IFRS Regulatory Framework and Compliance 3 — Questions and Answers
Question 1: Which statement best describes the enforceability of IFRS at the international level?
- The IASB can impose fines on companies that do not follow IFRS
- IFRS are legally binding in all 140+ jurisdictions that have adopted them
- The IASB has no enforcement authority; enforcement rests with local regulators (Correct answer)
- The Monitoring Board enforces IFRS directly on listed companies
Correct answer: The IASB has no enforcement authority; enforcement rests with local regulators
The IASB is a private standard-setting body with no enforcement powers; compliance and enforcement are the responsibility of each jurisdiction's securities regulators or audit oversight bodies.
Question 2: A company operates in a jurisdiction that has adopted IFRS but with a 'carve-out' of a specific paragraph of IAS 39. Which statement is correct?
- The company can still claim full compliance with IFRS as issued by the IASB
- The company complies with local IFRS but cannot claim compliance with IFRS as issued by the IASB for the carved-out requirement (Correct answer)
- The carve-out has no effect on the company's IFRS compliance statement
- The company must apply the carved-out paragraph anyway if it wants a clean audit opinion
Correct answer: The company complies with local IFRS but cannot claim compliance with IFRS as issued by the IASB for the carved-out requirement
A jurisdictional carve-out means the entity follows local GAAP for that requirement and cannot assert full compliance with IFRS as issued by the IASB.
Question 3: What is the primary purpose of the IFRS for SMEs Standard?
- To provide simplified reporting requirements for small and medium-sized entities that are not publicly accountable (Correct answer)
- To replace full IFRS for all non-listed companies worldwide
- To provide guidance only on disclosure requirements for smaller entities
- To set minimum capital requirements for small businesses
Correct answer: To provide simplified reporting requirements for small and medium-sized entities that are not publicly accountable
IFRS for SMEs is a self-contained standard with simplified recognition, measurement, and disclosure requirements for entities without public accountability.
Question 4: Under the IFRS Foundation's structure, what is the role of the IFRS Advisory Council?
- To issue binding interpretations of IFRS
- To provide strategic advice to the IASB on its technical agenda and standard-setting priorities (Correct answer)
- To replace the IASB on matters of public interest
- To enforce IFRS compliance in developing countries
Correct answer: To provide strategic advice to the IASB on its technical agenda and standard-setting priorities
The IFRS Advisory Council provides a forum for broad stakeholder participation in advising the IASB on its agenda and priorities.
Question 5: Which of the following is a consequence of the SEC's 2007 decision regarding IFRS financial statements filed by foreign private issuers?
- Foreign private issuers must reconcile IFRS financials to US GAAP
- Foreign private issuers may file IFRS financial statements without reconciliation to US GAAP (Correct answer)
- All foreign private issuers must adopt US GAAP within five years
- IFRS financial statements filed with the SEC must be audited under PCAOB standards exclusively
Correct answer: Foreign private issuers may file IFRS financial statements without reconciliation to US GAAP
In 2007, the SEC eliminated the requirement for foreign private issuers using IFRS as issued by the IASB to provide a US GAAP reconciliation.
Question 6: An entity in a country that requires IFRS asks whether it can apply US GAAP because its parent company uses it. What is the correct answer?
- Yes, because IFRS and US GAAP are substantially converged
- No, because the entity must follow the mandatory financial reporting framework of its jurisdiction (Correct answer)
- Yes, if the parent company provides a guarantee of the entity's compliance
- Yes, provided the auditor agrees to use US GAAP auditing standards
Correct answer: No, because the entity must follow the mandatory financial reporting framework of its jurisdiction
Entities must comply with the financial reporting framework mandated by their jurisdiction's law or regulation, regardless of the parent's reporting framework.
Question 7: Which document issued by the IASB describes the concepts that underlie the preparation of IFRS financial statements?
- IAS 1 Presentation of Financial Statements
- The Conceptual Framework for Financial Reporting (Correct answer)
- IFRS 1 First-time Adoption of IFRS
- The IFRS Foundation Constitution
Correct answer: The Conceptual Framework for Financial Reporting
The Conceptual Framework sets out the objectives, qualitative characteristics, and elements of financial statements that underpin all IFRS standards.
IFRS Regulatory Framework and Compliance 3
Which statement best describes the enforceability of IFRS at the international level?