1.2 - The Regulation of Accounting

Question 1

Which act of law are companies in the UK obliged to comply with?

Answer 1

In the UK, all companies must comply with the provisions of the Companies Act (2006)

Question 2

What factors have shaped the development of accounting? (6)

Answer 2

1. Generally Accepted Accounting Practice (GAAP)
2. Legislation
3. Accounting Standards
4. True and fair view/fair presentation
5. Accounting concepts and individual judgement
6. Sustainability disclosure standards

Question 3

What standards should financial statements be prepared in accordance with?

Answer 3

Either the UK GAAP or IFRS Standards.

They must also give a true and fair view of the performance and position of the company.

Question 4

Give the meaning of GAAP in the UK and the meaning of GAAP internationally?

Answer 4

In the UK, GAAP refers to Generally Accepted Accounting Practice.

Internationally, the term GAAP refers to Generally Accepted Accounting Principles.

Question 5

What is the UK GAAP?

Answer 5

A reporting framework based on key principles.

Covers all rules across sources in various jurisdictions.

The requirement that financial information is relevant, reliable, comparable and understandable (feature of both IFRS and GAAP)

Question 6

What does the UK GAAP encompass?

Answer 6

UK GAAP encompasses:
1. The Companies Act 2006
2. UK accounting standards (which are derived from the IFRS Standards with limited exceptions)

Question 7

What are the standards issued by the International Accounting Standards Board (IASB)? (2)

What is the difference between the two?

Answer 7

1. The International Financial Reporting Standards (IFRS)
2. International Accounting Standards (IAS)

The IAS and IFRS Standards have the same status, IASs are simply older standards; those published since 2001 are called IFRS Standards.

Question 8

What is the purpose of accounting standards / why they were developed?

Answer 8

To reduce subjectivity and achieve comparability between different organisations.

Question 9

Which bodies were responsible for developing accounting standards in the UK and Internationally?

Answer 9

International:
International Accounting Standards Board (IASB)

UK:
Financial Reporting Council (FRC).

Question 10

What is the FRC?

Answer 10

Financial Reporting Council

Sets UK and Ireland accounting standards via its Codes and Standards Committee.

Question 11

What is the role of the Corporate Reporting Council?

Answer 11

1. Supports and advises the Codes and Standards Committee (FRC)
2. Responsible for the development of UK standards and for considering and commenting on international proposals.

Question 12

What is the ISSB?

Answer 12

International Sustainability Standards Board

formally recognised the need for companies to disclose sustainability-related non-financial information alongside their financial statements.

Question 13

What is the obligation for financial reporting on limited liability companies?

Answer 13

Required by the Companies Act 2006 to prepare and publish financial statements annually.

Question 14

How is the form and content of financial statements regulated?

Answer 14

Regulated by legislation

Must comply with accepted accounting and financial reporting standards.

Question 15

Under what standards must non-listed companies in the UK report?

Answer 15

IFRS or FRS

Question 16

What format do UK non-listed companies follow for financial statements?

Answer 16

1. Companies Act 2006 format
2. UK specific terminology

Question 17

What is the TCFD?

Answer 17

Taskforce on Climate-related Financial Disclosures

Requires most UK companies to disclose information on the climate-related risks and opportunities that they face.

Question 18

What is the International Accounting Standards Board (IASB) responsible for? (2)

Answer 18

Responsible for setting international financial reporting standards (IFRS Accounting Standards)

The standards that are issued by the IASB comprise:
1. International Financial Reporting Standards (IFRS Accounting Standards)
2. International Accounting Standards (IAS)

Question 19

What interpretations are issued by the IFRS Interpretations Committee? (2)

Answer 19

The interpretations that are issued by the IFRS Interpretations Committee are:
1. IFRIC Interpretations
2. SIC Interpretations

Question 20

What is the difference between IAS and IFRS Accounting Standards?

Answer 20

Have the same status. ISAs are older standards.

Those published since 2001 are called IFRS Accounting Standards.

Question 21

Why are there some inconsistencies between the Conceptual Framework and the IFRS Accounting Standards?

Answer 21

FRS Accounting Standards stem from the Conceptual Framework.

some FRS standards were developed prior to the Conceptual Framework. There are some inconsistencies as a result

Question 22

What is the main accounting standard in the UK?

Answer 22

FRS 102

Question 23

What does the FRS 102 cover and what does it contain?

Answer 23

Covers all issues in UK & Republic of Ireland

Contains the underpinning concepts and principles, which are similar to those which guide the IFRS Accounting Standards.

Question 24

How is the UK GAAP distinct from other standards?

Answer 24

UK GAAP uses different terminology in many important respects regarding the financial statements.
FRS 102 uses international terminology, while the Companies Act 2006 uses terminology that is UK specific.

Question 25

How does the Companies Act 2006 define a ‘True and Fair View / Faithful Representation’?

Question 26

How does the IAS 1 define a ‘True and Fair View / Faithful Representation’?

Question 27

How does the Conceptual Framework define a ‘True and Fair View / Faithful Representation’?