Standards Overview (16.1)

Question 1

Describe the importance of financial reporting standards

Answer 1

The conceptual framework is used in the development of accounting standards.

Financial reporting standards are needed to provide consistency by narrowing the range of acceptable financial reports.

Financial reporting is not designed solely for valuation purposes; however, it does provide important inputs for valuation purposes.

Question 2

Describe the roles of financial reporting standard-setting bodies in establishing reporting standards.

Answer 2

Standard-setting bodies are professional organizations of accountants and auditors that ESTABLISH financial reporting standards.

Question 3

Describe the roles of financial reporting regulatory authorities in enforcing reporting standards.

Answer 3

Regulatory authorities are GOVERNMENT agencies that have the legal authority to ENFORCE compliance with financial reporting standards.

Question 4

What are the two primary standard-setting bodies?

Answer 4

In the US: Financial Accounting Standards Board (FASB) - sets forth Generally Accepted Accounting Principles (GAAP)

Int’l: International Accounting Standards Board (IASB) - establishes International Financial Reporting Standards (IFRS)

*Note: In the European Union, each member state has its own securities regulations, but all countries in the EU are required to report using IFRS.

Question 5

Describe International Organization of Securities Commissions (IOSCO).

Answer 5

Most national authorities belong to the International Organization of Securities Commissions (IOSCO). Together, the members of IOSCO regulate more than 95% of the world’s financial markets.

IOSCO is NOT A REGULATORY BODY but its members work together to make national regulations and enforcement more uniform around the world.

Question 6

What are the two main regulatory bodies

Answer 6

Securities and Exchange Commission (SEC) in the United States
Financial Conduct Authority in the United Kingdom

*Both are established by national governments

*Note: The European Commission also has established the European Securities Commission, which advises the European Commission on securities regulation issues, and the European Securities and Market Authority (ESMA), which coordinates regulation within the EU.