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Revise Lecture 1

Revise Lecture 1. Framework of Financial Reporting. 1. The regulatory system 2. A conceptual framework. A Concept and Regulatory Framework. The regulatory system. A Concept and Regulatory Framework.

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Revise Lecture 1

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  1. Revise Lecture 1

  2. Framework of Financial Reporting 1. The regulatory system 2. A conceptual framework

  3. A Concept and Regulatory Framework • The regulatory system

  4. A Concept and Regulatory Framework • The regulatory framework of accounting in each country which uses IFRS is affected by a number of legislative and quasi-legislative influences as well as IFRS • National company law • EU directives • Security exchange rules

  5. A Concept and Regulatory Framework • Why a regulatory framework is necessary? Regulation of accounting information is aimed at ensuring that users of financial statements receive a minimum amount of information that will enable them to make meaningful decisions regarding their interest in a reporting entity.

  6. A Concept and Regulatory Framework • Why a regulatory framework is necessary? A regulatory framework is required to ensure that relevant and reliable financial reporting is achieved to meet the needs of shareholders and other users.

  7. A Concept and Regulatory Framework • Why a regulatory framework is necessary? Accounting standards on their own would notbe a complete regulatory framework. In order to fully regulate the preparation of financial statements and the obligations of companies and directors, legal and market regulations are also required.

  8. A Concept and Regulatory Framework • Principles-based and Rules-based framework

  9. A Concept and Regulatory Framework Principles-based framework • Based upon a conceptual framework such as the IASB’s framework • Accounting standards are set on the basis of the conceptual framework

  10. A Concept and Regulatory Framework Rules-based framework • ‘Cookbook’ approach • Accounting standards are a set of rules which companies must follow In the UK there is a principles-based framework in terms of the statement of principles and accounting standards and a rules-based framework in terms of the companies Acts, EU directives and stock exchange rulings.

  11. A Concept and Regulatory Framework Harmonisation of accounting standards There are a number of reasons why the harmonisation of accounting standards would be beneficial. Businesses operate on a global scale and investors make investment decisions on a worldwide basis. There is thus a need for financial information to be presented on a consistent basis

  12. A Concept and Regulatory Framework Harmonisation of accounting standards - Advantages For Multinational companies; • Access to International finance would be easier as financial information is more understandable if it is prepared on a consistent basis. • There would be greater efficiency in accounting departments • Consolidation of FS would be easier

  13. A Concept and Regulatory Framework Harmonisation of accounting standards – Advantages For Investors; • If investors whish to make decisions based on the worldwide availability of investments, then better comparisons between entities are required. • Harmonisation assists this process, as financial information would be consistent between different entities from different region.

  14. A Concept and Regulatory Framework Harmonisation of accounting standards – Advantages Tax authorities – Tax liabilities of investor’s should be easier to calculate Large International accounting firms – Accounting firms would benefit as accounting and auditing would be easier if similar accounting practices existed on a global basis

  15. A Concept and Regulatory Framework Harmonisation of accounting standards – Disadvantages • Difficult to introduce, apply and maintain or enforce in different countries, each of which has a range of social, political, economic and business factors to consider • Different legal systems may prevent the application of certain accounting practices and restrict the options available

  16. A Concept and Regulatory Framework The Standard Setting Process • IFRS Foundation • IASB • IFRS Interpretations Committee • IFRS Advisory Council

  17. A Concept and Regulatory Framework IFRS Foundation The IFRS foundation (Formely known as the International Accounting standard committee foundation IASC) • Is the supervisory body for the IASB • Is responsible for governance issues and ensuring each body is properly funded

  18. A Concept and Regulatory Framework The objectives of the IFRS foundation are to; • Develop a set of global accounting standards which are of high quality, are understandable and are enforceable • Which require high quality, transparent and comparable information in FS to help those in the world’s capital markets and other users make economic decisions • Promote using and applying these standards

  19. A Concept and Regulatory Framework International Accounting Standard Board (IASB) • Is solely responsible for issuing International Accounting Standards • Standards now called International Financial Reporting Standards (IFRSs) • Has the same objectives as the IFRS foundations

  20. A Concept and Regulatory Framework IFRS Interpretations Committee • Issues rapid guidance on accounting matters where divergent interpretations of IFRSs have arisen • Issues interpretations called IFRIC 1, IFRIC 2 etc

  21. A Concept and Regulatory Framework IFRS Interpretations Committee • The IFRIC addresses issues of reasonably widespread importance, not issues that are of concern to only a small minority of entities. The interpretations cover both; • Newly identified financial reporting issues not specifically dealt with in IFRSs or • Issues where unsatisfactory or conflicting interpretation have developed or seem likely to develop in the absence of authoritative guidance, with a view to reaching a consensus on the appropriate treatment

  22. A Concept and Regulatory Framework The IFRS Advisory Council • The IFRS advisory council (formely known as the standards advisory council) provides a forum for the IASB to consult a wide range of interested parties affected by the IASB’s work, with the objective of; • Advising the board on agenda decisions and priorities in the board’s work

  23. A Concept and Regulatory Framework The IFRS Advisory Council • Informing the board of the views of the organisations and individuals on the council on major standard-setting projects • Giving other advice to the board or to the trustees

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