Before we delve into the details, it’s important to understand the difference between the Standards-setting bodies and the regulatory bodies.
The standard-setting bodies are private sector organizations, consisting of experienced accountants, auditors, and academicians, who are responsible for setting the financial reporting standards. However, they don’t have the power to enforce these standards. It’s the regulatory authorities, who have the legal authority to enforce these reporting requirements.
The two key standard-setting bodies are International Accounting Standards Board (IASB), and Financial Accounting Standards Board (FASB).
The FASB establishes the Generally Accepted Accounting Principles in the United States (US GAAP), while the IASB establishes International Financial Reporting Standards (IFRS) outside the US.
Apart from these, many countries have their own reporting standards. Across the world, many countries are moving towards the adoption of IFRS. For example, countries like India have already taken steps towards the adoption of IFRS. Even FASB is aggressively working towards converging the US GAAP with the IFRS. Such convergence and the adoption of a global standard offers many benefits as more and more businesses now have global operations.
It is important to note that some of the older standards of IASB are known as International Accounting Standards (IAS).
The IFRS Foundation, as a part of IASB, has the following principle objectives:
- To develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards (IFRSs) through its standard-setting body, the IASB;
- To promote the use and rigorous application of those standards;
- To take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and
- To bring about convergence of national accounting standards and IFRSs to high quality solutions.
With respect to the capital markets, in the US the key regulatory authority is the Securities Exchange Commission (SEC), and in the UK it is Financial Services Authority (FSA).
The SEC establishes rules and regulations that govern any company issuing securities or involved in capital markets in the US. The SEC provides the filing requirements for the publicly traded companies in the United States. These company filings, which are available on the SECs website are the most important source of information for financial analysts.
International Organization of Securities Commissions (IOSCO)
IOSCO is a multilateral organization of securities regulators. Securities regulators from across the world are members of the IOSCO. Together, its members regulate over 95% of the world’s securities markets. SEC and FSA are also members of IOSCO. IOSCO works with the goal of achieving uniform financial regulations across countries and has three key objectives:
- Protecting investors
- Ensuring that markets are fair, efficient and transparent
- Reducing systemic risk