week 1 slides - regulation

7/30/2019 Week 1 Slides - Regulation

1/26

1

REGULATORY

FRAMEWORK


2/26

2

REGULATORY FRAMEWORK

Need for regulation

Theories of regulation

Revision of UK regulatory framework International regulation

Guidance in issue

Conceptual frameworks Ethics for accountants


3/26

3

FREE MARKET PERSPECTIVE

Free market should ensure accountinginformation is reliable.

BUT:

Free market does not work

Wider share ownership

Nature of information

Differing user needs


4/26

4

IMPACT OF NO REGULATION

Directors lack knowledge

Lack of consistency and comparability

Aggressive earnings management


5/26

5

THEORIES OF REGULATION

Questions to answer:

Who should be the regulator? How should regulations be developed and

enforced?

Which entities should be regulated?


6/26

6

THEORIES OF REGULATION

Public interest theory

Capture theory

Private interest theory (economic interest

group)


7/26

7

TYPES OF REGULATION IN THE

UK

Statute

Stock Exchange

Financial Reporting Council

International regulation


8/26

8

STATUTE

EU directives

Companies Act 2006


9/26

9

STOCK EXCHANGE

Requires additional information to be

disclosed.

Sanctions

Publicity

Fines

De-listing


10/26

10

FINANCIAL REPORTING

COUNCIL

Financial Reporting

Council Council

Urgent

Issues

Task

force

Auditing

practices

board

Professional

Oversight

Board

Financial

Reporting

Review

panel

Accountancy

Actuarial

Discipline

Board

Committee

On

Corporate

Governance

Audit

Inspection

Unit

Accounting

standards

board


11/26

11

DEVELOPMENT OF FINANCIAL

REPORTING

Legal system

Financing methods

Taxation requirements Cultural factors

Other factors

Accidents of history


12/26

INTERNATIONAL REGULATORY

STRUCTURE

12


13/26

13

GUIDANCE ISSUED Corporate Governance Codes

UK Corporate Governance Code for Listed Companies UK Stewardship Code

Conceptual frameworks

Accounting standards

UITF Abstracts

Statements of Recommended Practice

Discussion papers and exposure drafts etc.

Other statements


14/26

14

CONCEPTUAL FRAMEWORKS

A statement of generally accepted

theoretical principles which form the frame

of reference for financial reporting.


15/26

15

NEED FOR CONCEPTUAL

FRAMEWORK

Standards may be:

Rationalising existing practice Based on theoretical assumptions

Developed on ad hoc basis


16/26

16

USE OF FRAMEWORKS

Assist standard setters

Developing new regulation

Reviewing existing regulation

Avoids too much detail

Protects setter from lobbyists

Acceptance of standards

Improves communication


17/26

17

USE OF FRAMEWORKS

Assists others

Preparers

Auditors

Users


18/26

18

AREAS TO COVER

How should an item be recorded?

How should an item be measured?

What presentation should be used?


19/26

19

CONTENT OF UK SOP

Objective of financial statements

Reporting entity

Qualitative characteristics of financial

information. Elements of financial statements

Recognition in financial statements

Measurement in financial statements

Presentation of financial information

Accounting for interests in other entities


20/26

20

ACCOUNTING STANDARDS

Statements of Standard Accounting

Practice (SSAPs)

Financial Reporting Standards (FRSs)

Financial Reporting Standard for Smaller

Entities (FRSSE)

International Accounting Standards(IAS/IFRS)

IFRS for Small and Medium Sized Entities


21/26

21

SWITCH TO IAS

Theoretically sound but practice?

Use of own GAAP in communications

High degree of compliance, but poor disclosures.

Distrust

Less understandable

More complex rules

Compliance focussed

Increased use of fair values

Impact on profit

Translation issues

Still not international harmonisation

Future of UK GAAP?


22/26

22

FUTURE OF UK GAAP

Approach suggested:

Publicly accountable entities to use IFRS Unquoted large & medium sized entities to

use IFRS for SMEs

Small companies to adopt FRSSE


23/26

23

DISADVANTAGE OF

REGULATION

Cost of development, issue &

enforcement.

Economic consequences

Regulation overload

Increasing complexity of financial accounts


24/26

24

ETHICS FOR ACCOUNTANTS

Fundamental principles

Integrity

Objectivity Professional competence and due care

Confidentiality

Professional behaviour


25/26

25

ACCOUNTANT AS GUARDIAN

Professional training includes:

Ethics

Internal controls and systems Stewardship concept

Rule orientation

Application of judgement Professionalism


26/26

26

RESOLVING CONFLICTS

Ensure relevant facts known

Refer to guidance

Consider internal procedures Consider consultation

Weigh up courses of action

Consider resigning if necessary

week 1 slides - regulation

Documents