1. Dr. El-Gazzar INTERNATIONAL FINANCIAL REPPORTING STANDARDS

2. International Financial Reporting Standards (IFRS): The Necessary Conditions for Globally Homogenous Information Samir M. El-Gazzar, PhD KPMG Professor of Accounting Lubin School of Business Pace University, USA

3. Emerging Need for International Accounting Standards • International Business Operations • Cross-Boarder Listings of Securities A. International Business Operations ► Foreign Operations: Buy or Sell (from and to foreign entities) ▼ - Translation into National Currency - Hedging for Currency Fluctuations ► Foreign Division ▼ Consolidation Accounting

4. Emerging Needs…………… • Cross-Boarder Listings of Securities ▼ ● Costs and Benefits Benefits: - Access to Capital Markets Guest company’s ability to raise capital in foreign markets, probably at lower cost of capital - Local Investors: Expanded opportunity for investing in foreign companies, leading to better allocation of resources Costs - Host Country Investors’ Information Risk - Guest Company’s Cost of Complying with Foreign Laws

5. Approaches for Solving the Financial Reporting Problems • Company Issues One Set of Financial Statements to All Users: the market is efficient in converting and evaluating reporting differences (e.g., HKSE). • Reconciliation to Host Country Reporting Standards (e.g., USSEs prior to 2007). • Two Sets of FS: one for the local market and one for the foreign market. • Develop and Adopt World-Wide reporting system (IFRS). Most likely. But:

6. QUIZAssume these countries adopted IFRS. • China France India USA KSA • EPS $ 3.00 3.00 3.00 3.00 3.00 • Do these numbers convey the same information content/ risk? • Yes What No Not Sure

7. Uniform Accounting Rules Don't Guarantee Same Quality Information • Accounting Information is an output of a system that is influenced by many indigenous and exogenous drivers: ► Accounting Recognition and Measurement Standards (e.g., IFRS) ► Preparer’s Education and Competencies ► Attester’s Qualifications and Licensing ► Presence and Level of Governance ► Legal Enforcement of Rules ► Economic System and Information Needs ► Cultural and Local Values

8. Preparer’s Education and Competencies ►Curriculum: Broad knowledge versus Specialization. Economics, sociology, psychology, financial markets, languages, and Accounting. International Accounting Education Standards Board: (e.g., IES No. 8: Competencies for Audit Professionals. ►Mode of Teaching: Case Study with interdisciplinary Approach: - Financial Acc Augmented with Corporate Finance and Capital Markets. - Managerial/Cost Acc augmented with Chain Supply or Production Management.

9. Attester’s Qualifications and Licensing • USA ► 150 Credits and National (CPA) • Exam. • UK ► Exams and Focus is on Training • Turkey ► 3-Levels of Accountants: a. Independent Accountant. b. Certified Public Accountant c. Sworn-in CPA • China ► ……. ?!

10. Enforcement and National Sovereignty • Monitoring Execution, Performance and Behavior of IFRS, Auditing, Educational, and Governance Standards. • In Cases of Conflict and Litigation: Who is in charge? National Authorities or International Board of Governors (IBG). ▼ Member Countries must respect the Decisions of the IBG. Is that Feasible?

11. National Information Needs • Different Countries Require Their National Firms and Foreign Subsidiaries to Provide Certain types of information necessary for: - National Planning and Investment Policy - Tax Incentives/ Structure and Regulation - Employment Opportunities - Social Accountability Annual Report ▼ ▼ IFRS National Needs

12. Additional Concerns • Principles Based Standards and Litigation • Role of Existing National Standard Setting Bodies • Adoption Costs and Small Firms • Reciprocal Treatment • Uniformity works against Innovation and Advancement.

13. Principles Based Standards and Litigation IFRS National Standards ▼▼ Principles Based Rules Bases Emphasis ● Economic Substance ● Satisfying the Steps ● More Judgment ● Less Judgment Litigation ● Easy to prove not guilty ● Hard to prove not guilty (Donelson et al., 2009)

14. Role of National Standard Setting Bodies I : Eliminate: Redundant / No Need II : Liaison with IASB: - Enforcement Agency - Advisory for Emerging Local Issues III : Some New Function ?!

15. Adoption Costs ● System Change Costs.. Redesign the accounting and information system to impound IFRS standards. ● Training Existing Accountants and other information personnel… in house training and education…more formal back school programs. Solution: IFRS for Small and Medium size companies. ► Against the comparability objective of IFRS. ► Discriminates in resource allocation.

16. Reciprocal Treatment • Professional Accountants from small countries.. Dominance by large firms, e.g., Big-4 • Dominance of the IAS Committee Foundation by Large countries..... Another UN veto…….

17. CONCLUTION • GLOBAL ADOPTION OF IFRS IS A NECESSARY CONDITION BUT INSUFFIENT FOR PRODUCING Globally Comparable / Homogeneous Accounting Information.

18. QUESTIONS THANK YOU

19. Appoints KEY: New Structure Reports To Advises IASC Foundation 19 Trustees Appoint, Oversee, Raise Funds Board: 12 Full time & 2 Part Time Set Technical Agenda Approve Standards, Exposure Drafts, & Interpretations Standards Advisory Council49 members International Financial Reporting Interpretations Committee (12 members) Advisory GroupsFor Major Agenda Projects