Establishment of the International Accounting Standards Committee (IASC)
The development of international accounting standards formally began with the establishment of the International Accounting Standards Committee (IASC) in June 1973. The IASC was formed by professional accountancy bodies representing ten countries. Its main role was to develop and publish accounting standards that could support greater uniformity in financial reporting.
The IASC developed and issued International Accounting Standards (IAS), interpretations, and a conceptual framework. These standards and principles were used as important references by many national accounting standard-setting bodies while developing their own national accounting standards.
Formation of the International Accounting Standards Board (IASB)
In 2001, the International Accounting Standards Board (IASB) replaced the IASC. The IASB was established with the objective of promoting the convergence of national accounting standards through the development of global accounting standards.
At its first meeting, the IASB adopted the existing International Accounting Standards (IAS) and the standards issued by the Standing Interpretations Committee (SIC). Therefore, the accounting standards developed before the formation of the IASB continued to be recognized.
The IASB continued the process of developing international accounting standards. However, the new standards issued by the IASB were called International Financial Reporting Standards (IFRS). Thus, existing standards continued to be known as IAS, while the new standards developed by the IASB were issued as IFRS.
Adoption of IFRS by the European Union
An important development in the global adoption of IFRS occurred in 2002, when the European Union (EU) decided that IFRS would be applicable to the consolidated financial statements of companies listed in the EU.
The decision became effective from 1 January 2005. As a result, EU-listed companies were required to prepare their consolidated accounts according to IFRS. This decision introduced IFRS to a large number of major companies and significantly increased the use of international accounting standards.
Within the European Union, the final legal interpretation of IFRS is subject to the authority of the European Court of Justice (ECJ), which works in cooperation with the national courts of EU member countries.
Following the adoption of IFRS by the European Union, several other countries also moved towards the adoption and use of international financial reporting standards.
Formation of the International Sustainability Standards Board (ISSB)
In 2021, during COP26 of the United Nations Framework Convention on Climate Change (UNFCCC) held in Glasgow, the IFRS Foundation announced the establishment of the International Sustainability Standards Board (ISSB).
The formation of the ISSB marked an important development in the international standard-setting framework by introducing a dedicated international board for sustainability-related standards.
Key Exam Points
The International Accounting Standards Committee (IASC) was established in June 1973 by accountancy bodies representing ten countries. It developed International Accounting Standards (IAS), interpretations, and a conceptual framework.
In 2001, the International Accounting Standards Board (IASB) replaced the IASC. The IASB adopted the existing IAS and Standing Interpretations Committee (SIC) standards and started issuing new standards known as International Financial Reporting Standards (IFRS).
The European Union decided in 2002 to apply IFRS to the consolidated accounts of EU-listed companies from 1 January 2005.
In 2021, the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB) during COP26 in Glasgow.