Lecture 1

Question 1

Accounting regulation structure - general legislation

Answer 1

Stock exchange and industry code of practice

Question 2

Regulation structure facts

Answer 2

Companies act 1981 - mandates format for financial statements requires audits showing a true and Fairview
IASB - sets IFRS in UK and 147 jurisdictions
FASB - sets US GAAP used in US
Stock exchange markets - public companies must comply with UK bribery act and modern slavery act
Financial conduct authority - regulate roughly 42,000 businesses and ensures fair competitive honest financial markets
Prudential regulation authority - regulates roughly 1500 major firms banks and insurers
Industry code of practice - sector specific ethical guidelines e.g. UK corporate governance code (comply or explain)

Question 3

Accounting Standards (IASB)

Answer 3

Key standards:
- IFRS 15 - revenue recognition
- IAS 2 - inventories
- IAS 1 - financial statement presentation

Question 4

Accoutning core principles (conceptual framework)

Answer 4

Relevance, faithful representation, comparability, verifiability, timeliness, understandability

Question 5

Roles of auditors

Answer 5

• hired by management serve shareholders
• give opinion on whether the financial statements are true and fair
• increase assurance and trust
• can flag disagreement with company practices

Question 6

Agency problem - parties involved

Answer 6

• managers act for shareholders
• auditors act as agents to check on managers

Question 7

Agency problem - issues

Answer 7

Self interest may override shareholder interests

Question 8

Agency problem - examples

Answer 8

Profit manipulation, excessive executive pay, nepotism

Question 9

Agency problem - solution

Answer 9

Governance plus regulation plus external auditing

Question 10

Earnings managements vs creative accounting

Answer 10

Earning management = intentionally adjusting financials to meet targets
Creative accounting = manipulation of counting standards standards for unethical goals often leads to scandals