Regulatory Environment

Question 1

7 Areas of the Regulatory Framework:

Answer 1

1. Local or national company law
2. Local Accounting Standards
3. Legal and Taxation Systems
4. Conceptual Frameworks
5. International Accounting Standards
6. Security Exchange Guidelines
7. Requirements of international bodies and market regulators

Question 2

IFRS =

Answer 2

International Financial Reporting Standards

Question 3

What is driving the support for IFRS:

Answer 3

The standards bring:
- transparency
- accountability
- efficiency

Question 4

What is IASB:

Answer 4

International Accounting Standards Board
They reports to the IFRS Foundation.

Question 5

What are Conceptual Frameworks:

Answer 5

• they underpin the conventions and principles on which financial reporting and accounting standards are based.
  Examples are:
• For IFRS, IASBs Conceptual Framework.
• For US GAAP, FASBs Statement of Financial Accounting Concepts
• for UK Financial Reporting Standards, Concepts and Pervasive Pronciples

Question 6

Why an external audit?

Answer 6

An audit is designed to provide reasonable (but not absolute) assurance that the financial statements are fairly presented.

Question 7

CGMA Code of Ethics - 5 fundamental principles:

Answer 7

• integrity
• objectivity
• confidentiality
• professional competence and due care
• professional behaviour

Question 8

CGMA Code of conduct: 6 common threats:

Answer 8

• Self-interest
• Adverse interest threat
• Self review
• Familiarity
• Undue influence
• Advocacy (when an accountant attempts to promote the organisation’s interest in a dishonest and misleading way, when objectivity is compromised)

Question 9

What is Corporate Governance?

Answer 9

The system by which companies are directed and controlled.
Including:
- decision-making processes
- and controls in place in an organisation
- in order to ensure the interests of all stakeholders are balanced

Question 10

Agency theory (Corporate Governance):

Answer 10

When the shareholders hire directors to perform work: delegating the running of the business.
Directors may act according to their own goals as opposed to the interests of the organisation.
This has led to the need for Corporate Governance.

Question 11

Sarbanes-Oxley Act

Answer 11

This is a US act introduced after the collapse or Enron, it sets out in law certain Corporate Governance rules that listed companies in the US must abide by.

Question 12

Why does a company need Internal Controls?

Answer 12

• to reduce risks
• internal controls should be reviewed regularly to ensure they remain effective.

Question 13

5 Types of Internal Controls:

Answer 13

• Control environment
• Risk assessment
• Control activities
• Information & communication
• Monitoring activities

Question 14

Examples of internal
Control activities:

Answer 14

1. Physical controls, like CCTV, cameras, security system, badges, alarms, locks on cupboards
2. Authorisation and approval controls
3. Business performance reviews by management
4. Supervisory controls (for example 2 signatures on larger bank transactions)
5. Organisational controls:
   - division of responsibilities between departments
   - clear reporting lines and organisational hierarchy
   - policies for how authority is delegated within the organisation

6) reconciliation, verification and arithmetical controls (for example bank reconciliations)

7) Automated technology controls.