History of Accounting Standards

By:Gholamhossein Davani IACPA,IIA,CFE,EAA,IMA,AIA

Member of High Council of Iranian Association of Certified Public Accountants (IACPA)

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 12th World Congress of Accounting Historians . 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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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. 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. 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. In addition to accounting, accountancy has emerged as a profession, alongside the professions of medicine and law.
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Who have responsibility for Accounting Standards

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

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.
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Accountancy Age timeline: 1969 - 2004

1969: Accountancy Age is launched. DTI inquiry into Robert Maxwell's Pergamon Press causes its takeover by LeaseCo to fall apart. Touche, Ross, Bailey & Smart becomes Touche Ross 1970: ICAEW's proposal to merge with ICAS, ICAI and other bodies fails 1973: Henry Benson appointed first chairman of the International Accounting Standards Committee 1974: The Consultative Committee of Accountancy Bodies (CCAB) is formed 1977: IFAC is founded 1979: Ernst and Whinney is formed 1980: ACCA's Vera di Palma becomes the first female president of an international accounting body 1984: Merger of Deloitte, Haskins & Sells and Price Waterhouse falls through

1987: Peat Marwick International and KMG merger forms KPMG 1989: Arthur Andersen/Price Waterhouse merger collapses in September. Ernst & Young is formed from Ernst & Whinney and Arthur Young. Touche Ross and Deloitte Haskins Sells merge to form Deloitte & Touche 1990: The 'Guinness Four' are found guilty of fraud 1991: Robert Maxwell drowns. BCCI collapses. Polly Peck and Coloroll scandals lead to Ian Cadbury's report on good corporate governance 1995: Deloitte & Touche creates Deloitte Consulting. Barings collapses 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 1998: Coopers & Lybrand and Price Waterhouse form PricewaterhouseCoopers. JDS turns the spotlight on Arthur Andersen in connection with the 50m overstatement of profits by Wickes
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2000: European Commission announces in July that it intends to make IAS mandatory from 2005. The IASC completes its three-year restructuring programme and creates the International Accounting Standards Board, effective from April 2001. Ernst & Young sells consulting arm to Cap Gemini 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 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 SarbanesOxley 2003: Grant Thornton is dragged into 4bn accounting 'black hole' at Parmalat. Deloitte & Touche rebrands as simply 'Deloitte'. Higgs and Smith reports take an evolutionary step on from Cadbury and Turnbull 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?

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. 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. 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. 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. 9

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 crossborder 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 IASBFASB 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 IFRSs
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.]

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IFRS

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

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Which are international accounting standards(IAS)?

IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 3 Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977. Superseded in 1989 by IAS 27 and IAS 28. 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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 Segment Reporting IAS 15 Information Reflecting the Effects of Changing Prices Withdrawn December 2003 IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 22 Business Combinations Superseded by IFRS 3 effective 31 March 2004. IAS 23 Borrowing Costs IAS 24 Related Party Disclosures

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

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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.

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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

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

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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.

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Originally, the AICPA, the memberships association for CPAs, was the body responsible for defining accounting standards. 1939-1959 - issues Accounting Research Bulletins (ARB) 1959-1973 - Accounting Principles Board (APB) issues series of opinions 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) 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. AICPA has given a thumbs 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

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. 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." 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)

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: ..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

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POB (UK)
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: Independent oversight of the regulation of the auditing profession by the recognized supervisory and qualifying bodies Monitoring of the quality of the auditing function in relation to economically significant entities Independent oversight of the regulation of the accountancy profession by the professional accountancy bodies Independent oversight of the regulation of the actuarial profession by the professional actuarial bodies and promoting high quality actuarial work. 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.

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AADB (UK)
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. 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. 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. 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. The AADB was formerly known as the Accountancy Investigation & Discipline Board (AIDB). It changed its name to the AADB on 16/08/2007. 29

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.

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Sarbanes-Oxley Act of 2002

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.
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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 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. 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. 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 33

Timeline of Corporate Governance

The Cad bury Report (1992), UK Green bury Report (1995) , UK Hampel Report (1998), UK The Smith Report (2003), UK The Higgs Review (2003), UK The Company Law White Paper (2002) Sarbanes- Oxley Act 2002 USA The Tyson report on the Recruitment Development of Non-Executive Directors (2003) Company Law and Corporate Governance (2003)

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The key aspects of corporate governance in the UK

A single board collectively responsible for the success of the company. Checks and balances: Separate Chief Executive and Chairman. A balance of executive and independent nonexecutive directors. Strong, independent audit and remuneration committees. Annual evaluation by the board of its performance. Emphasis on objectivity of directors in the interests of the company. Transparency on appointments and remuneration. Effective rights for shareholders. A Code of good practice based on extensive consultation with practitioners, and operating on the basis of the 'comply or explain' principle.
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Audit Approach in Iran

Balance sheet approach (19001971) System approach (1971- 1989) Risk approach (1990- 2007)

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

Year 1932 (enactment of business law) 1947 (the tax law amended) 1949, 1956 (income tax law enacted) 1961 1962 1963 1964 1966 (enactment of the law of direct taxes) 1967 1968 (amendment of business law) Event Appointment of Inspector to examine the accounts and documents of companies Use of public accountants services in matters of tax documentation was permitted Acceptance of the results of the Accountant Under Oath s examinations concerning the accounts or balance sheets of businessmen and companies for the purpose of tax assessment Approval of operating regulations for the use of Accountants Under Oath) Formation of the first association of Accountant Under Oath Approval of the articles of association of the Center Accountant Under Oath Foundation of the Iranian Accounting Association Formation of the Center of Public Accountants permitted

Approval of regulations governing the selection of public accountants Requirement for the use of public accountants report

1970

Approval of operational regulations governing the appointment of persons licensed for the inspection of corporation- type companies
Foundation of the Audit Firm, Inc. Use of public accountants report is made a requirement/approval of the Articles of Association of the Center of Public Accountants

1971 1972

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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 1987 Enactment of the law decreeing the Establishment of the Iranian Audit organization 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 accountants qualifications

1999

Formulation of the Iranian Association of Certified Public Accountants Articles of Association Formulation of the regulations governing the use of the public accountants services and reports

2000

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)

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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) For the purposes of financial monitoring of the manufacturing, commercial and service sections and to obtain assurance about the reliability of the related financial statements, the interest of public, stockholders, and other interested individuals, hereby permission was granted to the executive branch to make the appropriated arrangements, as required to use the professional services of public accountants under the following circumstances:
A. B. C. D.

E.

Auditing and legal inspecting of the public corporations or applicants of registration in the stock exchange. Auditing and legal inspecting of other corporations. Auditing of non-corporate entities and also for profit and non-for-profit institutions. Auditing and legal inspecting of companies and institutions subject of paragraphs a and b of article 7 of the legal articles of association of the Audit Organization dated 1987. Tax auditing of personal and legal entities tax returns. (The text does not include the subparagraphs of the law)

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USE OF Certified Public ACCOUNTANTS AND ACCEPTANCE OF RETURNS BY TAX ASSESSORS (1)
State tax organization issued a notice to all manufacturing, trading and services entities as follows: According to the Law on the Use of Specialized and Professional Services of Qualified (Official) Accountants ratified on 11.01.1994 and the Amendment made by the Islamic Consultative Assembly in the said Law on 16.02.1994 as well as Article 2 of the Executive Regulation of Note 4 of the above Law ratified in the form of a decree by the Council of Ministers on 03.09.2000, the following taxpayers are under the obligation to appoint the statutory Inspectors of their companies from among the auditing firms being members of the IACPA. Appointment may be made from among natural persons accepted as official accountants by IACPA by taxpayers mentioned in Sub-clause f below, only: Companies accepted by or applying for acceptance by the Stock and Negotiable Instruments Exchange as well as the companies affiliated to the said companies. Public joint stock companies as well as their subsidiary and affiliate companies. The companies described in Sub-clauses a & b of Article 7 of the Audit Organization in due compliance with the procedure set forth in Note 1 of Article 132 of the Public Accounts Law. Branches and representative offices of foreign companies which are registered in Iran pursuant to the permission granted under the Law Authorizing Registration of Branches and Representative Offices of Foreign Companies, ratified 1997 (Liaison offices excluded).
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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) 41 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 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Presentation of financial statements Cash flow statements Revenue Accounting for contingencies Events after the balance sheet date Reporting financial performance Research and development cost Inventories Construction contracts Accounting for government grants Tangible fixed assets Related party disclosures Borrowing costs Presentation of current assets & current liabilities Accounting for investments Foreign Exchange Translation Intangible Assets Consolidated financial statements and accounting for investments in subsidiaries Business combinations Accounting for investments in associates Leases Interim financial reporting Financial reporting of interests in Joint Ventures Financial reporting by development stage enterprises Segment reporting Agriculture Retirement benefit plan Real state & construction Title

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What is comparative table between Iran & IAS Auditing standards

No --20 21 22 23 24 25 30 31 32 40 50 51 52 53 54 55 56 57 58 60 61 62 70 80 91 92 93 105 107 Title Introductory Matters Objectives and General Principle Governing Audit of Financial Statements Terms of Audit Engagements Quality Control for Audit Work Documentation Fraud and Error Consideration of Laws and Regulations in an Audit of financial statements Planning Knowledge of Business Audit Materiality Risk Assessments and Internet Control Audit Evidence Initial Engagement- Opening Balances Analytical Procedures Audit Sampling Audit of Accounting Estimates Related Parties Subsequent Events Going Concern Management Representations Using the work of another auditor Considering the work of internal auditing Using the work of and expert The auditor report on financial statements The auditors report on special purpose audit engagement Engagements to review financial statements Engagements to perform agreed-upon-procedures Engagements to compile financial information Particular considerations in the audit of small businesses Communications with management Compatible with Preface ISA 200 ISA 210 ISA 220 ISA 230 ISA 240 ISA 250 ISA 300 ISA 310 ISA 320 ISA 400 ISA 500 ISA 510 ISA 520 ISA 530 ISA 540 ISA 550 ISA 560 ISA 570 ISA 580 ISA 600 ISA 610 ISA 620 IAS 700* ISA 800 ISA 910 ISA 920 ISA 930 ISA 1005 ISA 1007

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*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. 1 2 3 4 5 6 Standard Title Presentation of Financial Statements Cash Flow Statement Revenue Accounting for Contingencies Events After the Balance Sheet Date Reporting Financial Performance Standard No. Standard Title Presentation of Financial Statements Cash Flow Statement Revenue Provisions, Contingent Liabilities and Contingent assets Events After the Balance Sheet Date Net Profit or Loss for the Period, Fundamental Errors and Changes In Accounting Policy Intangible Assets Inventories Construction Contracts Accounting for Government Grant and Disclosure of Government Assistance Property, Plant and Equipment Related Party Disclosures Borrowing Costs Presentation of Financial Statements Accounting for Investments The Effects of Changes in Foreign Exchange Intangible Assets Consolidated Financial Statement and Accounting for Investments in Subsidiaries Business Combination Accounting for Investments in Associates Leases Interim Financial Reporting Financial Reporting of Interest in Joint Ventures --Segment Reporting Agriculture Accounting and reporting by retirement benefit plan Investing property

IAS 1 IAS 7, except for (a) IAS 18 IAS 37 IAS 10 IAS 8 IAS 38 IAS 2 IAS 11 IAS 20 except for (b) IAS 16 IAS 24 IAS 23 IAS 1 IAS 25 IAS 21 except for (c ) IAS 38 IAS 27 except for (d) IAS 22 IAS 28 except for (e) IAS 17 IAS 34 IAS 31 --IAS 1 except for (f)
IAS 41 IAS 26 IAS 40

7 8 9 10

Accounting for Research and Development costs Accounting for Inventories Accounting for Long-term Construction Contracts Accounting for Government Grants

11 12 13 14 15 16 17 18

Accounting for Fixed Tangible Assets Related Party Disclosures Accounting for Borrowing Costs Presentation of Current Assets and Current Liabilities Accounting for Investments Foreign Currency Exchange Accounting for Intangible Assets Consolidated Financial Statement and Accounting for Investments in Subsidiaries Business Combination Accounting for Investments in Associates Accounting for Leases Interim Financial Reporting Accounting for Joint Ventures Financial Reporting of Development- stage Enterprises Segment Reporting Agriculture Retirement Benefit plan Real Estate & Construction

19 20 21 22 23 24 25 26 27 28

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Auditing Project in progress

No 10 12 24 Title Assurance Engagements Framework of Auditing Standards The Auditors responsibility to consider fraud and error in an audit of financial statements Auditing in a computer information systems environment Auditing considerations relating to entities using service organizations External confirmation Audit sampling and other selective testing procedures Going concern Auditors report on financial statements Comparatives Other Information in documents containing audited financial statements The examination of prospective financial information The consideration of Environmental Matters in the audit of financial statements Glossary of Audit Terms Stage Study and preparation Study and preparation Revised, Exposure draft Study and preparation Study and preparation Exposure draft Revised, exposure draft Revised, exposure draft Revision Study and preparation Study and preparation Study and preparation Study and preparation Study and preparation Based on ISA 100 ISA 120 ISA 240

40-1 40-2 50-5 53 57 70 71 72 81 101

ISA 401 ISA 402 ISA 505 ISA 530 ISA 570 ISA 700 ISA 710 ISA 720 ISA 810 ISA 1010

--

ISA Glossary

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Iran, IAS, UK and US GAAP Comparison: Consolidated Financial Statements

Subject Accompanying Parents Separate Financial Statements with consolidated financial statements The main criterion of subsidiary definition Exempt subsidiaries Mandatory

IAS Not required

UK Comparable to IAS

US Comparable to IAS

Control

Comparable to Iran Comparable to Iran

Comparable to Iran Subsidiaries with dissimilar activities are also excluded

Control through majority of voting shares Comparable to Iran

Subsidiaries under temporary control or server long term restriction Based on carrying amounts Should be included in equity

Measurement of minority interest in net assets

Based on carrying amounts or fair values Not specified

Based on fair values

Comparable to Iran

Presentation of minority interests in balance sheet

Not specified

Should be presented between liabilities and equity Comparable to Iran Allowable Not amortized Comparable to Iran

Elimination of intra-group balances and transactions Assigning unrealized gains and losses to minority Goodwill amortization Allowable difference between reporting dates

Complete elimination Not specified Amortized Three months

Comparable to Iran Comparable to Iran Comparable to Iran Comparable to Iran

Comparable to Iran Mandatory Comparable to Iran Comparable to Iran

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Accounting Standards Due Process (1)

Due process of accounting standard development is as following: 1. Deciding on a subject for research. The Accounting Standard Setting Committee decides on the topics to be considered by Standard Setting Department. 2. Preliminary studies. After deciding on the subject, necessary research and studies are commenced by the advisors of the Standard Setting Department. In this phase, the standards of other countries like USA, UK, Australia and Canada, International Accounting Standards, research carried out in relation to the subject, accounting practice in Iran and the law and all issues relating to the subject are recognized, collected and studied. The result of this phase is presentation of study reports. 3. Deciding on necessity of a standard development. The Standard Setting Committee decides on the necessity of development of a standard based on the result of preliminary studies. 4. Preparation of primary draft. If the standard development is required by the Accounting Standard Setting Committee, the advisory group prepare a primary draft based on study reports, after field studies and some meetings with professionals and constituents. One of the main policies of accounting standard development is compliance with International Accounting Standards. Therefore, concerning the subject on which there is an International Accounting Standard, this International Accounting Standard is used as the main basis for the standard development. The outcome of this phase is the primary standard draft.
47

Accounting Standards Due Process

5. Development of standard draft. In this phase, the Accounting Standard Setting Committee presents the final standard draft, after deep and broad reviews and necessary amendments. The outcome of this phase is the standard draft. Public comment. For public comment, any standard draft is made available to the public by different ways like publishing in professional journals, Internet (Organization Site), etc. Also, according to the subject nature, the standard draft is separately sent to some authorities. The opinions received in respect of the standard draft is concluded and presented to the Accounting Standard Setting Committee by the Standard Setting Department. The Committee amends, if necessary, the standard draft and after approval by the Technical Committee, the revised standard draft is presented to the Board of Executive of the Organization. Ultimate approval. The final statement will be published when the final text of the standard is approved by the Board of Executive and the Board of Governors of the Organization. The Board of Executive reviews the Accounting Standard and, after possible amendments, approves and sends them to the Board of Governors of the Organization for the ultimate approval. After approval by the Board of Governors, the final text of the accounting 48 standard is published and becomes operative.

6.

7.

Accounting Standards Due Process (2)

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Comparison of Iranian Accounting Standards with IFRSs

Accounting standards have been developed based on International Accounting Standards. National Accounting Standards (NASs) are presented in comparative form with International Accounting Standards (IAS) in the following table. In this table: The first column notifies the number of NASs. The second column designates the subject of NASs. The third column presents the number of IASs which have been compared with their equivalent NASs. The fourth column specifies NASs which have minor departures from IASs. These are shown by notes presented in this column and are explained thereafter.

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NASs Nos.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Subject
Presentation of Financial Statements Cash Flow Statements Revenue Accounting for Contingencies Accounting for Events After the Balance Sheet Date Reporting Financial Performance Accounting for Research & Development Costs Accounting For Inventories Accounting for Long-term Contracts Accounting for Government Grants Accounting for Tangible Fixed Assets Related Party Disclosures Accounting for Borrowing Costs Presentation of Current Assets & Current Liabilities Accounting for Investments Foreign Currency Translation Accounting for Intangible Assets Consolidated Financial Statements and Accounting for Investments in Subsidiaries Business Combinations Accounting for Investments in Associates Accounting for Leases Interim Financial Reporting Accounting for Joint Ventures Financial Reporting by Development Stage Entities Segment Reporting Agriculture Retirement Benefit Plans

IASs Nos.
1 7 18 10 10 8 38 2 11 20 16 24 23 1 32,39 21 38 27 22 28 17 34 31 N/A 14 41 26

Explana tions
--Note A --------------Note B --------Note C Note D --Note E --Note F ------Note G Note H Note I ---

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Explanations
Note A (NAS # 2 and IAS # 7) With the exception of the following requirements, application of NAS No. 2, results into compliance with IAS No. 7: Returns on Investments, and Servicing of Finance and Income Tax activities have been segregated from the other major classifications used in the cash flow statements. (b) Cash equivalents have been excluded from the definition of cash. Note B (NAS # 10 and IAS # 20) With the exception of the following requirements, application of NAS No. 10 results into compliance with IAS No. 20: (a) If an accounting treatment for government grants is specified in statutory regulations, the treatment should be followed by the entity. (b) When the evaluation bases of non-monetary assets received, are specified in the statutory regulations, the application of these bases is acceptable provided that it does not result in reflecting the granted assets in more than the fair value at the time of transfer.
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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. 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: (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. (b) Exchange differences arising on a monetary item that, in substance, forms part of an entitys net investment in a foreign entity should be classified as equity in the entitys 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. (c) Exchange differences arising on a foreign currency liability accounted for as hedge of an entitys net investment in a foreign entity should be classified as equity in the entitys 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. (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. 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.

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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 investors accounting policies on longterm 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 investors 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 entitys 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 entitys 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.

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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.

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Iran Accounting Standards - Projects in Process

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

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Iran Auditing Standards Projects in Process

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

57

Auditing standard approved

Standard Title
External Confirmations Preface to International Auditing Standards Objective and General Principles Governing an Audit of Financial Statements Audit Engagements Quality Control for Audit Work Documentation The Auditors Responsibility to Consider Fraud in an Audit of Financial Statements Consideration of Laws and Regulations in an Audit of Financial Statements Planning Knowledge of the Business Audit Materiality Risk Assessments and Internal Control Audit Evidence Initial Engagements - Opening Balances Analytical Procedures Audit Sampling and other Selective Testing Procedures Audit of Accounting Estimates Related Parties Events after the Balance Sheet Date Going Concern Management Representations Using the work of Another Auditor Considering the work of Internal Auditing Using the work of an Expert The Independent Auditors Report Comparatives Other Information Included in the Reports Containing Audited Financial Statements The Auditors Report on Special Purpose Audit Engagements to Review Financial Statements Engagements to Perform AgreedUpon Procedures Regarding Financial Information Engagements to Compile Financial Information The Audit of Small Entities Communications with Management Examination of Prospective Financial Information

Standard Number
5-50 10 20 21 22 23 24 25 30 31 32 40 50 51 52 53 54 55 56 57 58 60 61 62 70 71 72 80 91 92 93 105 107 340

58

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.

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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.

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

61

Sources:
1- Accounting in 2015 CPA Journal by Michael Alles, Alexander Kogan, and Miklos A. Vasarhehyi 2- www.IASPLUS.com 3- www.frc.org.uk 4- www.audit.organization.ir 5- www.IFAC.com

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