What is the Regulatory Framework?
Regulatory Framework: the rules and regulations that govern financial reporting.
Companies Act 2006: includes over 1300 sections rewriting UK company law and is the longest statute ever passed in the UK.
IASB - International Accounting Standard Board
Based in London - 14 members from 9 countries (mix of auditors, preparers and users of financial statements).
Objectives of IASB:
- To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements and to promote the use and application of those standards.
- To co-operate with national accounting setters to achieve convergence in accounting standards around the world.
IOSCO - International Organisation of Securities C
- Represents securities markets regulators.
- Actively encourages harmonisation of standards to assist worldwide standardisation of reporting by international companies on different exchanges and markets.
Main Bodies of the IASB
IFRS Foundation: parent entity of the IASB - 2 main bodies consisting of Trustees and IASB.
Trustees: appoints the IASB members / exercises oversight / raises funds required.
IASB: has sole responsibility for seting international accounting standards.
- IFRS Advisory Council
- IFRS Interpretations Committee
Standard Setting Process
1. Establishment of a Standards Advisory Council - gives advice on early stages of a new project.
2. Development of a discussion document for public comment.
3. Review of response and issue of an Exposure Draft of the new IFRSs again for public comment.
4. Review of responses and issue of new IFRS.
Similarities with UK domestic process - current discussion on best method of co-ordination with domestic standard setters.
Arguments FOR standard setting process
- Reduce or eliminate confusing variations in methods used to prepare accounts.
- Provide a focal point for debate.
- Obligations to disclose information.
- Less rigid than using legislation.
- Promote harmonisation.
- Promote comparability between companies.
Arguments AGAINST standard setting process
- Arguable that they are too restrictive
- Minimuse the opportunity for companies to choose the appropriate policies for them
- May dictate policies which are inappropriate for a particular company
- Rules based rather than principles based
- Have been shown to be subject to political pressure
- Resistance from some countries (USA + Japan)
- Difficulties of international consensus
Standard Setting Process
There is a drive to establish a conceptual framework for standard setting.
Development of a statement of generally accepted theoretical principles to form the frame of reference for financial reporting.
Statement of Principles exists in UK corporate reporting.
To promote consistency in the approach to reviewing existing, and developing new, standards.
GAAP - Generally Accepted Accounting Practice
Refers to all the rules, from whatever source, which govern UK accounting.
In the UK, GAAP has no statutory or regulatory authority or definition.
- National company law
- National accounting standards
- Local stock exchange requirements
Also influenced by:
- International accounting standards
- Supra-national bodies such as IOSCO and the EC
- Pressure from influential countries such as USA (i.e. reporting requirements can lead to dual reporting).
Key element underlying the creation and maintenance of international standards in the IASB framework.