framework Flashcards
why is a regulatory framework needed?
1) consistency. ensures everyone follows the same rules and easy to understand and compare
2) Transparency: requires disclosures so users can make informed decisions, builds trust
3) Accountability: consequences for those who dont follow the rules. helps prevent fraud, promotes honesty
4) Global Comparisons: easier comparison of financial information globally.
Investor Confidence: When there’s a clear and standardized set of rules, investors and creditors feel more confident about investing or lending money to a company. They know that the financial information is prepared in a consistent and reliable manner.
why are accounting standards on their own not a complete regulatory framework
-limited scope. they focus on reporting and disclosure. not on corporate behavior, ethical considerations, social responsibility
-lack of enforcement mechanisms
-business environment is dynamic, evolving, ac standards may struggle to keep up, leaving gaps
-subjectivity and judgement are used in some standards
-risks and contingencies may not be adequately addressed by accounting standards
qualitative characteristics - make information useful to others. what r the two categories of QC?
1) fundamental QC:
-relevance
-faithful reperesentation
2) enhancing QC
-comparability
-verifiability
-timeliness
-understandibility
what makes info relevant?
-ability to influence economic decisions of users
-timeliness
qualities of relevance:
1) predictive: allows to assess past, present or future events
2) confirmatory - helps confirm past evaluations
when there is a choice to be made between mutually exclusive options
select the one that results in maximum relevance of info. the one that would be most use in mmaking economic decisions
faithful representation
substance over form
-completeness of info
-neutrality of info
-free from error
principle v rules based framework
Principles-Based Framework:
Broad guidelines and principles.
Emphasizes professional judgment.
Adaptable to changing environments.
Rooted in fundamental concepts.
Rules-Based Framework:
Specific and detailed rules.
Prescriptive instructions.
May lead to complexity.
Aims for standardization.
IASB standard setting process
Agenda Setting:
Identification of issues and topics that require standardization.
Stakeholder input and consultation to determine priorities.
Research and Discussion:
In-depth research and analysis of the identified issues.
Extensive discussions among IASB members and stakeholders.
Proposal (Exposure Draft):
Development of an Exposure Draft outlining proposed changes or a new standard.
Public exposure for comments and feedback from stakeholders.
Analysis of Feedback:
Evaluation of feedback received during the exposure period.
Revisions and refinements to the proposed standard based on feedback.
Deliberation and Approval:
Further discussions within the IASB to address issues and finalize the standard.
Approval by a majority vote of the IASB members.
Publication:
Publication of the finalized standard with supporting materials.
Effective Date:
Determination of the effective date for implementation.
Post-Implementation Review:
Monitoring and evaluation of the standard’s implementation and impact.
For revisions and interpretations:
Revisions:
Similar process as developing new standards but may involve amending existing standards.
Exposure Draft, analysis of feedback, deliberation, and approval.
Interpretations:
Issued by the IFRS Interpretations Committee (IFRIC).
Addresses implementation issues and provides guidance on existing standards.
Similar process with exposure for public comments, analysis, and final approval.
This process ensures a transparent and collaborative approach to standard-setting, involving input from various stakeholders globally. It also allows for ongoing revisions and interpretations to address emerging issues and improve the relevance and reliability of IFRS.
how are IASB and national standard setters different when it comes to the standard setting process
Scope and Jurisdiction:
IASB: The IASB operates at the international level and is responsible for developing International Financial Reporting Standards (IFRS), which are intended for global use. IFRS aims to provide a common set of accounting standards that can be applied across borders, promoting consistency and comparability in financial reporting.
National Standard Setters: National standard setters operate at the country or regional level and are responsible for developing accounting standards applicable within their specific jurisdiction. These standards may vary between countries, leading to differences in financial reporting practices.
Global vs. Local Applicability:
IASB: IFRS issued by the IASB is designed to be applied globally. While jurisdictions may adopt IFRS, they might allow or require additional disclosures to address specific national requirements.
National Standard Setters: Standards developed by national standard setters are typically tailored to the specific legal, economic, and regulatory environments of their respective countries, making them more localized in their applicability.
International Collaboration:
IASB: The IASB collaborates with national standard setters, regulators, and accounting professionals globally to ensure diverse perspectives are considered in the standard-setting process. However, the IASB is an independent international body.
National Standard Setters: Collaboration is primarily within their national or regional boundaries, focusing on addressing local needs and regulatory requirements.
Standard-Setting Process:
IASB: Follows a thorough due process involving research, public consultation, exposure drafts, analysis of feedback, and final issuance. The process is designed to be transparent, inclusive, and globally relevant.
National Standard Setters: While they may follow a similar due process, the focus is on addressing the specific needs and concerns of their jurisdiction. The processes may vary in terms of stakeholder engagement and global perspectives.
Enforcement and Adoption:
IASB: Relies on individual jurisdictions to adopt and enforce IFRS. Enforcement mechanisms may vary between countries.
National Standard Setters: Responsible for enforcement within their own jurisdictions and may have authority over compliance with locally adopted standards.
In summary, while both the IASB and national standard setters contribute to the development of accounting standards, the IASB operates on a global scale, aiming for international harmonization, while national standard setters focus on addressing the unique requirements and circumstances of their respective jurisdictions
conceptual framework
A conceptual framework in accounting is a foundational structure that outlines fundamental concepts, principles, and objectives to guide the development and application of accounting standards. It provides a theoretical basis for creating consistent and coherent financial reporting.
what would be the alternative to conceptual framework
An alternative to a conceptual framework in accounting might be a prescriptive set of specific rules and regulations without a comprehensive underlying theoretical foundation. Instead of relying on overarching principles, this alternative approach would emphasize detailed instructions for various accounting treatments. However, such a rules-only approach may lack flexibility, adaptability to evolving business environments, and a conceptual basis for understanding and interpreting accounting standards.
