Ch 4 - Regulatory Environment

Question 1

What are Financial Statements used for?

Answer 1

Making decisions.

Question 2

Who uses Financial Statements?

Answer 2

Used by shareholders and others to make decisions.

Question 3

In order to rely upon Financial Statements what should they be subject to?

Answer 3

Regulations - Published financial statements should be subject to regulation.

Question 4

What can regulation also promote?

Answer 4

Regulation can promote CONSISTENCY and COMPARABILITY. as well as providing guidance as to how they are interpreted.

Question 5

What are different countries subject to a variety of?

Answer 5

A variety of :-
* Economic
* Social and political factors.

Question 6

Because different countries are subject to a variety of Economic, Social and political factors…..

Answer 6

Regulation will vary from country to country.

Question 7

Explain what CODE LAW regarding Regulations is?

Answer 7

This is where accounting standards are embodied within the law.

Question 8

Explain what COMMON LAW regarding Regulations is?

Answer 8

This is based on case law and tends to have less detailed regulations.

Question 9

Give examples of Elements of a Regulatory Environment?

Answer 9

• Local law
• Local Accounting Standards
• International Accounting Standards
• Conceptual frameworks e.g. Statement of Principles in the UK
• Requirements of International Bodies.

Question 10

What is GAAP?

Answer 10

Generally Accepted Accounting Practice.

Question 11

Can you give explain GAAP?

Answer 11

Encompasses the CONVENTIONS, RULES and PROCEDURES necessary to define accepted accounting pratice.

Question 12

What does GAAP include?

Answer 12

It includes:-
* broad guidelines of general application
* detailed practices and procedures
* local legislation requirements
* accounting standards and any other
* local regulations.

Question 13

What does quasi-legislative mean?

Answer 13

Quasi-legislative powers or acts involve making rules that have to be obeyed, but are not law.

Question 14

What are the 2 approaches for accounting standards?

Answer 14

• Principles-based
• Rules-based

Question 15

Can you explain Principles-based approach to accounting standards?

Answer 15

A set of principles are established from which accounting standards are drawn - the SPIRIT of which should be followed.

Question 16

What is the approach to accounting standards adopted in the UK?

Answer 16

Principles-based.

Question 17

Can you explain Rules-based approach to accounting standards?

Answer 17

This approach is a set of DETAILED and SPECIFIC RULES in accounting stands which MUST BE FOLLOWED to the letter.

Question 18

Why are Principles harder to circumvent?

Answer 18

Because they focus on the underlying intent and overall ETHICAL conduct rather than specific details, making ti more difficult to find loopholes.

Question 19

Standardisation vs Harmonisation

Answer 19

STANDARDISATION - tends to imply rigid and a narrow set of rules

HARMONISATION - tends to mean the process of increasing compatibility.

Question 20

Which of the bodies is responsible for ISSUING IFRS Standards?

Answer 20

IASB - International Accounting Standards Board

Question 21

Under the current structure of the regulatory bodies which of the bodies ACTS as the overall supervisory body.

Answer 21

IFRS Foundation

Question 22

Which of the bodies is responsible for REVIEWING IFRS Standards and issuing guidance on their application.

Answer 22

IFRS Interpretation Committe

Question 23

Which best describes the role of the IFRS Advisory Council?

Answer 23

To provide the Board with the views of its members on standard setting projects.

Question 24

Which of the bodies is responsible for the APPROVAL of IFRS Interpretations?

Answer 24

IFRS Interpretations are subject to the BOARD approval.

Question 25

Is there a strict procedure for the development of IRFS Standards?

Answer 25

No strict process however it may involve steps.

Question 26

Outline 3 options for the development of financial reporting standards? ADVANTAGES

Answer 26

1. Adopting International Financial Reporting Standards (IFRS) as its local standards. The ADVANTAGE of this would be a quick approach and cheap to implement. 2. Modelling local standards on the Board's IFRSs, but amending them to reflect local needs and conditions. The ADVANTAGE of this would be the standards would be more relevant to the countrys needs but still compliant with International Standards. 3. The company could develop its own accounting standards with little or no reference to IFRSs. The ADVANTAGE would be that the standards woudl be specific to the needs of the country.

Question 27

Outline 3 options for the development of financial reporting standards? DISADVANTAGES

Answer 27

1. Adopting International Financial Reporting Standards (IFRS) as its local standards. The DISADVANTAGE is it may not take into account any specific local traditions or variations. 2. Modelling local standards on the Board's IFRSs, but amending them to reflect local needs and conditions. The DISADVANTAGES would be that it would take longer to create and implement and would require someone with expertise to exist within the local country to help create these standards. 3. The company could develop its own accounting standards with little or no reference to IFRSs. The DISADVANTAGE is they could be lengthy and costly to create. The standards may not be compliant with international standards and also require a person in the country with the appropriate expertise to help create these standards.

Question 28

What following steps may be involved in STANDARD SETTING?

Answer 28

* Establishment of an advisory committee to give advice. * The board develops and publishes a Discussion Paper for public comment; * Following the receipt and review of comments, an Exposure Draft is produced for public comment.; * Following the receipt and review of comments the approved IFRS will be published, including the DATE when it will become effective.

Question 29

Explain the role of the IFRS Foundation in relation to the regulatory environment to develop and publish IFRS Standards?

Answer 29

The IFRS is:- 1. an independent organisation made up of 22 trustees. 2. The trustees hold the responsibility for governance and fundraising and will publish an annual report on the Board's activities INCLUDING audited financial statements and priorities for the coming year. 3. They will review annually the strategy of the Board and its effectiveness and approve the annual budget and determine the basis for funding. 4. The Trustees also appoint the members of the Board, the IFRS Advisory Council and the IFRS Interpretations Committee. 5. Although the Trustees will decide on the operating procedures of the committees in the Board's family, they will be EXCLUDED from involvement in technical matters relating to accounting standards

Question 30

Explain the role of the International Accounting Standards Board (IASB) THE BOARD in relation to the regulatory environment to develop and publish IFRS Standards?

Answer 30

The Board :- 1. has complete responsibility for all international standard setting technical matters, including the PREPARATION and ISSUING of IFRS and Exposure Drafts 2. final approvals of Interpretations 3. some of the full-time members are responsible for liaising with national standard-setters in order to promote the convergence of accounting standards. 4. publishes its standards in a series of pronouncements called IFRS's 5. may form advisory committees or other specialist technical groups to advise on major projects and outsource detailed research or other work to national standard-setters.

Question 31

Explain the role of the IFRS Interpretations Committee in relation to the regulatory environment to develop and publish IFRS Standards?

Answer 31

The IFRS Interpretations Commitee:- 1. provides timely guidance on the application and interpretation of IFRSs 2. normally dealing with accounting issues that could IN THE ABSENCE OF GUIDANCE produce wide-ranging or unacceptable accounting treatements.

Question 32

Which body acts as the overall supervisory body?

Answer 32

IFRS Foundation

Question 33

Which body is responsible for reviewing IFRS Standards and issuing guidance on their application?

Answer 33

IFRS Interpretations Committee

Question 34

Which body is responsible for issuing IFRS Standards?

Answer 34

IASB - International Accounting Standards Board

Question 35

Which of the bodies is responsible for the approval of IFRS Interpretations?

Answer 35

IASB - International Accounting Standards Board

Question 36

Does the IASB ENFORCE international financial reporting standards?

Answer 36

NO, they are not responsible for enforcing the standards.

Question 37

What does ADVOCACY mean?

Answer 37

public support for or recommendation of a particular cause or policy. "his outspoken advocacy of the agreement has won no friends"

Question 38

What is not an acceptable measurement basis outlined by the framework for assets and liabilities?

Answer 38

INDEXED UNIT VALUE - is not an acceptable measurement. The value is calculated by using a formula that incorporates an index number, which tracks changes in the price level of a basket of goods or services. So sort of a guesstimation.