revise lecture 1 1. framework of financial reporting 1. the regulatory system 2. a conceptual...
TRANSCRIPT
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A Concept and Regulatory Framework
• The regulatory framework of accounting in each country which uses IFRS is affected by a number of legislative and quasi-legislative influences as well as IFRS
• National company law• EU directives• Security exchange rules
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A Concept and Regulatory Framework
• Why a regulatory framework is necessary?
Regulation of accounting information is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them to make meaningful decisions regarding their interest in a reporting entity.
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A Concept and Regulatory Framework
• Why a regulatory framework is necessary?
A regulatory framework is required to ensure that relevant and reliable financial reporting is achieved to meet the needs of shareholders and other users.
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A Concept and Regulatory Framework
• Why a regulatory framework is necessary? Accounting standards on their own would not
be a complete regulatory framework. In order to fully regulate the preparation of
financial statements and the obligations of companies and directors, legal and market regulations are also required.
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A Concept and Regulatory Framework
Principles-based framework
• Based upon a conceptual framework such as the IASB’s framework
• Accounting standards are set on the basis of the conceptual framework
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A Concept and Regulatory Framework
Rules-based framework
• ‘Cookbook’ approach
• Accounting standards are a set of rules which companies must follow
In the UK there is a principles-based framework in terms of
the statement of principles and accounting standards and a rules-based framework in terms of the companies Acts, EU directives and stock exchange rulings.
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A Concept and Regulatory Framework
Harmonisation of accounting standards There are a number of reasons why the
harmonisation of accounting standards would be beneficial.
Businesses operate on a global scale and
investors make investment decisions on a worldwide basis. There is thus a need for financial information to be presented on a consistent basis
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A Concept and Regulatory Framework
Harmonisation of accounting standards - Advantages For Multinational companies;• Access to International finance would be easier
as financial information is more understandable if it is prepared on a consistent basis.
• There would be greater efficiency in accounting departments
• Consolidation of FS would be easier
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A Concept and Regulatory Framework
Harmonisation of accounting standards – AdvantagesFor Investors;• If investors whish to make decisions based on the
worldwide availability of investments, then better comparisons between entities are required.
• Harmonisation assists this process, as financial information would be consistent between different entities from different region.
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A Concept and Regulatory Framework
Harmonisation of accounting standards – Advantages
Tax authorities – Tax liabilities of investor’s
should be easier to calculate Large International accounting firms –
Accounting firms would benefit as accounting and auditing would be easier if similar accounting practices existed on a global basis
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A Concept and Regulatory Framework
Harmonisation of accounting standards – Disadvantages
• Difficult to introduce, apply and maintain or enforce in different countries, each of which has a range of social, political, economic and business factors to consider
• Different legal systems may prevent the application of certain accounting practices and restrict the options available
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A Concept and Regulatory Framework
The Standard Setting Process
• IFRS Foundation
• IASB
• IFRS Interpretations Committee
• IFRS Advisory Council
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A Concept and Regulatory Framework
IFRS Foundation The IFRS foundation (Formely known as the
International Accounting standard committee foundation IASC)
• Is the supervisory body for the IASB• Is responsible for governance issues and
ensuring each body is properly funded
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A Concept and Regulatory Framework
The objectives of the IFRS foundation are to;
• Develop a set of global accounting standards which are of high quality, are understandable and are enforceable
• Which require high quality, transparent and comparable information in FS to help those in the world’s capital markets and other users make economic decisions
• Promote using and applying these standards
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A Concept and Regulatory Framework
International Accounting Standard Board (IASB)
• Is solely responsible for issuing International Accounting Standards
• Standards now called International Financial Reporting Standards (IFRSs)
• Has the same objectives as the IFRS foundations
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A Concept and Regulatory Framework
IFRS Interpretations Committee• Issues rapid guidance on accounting matters
where divergent interpretations of IFRSs have arisen
• Issues interpretations called IFRIC 1, IFRIC 2 etc
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A Concept and Regulatory Framework
IFRS Interpretations Committee• The IFRIC addresses issues of reasonably widespread
importance, not issues that are of concern to only a small minority of entities. The interpretations cover both;
• Newly identified financial reporting issues not specifically dealt with in IFRSs or
• Issues where unsatisfactory or conflicting interpretation have developed or seem likely to develop in the absence of authoritative guidance, with a view to reaching a consensus on the appropriate treatment
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A Concept and Regulatory Framework
The IFRS Advisory Council• The IFRS advisory council (formely known as
the standards advisory council) provides a forum for the IASB to consult a wide range of interested parties affected by the IASB’s work, with the objective of;
• Advising the board on agenda decisions and priorities in the board’s work