Chapter 2: The Regulatory Framework

Question 1

[C2/1/1.1] Which factors shaped the development of financial accounting?

Answer 1

• National/local legislation.
• Accounting concepts and individual judgement.
• Accounting standards,
• Other international influences.
• Generally accepted accounting principles (GAAP)
• Fair presentation.

Question 2

[C2/1/1.2] Regulation regarding LLCs that is typical for most countries?

Answer 2

• LLCs required by law to prepare and publish accounts annually.
• The form and content is regulated primarily by national legislation.

Question 3

[C2/1/1.3] Derivation out of what led to creation of new accounting assumptions, conventions and practices?
What risks are connected to this?

Answer 3

• Many figures of FS(fin. statements) are derived from the application of judgement. - The application of judgement can lead to subjectivity.
• IFRS developed to address this subjectivity.

Question 4

[C2/1/1.3]Examples of areas where the judgement of different people may vary are as follow?

Answer 4

• Organisations where people are the most valuable assets.
• Valuation of building in times of rising property prices.
• RnD. Investment to generate future revenue.
• Accounting for inflation.
• Brands and their reputation.

Question 5

[C2/1/1.4] What produces IFRS?

Answer 5

International Accounting Standards Board (IASB) produce IFRS.

Question 6

[C2/1/1.4] Why accounting standards were developed?

Answer 6

• To deal with some of the subjectivity.

- To achieve comparability between different organisations.

Question 7

[C2/2]

• What develops IFRS?
• What is the main objectives of the IFRS?

Answer 7

• IASB
• 1. To raise standard of fin. reporting
  2. Bring about global harmonization of accounting standards.

Question 8

[C2/2/2.1]

• What does oversee the IASB?
• What is it?
• What is its objectives?

Answer 8

• The IFRS foundation does oversee the IASB.
• It is a non profit.
• 1. Develop understandable, high-quality, enforceable and globally accepted IFRSs through IASB.
  2. Promote the use and application of IFRSs.

Question 9

[C2/2/2.1]

The structure of IFRS Foundation and related bodies?

Answer 9

1. The Monitoring board appoints IFRS Foundation.
2. The IFRS Foundation appoints IASB and IFRS interpretation committee.
3. The IFRS Advisory Council advises to IASB and IFRS Foundation.
4. IFRS Intrep. Comm. reports to IASB.
5. IASB reports to IFRS Found.
6. IFRS Found. reports to monitoring board.

Question 10

[C2/2/2.1.1-2.1.2]

• What Does IFRS Advisory Council do?
• What does IFRS Interpretations Committee do?

Answer 10

• The IFRS Adv. Counc. is essentially a forum used by IASB to consult with the outside world.
• The IFRS Intrep. Comm. provides guidance on specific practical issues in the interpretations of IFRSs.

It has 2 main responsibilities:

1. To review newly identifies reporting issues, that are not addressed in IFRS in time.
2. To clarify unsatisfactory or conflicting issues.