2. The Regulation of Accounting Flashcards
What factors have shaped the development of accounting? (6)
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
What does GAAP refer to in the UK? And Internationally?
Which is followed for this course?
In the UK GAAP refers to Generally Accepted Accounting Practice.
Internationally, the term GAAP refers to Generally Accepted Accounting Principles.
For this course, the UK version is referenced.
What is the term GAAP used to cover?
GAAP is a term used to cover all the rules, form whatever source, which govern accounting in various jurisdictions. The requirement that financial information is relevant, reliable, comparable and understandable is common to both IFRS Accounting Standards and GAAP.
What legislation do companies follow relating to publishing financial statements?
How does this differ between limited liability companies and listed companies?
Under which piece if legislation are certain entities exempt from preparing financial statements?
Limited liability companies are required by the Companies Act 2006 to prepare and publish financial statements annually.
Their form and content are regulated by legislation but must comply with accepted accounting and financial reporting standards.
For listed groups this means compliance with IFRS Accounting Standards.
Non-listed companies generally follow UK accounting standards which are substantially converged with international ones.
Certain entities are exempt from preparing financial statements under s394 of the Companies Act.
What was the main reason accounting standards were developed?
While ethical principles underpin financial accounting, different people could still interpret situations differently.
Professional judgement is applied by accountants based on their interpretation of a scenario, which can lead to subjectivity in accounting.
In order to deal with some of this subjectivity, and to achieve comparability between different organisations, accounting standards were developed.
Which bodies developed accounting standards in the UK and internationally?
Internationally:
International Accounting Standards Board (IASB)
UK:
Financial Reporting Council (FRC)
How does the FRC set accounting standards?
What is the role of the Corporate Reporting Council?
The FRC sets UK and Ireland accounting standards via its Codes and Standards Committee.
The Corporate Reporting Council supports and advises the Codes and Standards Committee in accounting and reporting. It is responsible for the development of UK standards and for considering and commenting on international proposals.
What is the ISSB?
In 2021, the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB), which formally recognised the need for companies to disclose sustainability-related non-financial information alongside their financial statements.
What is the International Accounting Standards Board responsible for? (2)
What interpretations are issued by the IFRS Interpretations Committee? (2)
The IASB is 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)
The interpretations that are issued by the IFRS Interpretations Committee are:
1. IFRIC Interpretations
2. SIC Interpretations
What is the difference between IAS and IFRS Accounting Standards?
IAS and IFRS Accounting Standards have the same status, IASs are simply older standards; those published since 2001 are called IFRS Accounting Standards.
IFRS Accounting Standards is the collective term used throughout this course to refer to all IFRS Accounting Standards and IASs.
Why are there some inconsistencies between the Conceptual Framework and the IFRS Accounting Standards?
The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.
IFRS Accounting Standards stem from the concepts set out in the Conceptual Framework (although some standards were developed prior to the Conceptual Framework and there are some inconsistencies as a result).
Which accounting standards should non-listed UK companies use?
Non-listed companies in the UK can choose to report under IFRS Accounting Standards or UK financial reporting standards (FRS).
What is the main accounting standard in the UK?
What does this standard cover and what does it contain?
FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland - covering all issues.
FRS 102 also contain the underpinning concepts and principles, which are similar to those which guide the IFRS Accounting Standards.
What does the UK GAAP encompass? (2)
How is the UK GAAP distinct from other standards?
What format do UK non-listed companies follow for financial statements?
UK GAAP encompasses:
1. The Companies Act 2006
2. UK accounting standards (which are derived from IFRS Accounting Standards with limited exceptions)
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.
In their published financial statements, UK non-listed companies tend to follow the Companies Act 2006 format for financial statements and UK specific terminology.
What is the TCFD?
The Taskforce on Climate-related Financial Disclosures (TCFD) requires most UK companies to disclose information on the climate-related risks and opportunities that they face.
