Regulatory Framework Flashcards
What is the difference between a rules based and a principles based system
a rules based system contains rules which apply to specific scenarios
principles based systems cover a wide range of scenarios through principles do do not set out rules for each eventuality
The US has historically used a rules based system, how have many scandals arisen from this
companies acting in a way that avoids the rules/finds loop holes
what are the advantages of a principles based approach
rules can be broken and loopholes can be found where as principles are more likely to “catch all” scenarios
principles reduce the need for excessive detail
what are the disadvantages of principles based approach
principles can be overly flexible and therefore subject to manipulation
who are the users of accounting information
owners
competitors
customers
employees
government
investors
suppliers
lenders
what are the sources of regulation
legislation
accounting standards
stock exchange regulations
What are some of the requirements under Companies Act in Ireland
- outlines the accounting records that companies must keep
- requires companies to prepare a financial statement
- requires that these financial statements give a true and fair view
- outlines circumstances in which an audit is requireed
who creates accounting standards in UK and Ireland
Financial Reporting Council
who creates accounting standards in US
Financial Accounting Standards Board (FASB)
who creates international accounting standards
International Accounting Standards Board (IASB)
to which companies do stock exchange regulations apply to
companies quoted in a stock exchange
how might stick exchange regulations differ from normal regulation
eg requirement to publish quarterly figures
provide more detailed analysis than required by law or accounting standards
What is big GAAP
accounting regulations that apply for large companies
what are little GAAP
accounting regulations that applu for smaller companies
what does the IASB do
develop and amend international financial reporting standards
objectives of IASB
- develop accounting standards, in the public interest
- promote application of these standards
- work with national accounting standards setters to converge national accounting standards with IFRS
Steps in developing an international accounting standard
- identify topic area
- consider how conceptual framework applies to this area
- consult with national standard setters
- publication of discussion document and consider comments
- publication of draft
- publication of standard
what is the purpose of accounting standards
- reduce variation, promote uniformity, allow for comparisons to be drawn over time and between entities
- more likely that financial statements with provide faithful representation of entity’s financial performance and financial position
problems with international accounting standard
- lack flexibility
- allows entities to override a standard is compliance with standard would prevent faithful representation
Advantages of international standards for MNCs
- international financial information more understandable
- accounting for international subsidiaries prepared on the same basis
Advantages of international standards for investors
consistent, comparable
allows for more informed decision making
Advantages of international standards for tax authorities
tax liabilities easier to calculate
Advantages of international standards for accounting firms
practices exist on global basis
steps when changing to IFRS
- recognise all assets and liabilities required by international accounting standards
- don’t recognise assets and liabilities not permitted by international standards
- reclassify what was recognised as asset or libability previously but no longer is
- apply international standards in measuring all recognised assets and liabilities
