Chapter 2 Regulatory Framework

Question 1

Necessity for regulatory framework?

Answer 1

The users of financial statements have at least a basic minimum of information.

The information provided in the economic arena is both comparable and consistent.

Increase user confidence in the financial reporting process.

To regulate behavior of companies and directors towards their investors.

Question 2

Basic National regulatory framework for financial reporting?

Answer 2

*National financial reporting standards

(UK has Financial Reporting Council that issues Financial reporting standards.)

*National Law
(UK has the companies Act 2006)
(US has the Sarbanes Oxley act 2002)

*Market regulations
(Financial Services Authority of UK)

*Security Exchange rules
(Regulations provided by London Stock Exchange)

Question 3

Item of legislation that affects financial reporting in UK?

Answer 3

The company act 2006

Question 4

Item of legislation that affects US financial reporting standards?

Answer 4

The Sarbanes Oxley act.

Question 5

IFRS IS AN ISOLATED ENTITY WITH NO POWER IN ANY COUNTRIES?

Answer 5

The US, CHINA AND INDIA are going through a process of convergence right now (or when this book is printed. Otherwise EU and Africa have already converted to IFRS standards.

IFRS standards are not enforceable in any country.

Question 6

IFRS Structure

Answer 6

The IFRS FOUNDATION—Supervise
^. |
^. |
ADVICE
|. |
IFRS AC —ADVICE —- IASB

Question 7

Principle objectives of The foundation? (IFRS Foundation)

Answer 7

Develop set of high quality, understandable, enforceable and globally accepted financial reporting standards.

Promote use of those standards

Accommodate the needs of emerging economies.

BRING ABOUT THE CONVERGENCE OF NATIONAL AND INTERNATIONAL FINANCIAL REPORTING STANDARDS.

Question 8

IASB?

Answer 8

Independent board under The IFRS foundation for development and publication of IFRSs and interpretations developed by the interpretations committee.(IRFS IC)

All the international standard setters are present in the board.
Work closely with national standard setters

Discussion paper and exposure drafts are issued

Question 9

IFRS IC?

Answer 9

Reviews widespread accounting issues on a timely basis and provide guidance on these issues.
Meeting are open to public
They work closely with national standard setters

Question 10

IFRS AC?

Answer 10

Advise the board and the IFRS foundation.

*Advise the Board on agenda decisions and priorities in their work.

Informing the Board of the views of the Council with regards to major standard-setting projects, and

*Giving other advise to the board or to the Trustees

Question 11

Procedures for Development of IFRS Standards?

Answer 11

The Board (IASB) identifies a subject and appoints an advisory committee to advise on the issue

The Board publishes an exposure draft for the public comment.

Following the received comments, the board publishes the final text of the standard.

At any stage the board may issue a discussion paper to encourage comment.

THE PUBLICATION OF AN IFRS STANDARD, EXPOSURE DRAFT OR IFRIC INTERPRETATIONS REQUIRES THE VOTES OF AT LEAST EIGHT OF THE 15 BOARD MEMBERS.

Question 12

How many votes are required for the publication of a New IFRS standard, exposure draft or IFRIC interpretations?

Answer 12

At least 8 out of the 15 Board members

Question 13

WHAT IS CORPORATE GOVERNANCE ?

Answer 13

The system by which companies are directed and controlled in the interests of the shareholders and in relation to those stakeholders beyond the company.

Question 14

Purpose and objectives of corporate governance?

Answer 14

TO monitor those within a company who control the resources and assets of the owners.

Question 15

Duties of a director within a company?

Answer 15

A general duty to act in good faith for the benefit of the company and its shareholders

A duty of care to avoid a conflict of interests between personal interests and those of the COMPANY and its STAKEHOLDERS, and to make disclosure if such a conflict arises.

Question 16

Responsibilities of a Director? (usually imposed by the law or regulation in many countries)?

Answer 16

1. Responsible for establishing and maintaining an adequate system of internal controls which prevents and detects FRAUD and ERROR.
2. Responsible to maintain adequate accounting records that provide a basis for the preparation of the annual financial statements.
3. Responsible to prepare annual financial statements that show a true and fair view of financial position and performance of the company
   It should also show compliance with relevant laws, regulations and IFRS standards.

4.Responsibility to approve the annual financial statements prior to their publications, and to distribute of file the annual financial statements in accordance with the local law and regulations.

Question 17

Supporting clauses/rules to implement to achieve corporate governance?

Answer 17

1. Ensure there is a suitable balance of power on the board of directors.

2.Ensure fair remuneration for directors

3.Make the board of directors responsible for monitoring and managing risk.

4.Ensure external auditors remain independent and free form the influence of the company.

5. Address other issues

Business ethics
Corporate Social responsibility (CSR)
protection of whistleblowers

Question 18

What does corporate governance aim for aka objective?

Answer 18

Contribute to improved corporate performance and accountability in creating long term shareholder value.

Question 19

How to achieve corporate governance? Supporting objectives?

Answer 19

1.Control the controller (directors) by increasing the amount of reporting and disclosure to all stakeholders.

2.Increase level of of confidence and transparency in company activities for all investors and thus promote growth.

3.Ensure that the company is run in a legal and ethical manner.

4.Build in control at the top that will cascade (flow) down the organisation.

Question 20

Basic elements of a sound corporate governance include?

Answer 20

1.Effective management
2.Effective system of internal control
3.Oversight of management by non-executive directors
4. Fair appraisal of director performance
5.fair remuneration of directors
6.fair financial reporting, and
7constructive relationship with shareholders

Question 21

What is a non executive director?

Answer 21

A non-executive director, independent director or external director is a member of the board of directors of a corporation, such as a company, cooperative or non-government organization, but not a member of the executive management team.

DIFFERENCE BETWEEN NED AND ED

An executive director is a member of a company’s board of directors who is actively involved in the day–to–day management of the company, while a non–executive director (NED) is a member of the board who is not involved in the day–to–day management of the company.