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Strategic Business Reporting (International) · Discussion of issues in financial reporting

IASB Standard Setting and the IFRS Regulatory Framework

Updated 11 October 2026 · Fact-checked

Standard setting is the process by which IFRS Accounting Standards are created, interpreted, adopted and enforced. The IFRS Foundation oversees, the IASB issues standards after public consultation, IFRIC interprets them, and the Advisory Council advises. Each jurisdiction decides whether to adopt IFRS and who enforces it.

Understand Standard Setting and Regulatory Framework

Financial reporting needs common rules so that investors can compare companies across countries. IFRS Accounting Standards provide those rules. You need to know who writes them, how they are written, and what happens after they are issued.

The IFRS Foundation is the not-for-profit body that oversees the system. It appoints the members of the IASB, the Interpretations Committee and the Advisory Council, and it arranges funding. It is governed by Trustees, who are accountable to a Monitoring Board of public authorities. The Trustees do not set technical standards.

The IASB is the independent technical body. It develops and issues IFRS Accounting Standards. The IFRS Interpretations Committee (IFRIC) deals with application problems. It issues interpretations and may publish agenda decisions explaining how existing standards apply. It aims to avoid divergent practice where a standard is unclear. The IFRS Advisory Council is a forum for a wide range of stakeholders. It gives strategic advice to the IASB and the Trustees, for example on agenda priorities and the effect of proposals.

The IASB follows a due process so that standards are transparent and have wide input. A typical path is: add a topic to the work plan, research and sometimes a discussion paper, an exposure draft with a comment period, review of comments, then issue of the final standard. Consultation, public meetings and effect analysis are part of the process. Steps can vary by project.

The IASB has no power to force anyone to use IFRS. Each country decides. Some adopt IFRS fully, some converge their national standards towards IFRS, and some endorse each standard through a local process. Enforcement is done by national regulators, securities regulators and auditors, not by the IASB. IFRS is usually called principles-based: it states broad principles and expects judgement. A rules-based system gives detailed prescriptive guidance. Principles-based standards can be applied to new situations but give less certainty and need more judgement. Rules-based standards give consistency but can encourage structuring to meet the letter of the rule.

Key rules to remember

Roles in one line
Foundation oversees and funds → IASB sets standards → IFRIC interprets → Advisory Council advises
Use this chain to avoid giving the Trustees or Council a standard-setting role.
Due process sequence
Agenda → research/discussion paper → exposure draft → comments → final standard → post-implementation review
Exposure draft and public comment are the key stages. Not every project uses every step.
Principles vs rules
Principles = broad objectives + judgement; Rules = detailed requirements + less judgement
State both advantages and disadvantages when asked to discuss.

How to solve Standard Setting and Regulatory Framework questions

Questions on this topic are discussion or briefing requirements. Use the same structure for each one.

  1. 1Read the requirement and note the verb: explain, discuss, evaluate or advise.
  2. 2Identify which body or process is being asked about: Foundation, IASB, IFRIC, Advisory Council, adoption or enforcement.
  3. 3State the relevant role or step in one clear sentence.
  4. 4Link it to the scenario: the country, company, listing or accounting issue given.
  5. 5Give balanced points, for example advantage and disadvantage, and reach a conclusion.
  6. 6Add a professional skills touch: an appropriate format, a clear recommendation and commercial awareness.
  7. 7Check that each paragraph earns a mark: point, reason, application.

Quickest way: Body, role, link

When to use it: Use when time is short and the question asks who does what or how a standard is developed.

  1. Write the body name and its single main role.
  2. Add one sentence on why that role matters for users or comparability.
  3. Tie it to the scenario in one sentence.
  4. For process questions, list the stages in order and stress public consultation.
  5. For adoption questions, state that each jurisdiction decides and that local regulators enforce.

Common mistakes in Standard Setting and Regulatory Framework

  • Saying the IFRS Foundation issues the standards.

    The names sound similar and the Foundation is the parent body.

    Fix: Remember that the IASB issues standards. The Foundation oversees governance and funding.

  • Saying IFRIC changes or writes new standards.

    Students see 'interpretations' as equal to standard setting.

    Fix: Say IFRIC clarifies application of existing standards. Wider changes go back to the IASB.

  • Claiming the IASB enforces IFRS.

    Students assume the issuer of rules also polices them.

    Fix: State that enforcement sits with national regulators, securities regulators and the audit profession.

  • Describing principles-based standards as having no rules or being always better.

    Over-simplified summaries.

    Fix: Say they rely on broad principles and judgement, with some guidance. Give both strengths and weaknesses.

  • Listing due process stages without linking to the scenario.

    Students memorise the sequence and stop there.

    Fix: Apply it: for example, explain how an exposure draft lets the company in the scenario comment on a proposal.

  • Treating adoption and convergence as the same thing.

    Both move a country towards IFRS.

    Fix: Adoption means using IFRS directly. Convergence means bringing national standards closer to IFRS while keeping them separate.

Worked examples

Example 1

A finance director of a company in a country that is considering adopting IFRS asks you to explain the roles of the IASB and the IFRS Interpretations Committee, and why both are needed. Write a short briefing answer.

Show the solution
  1. Define the IASB: the independent technical body that develops and issues IFRS Accounting Standards.
  2. Define IFRIC: it addresses application issues and issues interpretations or agenda decisions on existing standards.
  3. Explain why both are needed: standards cannot cover every situation, so unclear wording could lead to different practice. IFRIC reduces this.
  4. Explain the separation: the IASB handles new or amended standards through due process. IFRIC clarifies within the existing text. If a real gap exists, the matter may go to the IASB.
  5. Apply to the company: if it adopts IFRS, it will follow IASB standards and should monitor IFRIC outputs for application guidance.
  6. Conclude: together they improve comparability and consistent application.

Answer: The IASB sets IFRS Accounting Standards through due process. IFRIC clarifies how existing standards apply so practice does not diverge. Both are needed: the IASB creates the requirements and IFRIC helps keep their application consistent. The company should follow both if it adopts IFRS.

Example 2

The IASB has issued an exposure draft that would change how your client recognises a major item. The client's board asks why the IASB consults publicly and whether the move from a rules-based approach to a principles-based approach would help or harm reporting. Respond briefly.

Show the solution
  1. State why consultation matters: an exposure draft invites comment from preparers, investors, auditors and regulators. This improves quality, shows transparency and builds acceptance, which helps adoption.
  2. Explain the client's opportunity: it can submit a comment letter, setting out practical effects.
  3. Define the approaches: principles-based standards set objectives and rely on judgement. Rules-based standards give detailed requirements.
  4. Benefits of principles: they adapt to new transactions, focus on substance and reduce structuring around rules.
  5. Drawbacks of principles: more judgement, so less comparability, more room for aggressive reporting, and more audit and regulator challenge.
  6. Benefits of rules: clarity and consistency. Drawbacks: complexity, loopholes and form over substance.
  7. Conclude: neither is perfect. IFRS leans on principles, so management needs sound judgement, good documentation and ethical discipline.

Answer: Public consultation improves the quality and acceptance of standards, and the client can comment on the exposure draft. A principles-based approach is flexible and favours substance but needs more judgement, so comparability may fall. A rules-based approach is clearer but can be gamed. The client should prepare for greater judgement and document it well.

Exam tips

  • Name each body precisely. Marks are lost for swapping the Foundation, IASB and IFRIC.
  • In discussion questions, give both sides and then a conclusion. A one-sided answer scores poorly.
  • Always apply the point to the scenario country, company or issue. Generic textbook answers earn fewer marks.
  • Show professional skills: write in the requested format, keep paragraphs short and give a clear recommendation.
  • Do not claim detail you are unsure about, such as exact membership numbers or dates. Describe roles and process steps instead.

Practice questions from Discussion of issues in financial reporting

Standard Setting and Regulatory Framework in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Standard Setting and Regulatory Framework: frequently asked questions

What is the difference between the IFRS Foundation and the IASB?

The IFRS Foundation is the oversight body. It appoints members, arranges funding and is governed by Trustees. The IASB is the technical body that develops and issues the standards.

What does the IFRS Interpretations Committee do?

It looks at application problems with existing standards. It issues interpretations and may publish agenda decisions that explain how the standards apply. Its aim is to reduce diverse practice.

What is the difference between adoption and convergence?

Adoption means a jurisdiction uses IFRS Accounting Standards directly, sometimes through a local endorsement process. Convergence means national standards are brought closer to IFRS but remain separate sets of rules.

Are IFRS Standards rules-based or principles-based?

They are generally described as principles-based. They set out objectives and expect judgement, though they contain some detailed guidance. In the exam, discuss the trade-off between flexibility and comparability.