Ch 2 - The Regulatory Framework

Question 1

Why is a regulatory framework necessary?

Answer 1

Needs of users (of financial reports) are met.
Information is comparable and consistent, in the specific economy.
Regulate behaviour of companies towards their investors.
Increase user’s confidence of the reports.

Question 2

Elements of regulatory framework

Answer 2

National Law
Marketing Regulations
Security exchange rules
National financial reporting standards

Question 3

What does IFRS (International Financial Reporting Standards) aim to do?

Answer 3

Harmonise financial reporting so that it is consistent and comparable.

(Not enforceable in any country but have been largely adopted)

Question 4

Structure of IFRS regulatory system

Answer 4

IFRS foundation
International Accounting Standards Board (IASB)
IFRS interpretations committee (IFRS IC)
IFRS Advisory Council (IFRS AC)

Question 5

Objectives of IFRS

Answer 5

develop globally accepted and implemented accounting standards
Promote application of standards
Bring in convergence of national and international standards
Reporting needs of emerging economies

Question 6

Objectives of IASB

Answer 6

Independent standard setting body who develops and publishes the IFRS standards
Representatives of national standard setters provide views

Question 7

Objectives of IFRS interpretations committee

Answer 7

IFRS IC reviews IFRS issues and provides advice.
Meetings are public.
Work with national standard setters.

Question 8

Objectives of IFRS Advisory Council (AC)

Answer 8

Advisory service to IASB.

Question 9

What is Corporate Governance?

Answer 9

Cadbury Report 1992 - “system by which companies are directed and controlled in the interest of stakeholders”

Question 10

Purpose of corporate governance

Answer 10

To monitor those within a company who control the resources and assets.
Balance of power.
External auditors are independent.
Board responsible for risks.

Question 12

5 areas of CGC

Answer 12

1. Leadership of company
2. Effectiveness of Board
3. Accountability of the Board
4. Renumeration of the Board
5. Board relations with Shareholders

Question 13

Objectives of corporate governance

Answer 13

Improve accountability for long term shareholder value.
More reporting and disclosure.
Ensure companies are run legally and ethically.
Control the controllers.