organizations. Organized in 1984 to establish
standards of financial accounting and reporting
for state and local governmental entities, the
Governmental Accounting Standards Board
(GASB), began issues these standards to guide
the preparation of external reports for these
types of organizations.

±c
Sarbanes-Oxley Act
of 2002
ß The S&O Act was passed as a direct result of a
series of major corporate financial accounting
scandals. This legislation directly impacts
accountants and attorneys, officers and owners
of publicly traded companies, as well as brokers,
dealers, investment bankers, and financial
analysts. The Act, PL 107-204, established the
Public Company Accounting Oversight Board
(PCAOB), responsible for registering,
monitoring, investigating, and disciplining the
activities of public accounting firms, including
establishing the guidelines for the conduct of
several key auditing procedures no delineating
the types of services that CPAs are prohibited
from providing to audit clients. The Act
additionally sets forth a number of requirements
for corporations, their officers and Board
members, by redefining working and reporting
relationships with their internal audit committee
members and public accounting firms, creating
changes in internal controls procedures and
enhancing financial disclosures.
±h
What is Corporate
Governance?

Good corporate governance is essential to the effective


operation of a free market, which enables wealth creation and
freedom from poverty. The main point of Corporate
governance same Sarbox ,EU & UK regulation requires CEOs
and CFOs to sign off on their companies' internal controls

ß A framework which should ensure that timely and accurate


disclosure is made on all matters regarding the corporation,
including the financial, performance, ownership, and
governance of the company. It relies on mechanisms and rules
which ensure the protection of all interest groups and help to
build and consolidate the reputation and the market value of
the company.
ß The mechanisms of corporate governance apply to every level
of authority in the corporation - Board of Directors, Audit
Committee, Compensation Committees and others. The Board
of Directors must have strong independent representation.
The Audit Committee provides the main point of
communication between the external auditors and the
shareholders.
ß Auditors also play a primary role in corporate governance. An
important aspect of their work involves independence from
any pressure, from either management or shareholders. The
terms of engagement of their work, and constant contact with
both operating management, boards of directors and related
committees will guarantee the independence and reliability of
financial statements
±±
Timeline of Corporate
Governance
ß The Cad bury Report (1992), UK
ß Green bury Report (1995) , UK
ß Hampel ReportV(1998), UK
ß The Smith Report (2003), UK
ß The Higgs Review (2003), UK
ß The Company Law White Paper
(2002)
ß Sarbanes- Oxley Act 2002 USA
ß The Tyson report on the
Recruitment
ß Development of VNon-ExecutiveV
Directors (2003)
ß Company Law andVCorporateV
Governance (2003)

±Î
The key aspects of
corporate governance in
the UK
ß A single board collectively responsible for the
success of the company.
ß Checks and balances:
ß Separate Chief Executive and Chairman.
ß A balance of executive and independent non-
executive directors.
ß Strong, independent audit and remuneration
committees.
ß Annual evaluation by the board of its
performance.
ß Emphasis on objectivity of directors in the
interests of the company.
ß Transparency on appointments and
remuneration.
ß Effective rights for shareholders.
ß A Code of good practice based on extensive
consultation with
ß practitioners, and operating on the basis of the
'comply or explain'
ß principle.

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Audit Approach in Iran

ß Balance sheet approach (1900-


1971)
ß System approach (1971- 1989)
ß Risk approach (1990- 2007)

±
Chronology of Events in
the History of the Iranian
Accounting Profession (1)
Year Event

1932 Appointment of Inspector to examine the accounts and


(enactment of business documents of companies
law)
1947 Use of public accountants services in matters of tax
(the tax law amended) documentation was permitted

1949, 1956 Acceptance of the results of the ƏAccountant Under OathƐ ƍs


(income tax law examinations concerning the accounts or balance sheets of
enacted) businessmen and companies for the purpose of tax
assessment

1961 Approval of operating regulations for the use of ƏAccountants


Under Oath)
1962 Formation of the first association of ƏAccountant Under OathƐ
1963 Approval of the articles of association of the Center
ƏAccountant Under OathƐ
1964 Foundation of the Iranian Accounting Association
1966 Formation of the ƏCenter of Public AccountantsƐ permitted
(enactment of the law
of direct taxes)

1967 Approval of regulations governing the selection of public


accountants
1968 Requirement for the use of public accountantƍs report
(amendment of
business law)
1970 Approval of operational regulations governing the
appointment of persons licensed for the inspection of
corporation- type companies
1971 Foundation of the Audit Firm, Inc.
1972 Use of public accountantƍs report is made a
requirement/approval of the Articles of Association of the
Center of Public Accountants
±[
Chronology of Events in
the History of the Iranian
Accounting Profession (2)
1980 Foundation of the Audit Institute Under the Organization of National Industries and
the Planning and Budget Organization

1983 Enactment of the law decreeing the Establishment of the Iranian Audit organization

1987 Approval of the Articles of Association of the Audit Organization

Enactment of the law decreeing the Establishment of the Iranian Audit Organization
1993

1995 Approval of the regulations governing the determination of the public accountantƍs
qualifications

1999 Formulation of the Iranian Association of Certified Public Accountants Articles of


Association

2000 Formulation of the regulations governing the use of the public accountantƍs services
and reports

2000 Formulation of guide for elections to the supreme council of the Iranian Association
of Certified Public Accountants

2001 Announcement of the first group of public accountants and the convening of the first
general meeting of the Iranian Association of Certified Public Accountants

2004 The second electing of high council of Iranian Association of Certified Public
Accountants (IACPA)

2007 The third electing of high council of Iranian Association of Certified Public
Accountants (IACPA)

±X
In the Name of God
The Law of Using the Professional Services of the
Qualified Accountants as Certified Public
Accountants
(Enacted by the Parliament on 1993)
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USE OF Certified Public
ACCOUNTANTS AND
ACCEPTANCE OF RETURNS BY
TAX ASSESSORS (1)
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USE OF OFFICIAL (CHARTERED)
ACCOUNTANTS AND
ACCEPTANCE OF RETURNS BY
TAX ASSESSORS(2)
E.Non government public entities, foundations,
companies, and organizations and the entities affiliated
thereto.
F.Other natural persons and legal entities whose
aggregate turn-over (sale of commodities or services
and aggregate income in respect of contractors made
and signed by them) shall not exceed eight billion rails
or whose total assets shall not exceed sixteen billion
Rails.
According to Article 2 of the above Executive Regulation, the
financial statements of the persons and entities mentioned in
the above sub-clauses being devoid of a confirmatory audit
report by firms of auditors being members of IACPA or official
accountants acceptable to IACPA may not be acceptable to the
ministries, government organizations and companies, banks
and insurance companies, non bank credit institutes, the
Organization of Stock and Negotiable Instruments Exchange
and non government public foundations and institutes. No such
statements may be used as evidence in favour of the said
persons and entities.
According to Article 272 of the Direct Taxation Act as Amended
on 16.02.2002 by the Islamic Consultative Assembly, those
who are in charge of accounting works or carry out the duties
of statutory inspectors of the taxpayers mentioned in the above
sub-clauses shall be under the obligation to submit an audit
report on the activities of the said taxpayers and submit same
to the taxpayer for submission to the State tax office
concerned in case of a request by the taxpayers in this regard.
In such case, the State tax office concerned shall be bound to
accept the said audit report without examination and issue a
tax assessment sheet based on the said report.
Acceptance of the audit report by the State tax office
concerned shall be subject to submission of a tax audit report
drawn up by the same auditor who prepared the above audit
report on the basis of auditing norms and standards together
with tax return or within a maximum period of three (3) Îc
months after the date of expiry of the respite provided for
submission of returns to the State tax office concerned.
Iranian National
Accounting Standards
No Title

1 Presentation of financial statements

2 Cash flow statements

3 Revenue

4 Accounting for contingencies

5 Events after the balance sheet date

6 Reporting financial performance

7 Research and development cost

8 Inventories

9 Construction contracts

10 Accounting for government grants

11 Tangible fixed assets

12 Related party disclosures

13 Borrowing costs

14 Presentation of current assets & current liabilities

15 Accounting for investments

16 Foreign Exchange Translation

17 Intangible Assets

18 Consolidated financial statements and accounting for investments in subsidiaries

19 Business combinations

20 Accounting for investments in associates

21 Leases

22 Interim financial reporting

23 Financial reporting of interests in Joint Ventures

24 Financial reporting by development stage enterprises

25 Segment reporting

26 Agriculture

27 Retirement benefit plan


Îh
28 Real state & construction
What is comparative table
between Iran & IAS Auditing
standards
No Title Compatible with

--- Introductory Matters Preface

20 Objectives and General Principle Governing Audit of Financial Statements ISA 200

21 Terms of Audit Engagements ISA 210

22 Quality Control for Audit Work ISA 220

23 Documentation ISA 230

24 Fraud and Error ISA 240

25 Consideration of Laws and Regulations in an Audit of financial statements ISA 250

30 Planning ISA 300

31 Knowledge of Business ISA 310

32 Audit Materiality ISA 320

40 Risk Assessments and Internet Control ISA 400

50 Audit Evidence ISA 500

51 Initial Engagement- Opening Balances ISA 510

52 Analytical Procedures ISA 520

53 Audit Sampling ISA 530

54 Audit of Accounting Estimates ISA 540

55 Related Parties ISA 550

56 Subsequent Events ISA 560

57 Going Concern ISA 570

58 Management Representations ISA 580

60 Using the work of another auditor ISA 600

61 Considering the work of internal auditing ISA 610

62 Using the work of and expert ISA 620

70 The auditor report on financial statements IAS 700*

80 The auditorƍs report on special purpose audit engagement ISA 800

91 Engagements to review financial statements ISA 910

92 Engagements to perform agreed-upon-procedures ISA 920

93 Engagements to compile financial information ISA 930

105 Particular considerations in the audit of small businesses ISA 1005

107 Communications with management ISA 1007 α


*Except for legal requirements
Iran, IAS, UK, and US GAAP Comparison:
Consolidated Financial Statements Iranian
Accounting Standards comparison with
International Accounting Standards
Iranian Accounting Standards International Accounting Standards (IAS)

Standard No. Standard Title Standard No. Standard Title

1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements

2 Cash Flow Statement IAS 7, except for (a) Cash Flow Statement

3 Revenue IAS 18 Revenue

4 Accounting for Contingencies IAS 37 Provisions, Contingent Liabilities and Contingent assets

5 Events After the Balance Sheet Date IAS 10 Events After the Balance Sheet Date

6 Reporting Financial Performance IAS 8 Net Profit or Loss for the Period, Fundamental Errors and
Changes In Accounting Policy

7 Accounting for Research and Development costs IAS 38 Intangible Assets

8 Accounting for Inventories IAS 2 Inventories

9 Accounting for Long-term Construction Contracts IAS 11 Construction Contracts

10 Accounting for Government Grants IAS 20 except for (b) Accounting for Government Grant and Disclosure of
Government Assistance

11 Accounting for Fixed Tangible Assets IAS 16 Property, Plant and Equipment

12 Related Party Disclosures IAS 24 Related Party Disclosures

13 Accounting for Borrowing Costs IAS 23 Borrowing Costs

14 Presentation of Current Assets and Current Liabilities IAS 1 Presentation of Financial Statements

15 Accounting for Investments IAS 25 Accounting for Investments

16 Foreign Currency Exchange IAS 21 except for (c ) The Effects of Changes in Foreign Exchange

17 Accounting for Intangible Assets IAS 38 Intangible Assets

18 Consolidated Financial Statement and Accounting for Investments in IAS 27 except for (d) Consolidated Financial Statement and Accounting for
Subsidiaries Investments in Subsidiaries

19 Business Combination IAS 22 Business Combination

20 Accounting for Investments in Associates IAS 28 except for (e) Accounting for Investments in Associates

21 Accounting for Leases IAS 17 Leases

22 Interim Financial Reporting IAS 34 Interim Financial Reporting

23 Accounting for Joint Ventures IAS 31 Financial Reporting of Interest in Joint Ventures

24 Financial Reporting of Development- stage Enterprises --- ---

25 Segment Reporting IAS 1 except for (f) Segment Reporting

26 Agriculture IAS 41 Agriculture

27 Retirement Benefit plan IAS 26 Accounting and reporting by retirement benefit plan

28 Real Estate & Construction IAS 40 Investing property

ÎÎ
Auditing Project in progress
No Title Stage Based on
10 Assurance Engagements Study and ISA 100
preparation
12 Framework of Auditing Standards Study and ISA 120
preparation
24 The Auditorƍs responsibility to consider Revised, ISA 240
fraud and error in an audit of financial Exposure draft
statements
40-1 Auditing in a computer information Study and ISA 401
systems environment preparation
40-2 Auditing considerations relating to entities Study and ISA 402
using service organizations preparation
50-5 External confirmation Exposure draft ISA 505
53 Audit sampling and other selective testing Revised, ISA 530
procedures exposure draft
57 Going concern Revised, ISA 570
exposure draft
70 Auditorƍs report on financial statements Revision ISA 700
71 Comparatives Study and ISA 710
preparation
72 Other Information in documents Study and ISA 720
containing audited financial statements preparation
81 The examination of prospective financial Study and ISA 810
information preparation
101 The consideration of Environmental Study and ISA 1010
Matters in the audit of financial preparation
statements
-- Glossary of Audit Terms Study and ISA
preparation Glossary
Î
Iran, IAS, UK and US GAAP
Comparison: Consolidated Financial Statements

Subject IAS UK US

Accompanying Parentƍs Separate Mandatory Not required Comparable to Comparable to


Financial Statements with IAS IAS
consolidated financial
statements

The main criterion of subsidiary Control Comparable Comparable to Control through


definition to Iran Iran majority of
voting shares
Exempt subsidiaries Subsidiaries Comparable Subsidiaries Comparable to
under to Iran with dissimilar Iran
temporary activities are
control or also excluded
server long
term
restriction

Measurement of minority Based on Based on Based on fair Comparable to


interest in net assets carrying carrying values Iran
amounts amounts or
fair values

Presentation of minority Should be Not specified Not specified Should be


interests in balance sheet included in presented
equity between
liabilities and
equity

Elimination of intra-group Complete Comparable Comparable to Comparable to


balances and transactions elimination to Iran Iran Iran

Assigning unrealized gains and Not specified Comparable Mandatory Allowable


losses to minority to Iran

Goodwill amortization Amortized Comparable Comparable to Not amortized


to Iran Iran

Allowable difference between Three Comparable Comparable to Comparable to


reporting dates months to Iran Iran Iran

Î
Accounting Standards -
Due Process (1)

    
    
   

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Accounting Standards -
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Accounting Standards -
Due Process (2)

Îü
Comparison of Iranian
Accounting Standards with
IFRSs
  
      
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ß Note C (NAS # 15 and IAS # 32 & 39)
With the exception of the following requirement application of NAS No. 15
results into compliance with IAS No. 32, 39:
The most current financial instruments in Iran are shares and the instruments
like options, futures and forward hardly exist in Iran. Accounting Standard 15,
Accounting for Investments, permits using either the fair value or cost for
measuring current and long-term investments.
ß Note D (NAS # 16 and IAS # 21)
With the exception of the following requirements, application of NAS No. 16
results into compliance with IAS No. 21:
ß (a) Exchange differences arising on foreign currency assets and liabilities
of government entities should be, according to substances of the Article
136 of the General Inspection Act approved in Sharivar 1366 (August
1987), included in the account of translation reserve of foreign currency
assets and liabilities and classified as equity. If at the end of the financial
period, the reserve account balance is debit, the amount will be included
in loss and gain of the period. Also, net exchange differences which, in the
order mentioned above, result in a change in exchange reserve during the
period, should be included in comprehensive income statement of the
period.
ß (b) Exchange differences arising on a monetary item that, in substance,
forms part of an entityƍs net investment in a foreign entity should be
classified as equity in the entityƍs balance sheet and be presented in
comprehensive income statement until the disposal of the net investment.
The differences, at the time of investment disposal, should be taken into
account of accumulated loss and gain.
ß (c) Exchange differences arising on a foreign currency liability accounted
for as hedge of an entityƍs net investment in a foreign entity should be
classified as equity in the entityƍs balance sheet and be included in
comprehensive income statement until the disposal of net investment. The
differences, at the time of net investment disposal should be taken into
account of accumulated loss and gain.
ß (d) On the disposal of a foreign entity, the cumulative amount of the
exchange differences on foreign currency items which relate to that
foreign entity and which have been recognized as equity, should be taken
in to account of accumulated loss and gain on disposal.
ß Note E (NAS # 18 and IAS # 27)
With the exception of the requirements relating to the proper accounting
treatment of the debit balance of the minority interests account, application of
NAS No. 18 results into compliance with IAS No. 27:
Profits or losses arising in a subsidiary should be apportioned between
controlling and minority interests in proportion to their respective interests held
over the period. When losses attributable to the minority interest result in debit
balance, the controlling interest should be adjusted to the extent that it has any
commercial or legal obligations to provide finance that may not be recoverable
in respect of the accumulated losses attributable to the minority interest.


Note F (NAS # 20 and IAS # 28)
With the exception of the following requirements, application
of NAS No. 20 results into compliance with IAS No. 28:
(a) An investment in an associate that is included in the
separate financial statements of an investor that issues
consolidated financial statements should be carried at
cost after deduction of perpetual impairment provision or
revaluation amount as an allowed alternative treatment,
conforming to the investorƍs accounting policies on long-
term investments, according to NAS No.15, Accounting for
Investments.
(b) When the investor does not issue consolidated financial
statements, the amounts related to the associate should
be presented under equity method as following:
(a) preparation and presentation of total financial
statements, or
(b) disclosure of supplementary information in
explanatory notes of the investorƍs financial
statements.
Note G (NAS # 24)
There currently exists no specific International Accounting
Standard relating to this subject.
Note H (NAS # 25 and IAS # 14)
With the exception of the following requirements, application
of NAS No. 25, results into compliance with IAS No. 14:
(a) According to IAS No. 14, the dominant source and nature
of an entityƍs risks and returns should govern whether its
primary reporting format will be business segments or
geographical segments. Detailed information is normally
presented in the primary format and the secondary format
contains condensed information. NAS No.25 has excluded
the application of the primary and secondary format in
order to narrow the extent of personal judgments and
unnecessary technical complexity.
(b) According to IAS No. 14, segment revenue should include
an entityƍs share of profits and losses of associates, joint
ventures, or other investments accounted for under the
equity method. Such requirements do not exist in NAS No.
25.


Note I (NAS # 26 and IAS # 41)
With the exception of the following
requirements, application of NAS No. 26 results
into compliance with IAS No. 41, Agriculture:
(a) According to IAS No. 41, Agriculture, all
biological assets should be measured at fair
value less costs estimated on disposal, unless
the fair value is not reliably determinable.
However, according to this standard, with a
reference to environmental conditions of the
country and lack of an active market for
biological productive assets, these assets
should be measured at cost, according to
NAS No. 11, Accounting for Tangible Fixed
Assets.
(b) According to IAS No. 41, Agriculture, a
government grant related to biological
productive assets recognized at fair value
less costs estimated on disposal, is
recognized as income (if not conditioned)
when it is collectible and (if conditioned)
when the conditions are satisfied. However,
according to this standard, all government
grants related to biological productive assets
are recognized according to NAS No. 10,
Government Grants.


Iran Accounting
Standards - Projects in
Process
ß Amendments of Accounting
Standards according to the
changes in International
Accounting Standards.
ß Standard Interpretation.
ß Impairment of Assets.
ß Financial Instruments.
ß Accounting for Oil and Gas.
ß Amendment of the Financial
Reporting Framework.
ß Entities going into liquidation.


Iran Auditing Standards -
Projects in Process

ß Knowledge of the Business and Its


Environment and Risk Assessments of
Material Alternations (315)
ß Consideration of Environmental Matters in
the Audit of Financial Statements (1010)
ß Audit Considerations relating to Entities
Using Service Organizations (402)
ß Conceptual Framework
ß Objective and General Principles Governing
an Audit of Financial Statements (200)
ß Audit Procedures for Risks Estimated (330)

[
Auditing standard
approved 

 
l
External Confirmations 5-50

Preface to International Auditing Standards 10


Objective and General Principles Governing an Audit of Financial Statements 20

Audit Engagements 21

Quality Control for Audit Work 22

Documentation 23
The Auditorƍs Responsibility to Consider Fraud in an Audit of Financial Statements 24
Consideration of Laws and Regulations in an Audit of Financial Statements 25
Planning 30

Knowledge of the Business 31

Audit Materiality 32

Risk Assessments and Internal Control 40

Audit Evidence 50

Initial Engagements - Opening Balances 51

Analytical Procedures 52

Audit Sampling and other Selective Testing Procedures 53

Audit of Accounting Estimates 54

Related Parties 55

Events after the Balance Sheet Date 56

Going Concern 57

Management Representations 58

Using the work of Another Auditor 60

Considering the work of Internal Auditing 61

Using the work of an Expert 62

The Independent Auditorƍs Report 70

Comparatives 71
Other Information Included in the Reports Containing Audited Financial Statements 72
The Auditorƍs Report on Special Purpose Audit 80

Engagements to Review Financial Statements 91


Engagements to Perform AgreedƊUpon Procedures Regarding Financial Information 92
Engagements to Compile Financial Information 93

The Audit of Small Entities 105

Communications with Management 107

Examination of Prospective Financial Information 340

X
ß What Will the Next 15 Years Bring?
The single greatest change agent facing
accounting in the next 15 years is technology.
Emerging trends in technology will
fundamentally alter the way in which both
business and accounting will be conducted. The
measurement and reporting of business
transactions, long considered a core competency
of accountants, will be challenged by the
information economy, forcing accountants to
justify their role in business. The foundations of
the profession will be eroded by the opposing
demands of emerging services and established
values.


ß The prospects for accountants have never looked
better: There is a growing demand for the
provision and analysis of information in the new
economy. But the value chain that accountants
used to dominate, that between the firm and the
long-term shareholder, is now on the margins of
a wider environment marked by day traders,
continuous media coverage, and rapid equity
shifts. Accountants have yet to come up with a
strategy, much less products, for how they will
take a larger share of this marketplace. While
continuous reporting and assurance are
promising, there is no guarantee that the market
will grant accountants a monopoly on these
products; their legally protected role as auditors
might actually be an artificial barrier to tackling
competitive threats head on. It makes little
difference to the emerging global economy
whether its information processing needs are
carried out by professionals called "accountants"
or someone else. But that choice will clearly
determine the future of the profession.


Sources: Accounting in 2015 CPA Journal
By Michael Alles, Alexander Kogan, and
Miklos A. Vasarhelyi

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