week 1 slides - regulation
TRANSCRIPT
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REGULATORY
FRAMEWORK
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REGULATORY FRAMEWORK
Need for regulation
Theories of regulation
Revision of UK regulatory framework International regulation
Guidance in issue
Conceptual frameworks Ethics for accountants
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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
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IMPACT OF NO REGULATION
Directors lack knowledge
Lack of consistency and comparability
Aggressive earnings management
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THEORIES OF REGULATION
Questions to answer:
Who should be the regulator? How should regulations be developed and
enforced?
Which entities should be regulated?
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THEORIES OF REGULATION
Public interest theory
Capture theory
Private interest theory (economic interest
group)
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TYPES OF REGULATION IN THE
UK
Statute
Stock Exchange
Financial Reporting Council
International regulation
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STATUTE
EU directives
Companies Act 2006
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STOCK EXCHANGE
Requires additional information to be
disclosed.
Sanctions
Publicity
Fines
De-listing
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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
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DEVELOPMENT OF FINANCIAL
REPORTING
Legal system
Financing methods
Taxation requirements Cultural factors
Other factors
Accidents of history
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INTERNATIONAL REGULATORY
STRUCTURE
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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
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CONCEPTUAL FRAMEWORKS
A statement of generally accepted
theoretical principles which form the frame
of reference for financial reporting.
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NEED FOR CONCEPTUAL
FRAMEWORK
Standards may be:
Rationalising existing practice Based on theoretical assumptions
Developed on ad hoc basis
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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
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USE OF FRAMEWORKS
Assists others
Preparers
Auditors
Users
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AREAS TO COVER
How should an item be recorded?
How should an item be measured?
What presentation should be used?
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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
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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
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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?
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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
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DISADVANTAGE OF
REGULATION
Cost of development, issue &
enforcement.
Economic consequences
Regulation overload
Increasing complexity of financial accounts
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ETHICS FOR ACCOUNTANTS
Fundamental principles
Integrity
Objectivity Professional competence and due care
Confidentiality
Professional behaviour
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ACCOUNTANT AS GUARDIAN
Professional training includes:
Ethics
Internal controls and systems Stewardship concept
Rule orientation
Application of judgement Professionalism
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RESOLVING CONFLICTS
Ensure relevant facts known
Refer to guidance
Consider internal procedures Consider consultation
Weigh up courses of action
Consider resigning if necessary