Ch 4 - Regulatory Environment Flashcards
What are Financial Statements used for?
Making decisions.
Who uses Financial Statements?
Used by shareholders and others to make decisions.
In order to rely upon Financial Statements what should they be subject to?
Regulations - Published financial statements should be subject to regulation.
What can regulation also promote?
Regulation can promote CONSISTENCY and COMPARABILITY. as well as providing guidance as to how they are interpreted.
What are different countries subject to a variety of?
A variety of :-
* Economic
* Social and political factors.
Because different countries are subject to a variety of Economic, Social and political factors…..
Regulation will vary from country to country.
Explain what CODE LAW regarding Regulations is?
This is where accounting standards are embodied within the law.
Explain what COMMON LAW regarding Regulations is?
This is based on case law and tends to have less detailed regulations.
Give examples of Elements of a Regulatory Environment?
- Local law
- Local Accounting Standards
- International Accounting Standards
- Conceptual frameworks e.g. Statement of Principles in the UK
- Requirements of International Bodies.
What is GAAP?
Generally Accepted Accounting Practice.
Can you give explain GAAP?
Encompasses the CONVENTIONS, RULES and PROCEDURES necessary to define accepted accounting pratice.
What does GAAP include?
It includes:-
* broad guidelines of general application
* detailed practices and procedures
* local legislation requirements
* accounting standards and any other
* local regulations.
What does quasi-legislative mean?
Quasi-legislative powers or acts involve making rules that have to be obeyed, but are not law.
What are the 2 approaches for accounting standards?
- Principles-based
- Rules-based
Can you explain Principles-based approach to accounting standards?
A set of principles are established from which accounting standards are drawn - the SPIRIT of which should be followed.
What is the approach to accounting standards adopted in the UK?
Principles-based.
Can you explain Rules-based approach to accounting standards?
This approach is a set of DETAILED and SPECIFIC RULES in accounting stands which MUST BE FOLLOWED to the letter.
Why are Principles harder to circumvent?
Because they focus on the underlying intent and overall ETHICAL conduct rather than specific details, making ti more difficult to find loopholes.
Standardisation vs Harmonisation
STANDARDISATION - tends to imply rigid and a narrow set of rules
HARMONISATION - tends to mean the process of increasing compatibility.
Which of the bodies is responsible for ISSUING IFRS Standards?
IASB - International Accounting Standards Board
Under the current structure of the regulatory bodies which of the bodies ACTS as the overall supervisory body.
IFRS Foundation
Which of the bodies is responsible for REVIEWING IFRS Standards and issuing guidance on their application.
IFRS Interpretation Committe
Which best describes the role of the IFRS Advisory Council?
To provide the Board with the views of its members on standard setting projects.
Which of the bodies is responsible for the APPROVAL of IFRS Interpretations?
IFRS Interpretations are subject to the BOARD approval.
Is there a strict procedure for the development of IRFS Standards?
No strict process however it may involve steps.
Outline 3 options for the development of financial reporting standards? ADVANTAGES
- Adopting International Financial Reporting Standards (IFRS) as its local standards. The ADVANTAGE of this would be a quick approach and cheap to implement.
- Modelling local standards on the Board’s IFRSs, but amending them to reflect local needs and conditions. The ADVANTAGE of this would be the standards would be more relevant to the countrys needs but still compliant with International Standards.
- The company could develop its own accounting standards with little or no reference to IFRSs. The ADVANTAGE would be that the standards woudl be specific to the needs of the country.
Outline 3 options for the development of financial reporting standards? DISADVANTAGES
- Adopting International Financial Reporting Standards (IFRS) as its local standards. The DISADVANTAGE is it may not take into account any specific local traditions or variations.
- Modelling local standards on the Board’s IFRSs, but amending them to reflect local needs and conditions. The DISADVANTAGES would be that it would take longer to create and implement and would require someone with expertise to exist within the local country to help create these standards.
- The company could develop its own accounting standards with little or no reference to IFRSs. The DISADVANTAGE is they could be lengthy and costly to create. The standards may not be compliant with international standards and also require a person in the country with the appropriate expertise to help create these standards.
What following steps may be involved in STANDARD SETTING?
- Establishment of an advisory committee to give advice.
- The board develops and publishes a Discussion Paper for public comment;
- Following the receipt and review of comments, an Exposure Draft is produced for public comment.;
- Following the receipt and review of comments the approved IFRS will be published, including the DATE when it will become effective.
Explain the role of the IFRS Foundation in relation to the regulatory environment to develop and publish IFRS Standards?
The IFRS is:-
1. an independent organisation made up of 22 trustees.
2. The trustees hold the responsibility for governance and fundraising and will publish an annual report on the Board’s activities INCLUDING audited financial statements and priorities for the coming year.
3. They will review annually the strategy of the Board and its effectiveness and approve the annual budget and determine the basis for funding.
4. The Trustees also appoint the members of the Board, the IFRS Advisory Council and the IFRS Interpretations Committee.
5. Although the Trustees will decide on the operating procedures of the committees in the Board’s family, they will be EXCLUDED from involvement in technical matters relating to accounting standards
Explain the role of the International Accounting Standards Board (IASB) THE BOARD in relation to the regulatory environment to develop and publish IFRS Standards?
The Board :-
1. has complete responsibility for all international standard setting technical matters, including the PREPARATION and ISSUING of IFRS and Exposure Drafts
2. final approvals of Interpretations
3. some of the full-time members are responsible for liaising with national standard-setters in order to promote the convergence of accounting standards.
4. publishes its standards in a series of pronouncements called IFRS’s
5. may form advisory committees or other specialist technical groups to advise on major projects and outsource detailed research or other work to national standard-setters.
Explain the role of the IFRS Interpretations Committee in relation to the regulatory environment to develop and publish IFRS Standards?
The IFRS Interpretations Commitee:-
1. provides timely guidance on the application and interpretation of IFRSs
2. normally dealing with accounting issues that could IN THE ABSENCE OF GUIDANCE produce wide-ranging or unacceptable accounting treatements.
Which body acts as the overall supervisory body?
IFRS Foundation
Which body is responsible for reviewing IFRS Standards and issuing guidance on their application?
IFRS Interpretations Committee
Which body is responsible for issuing IFRS Standards?
IASB - International Accounting Standards Board
Which of the bodies is responsible for the approval of IFRS Interpretations?
IASB - International Accounting Standards Board
Does the IASB ENFORCE international financial reporting standards?
NO, they are not responsible for enforcing the standards.
What does ADVOCACY mean?
public support for or recommendation of a particular cause or policy.
“his outspoken advocacy of the agreement has won no friends”
What is not an acceptable measurement basis outlined by the framework for assets and liabilities?
INDEXED UNIT VALUE - is not an acceptable measurement.
The value is calculated by using a formula that incorporates an index number, which tracks changes in the price level of a basket of goods or services. So sort of a guesstimation.
