Regulatory Framework

Question 1

What is the difference between a rules based and a principles based system

Answer 1

a rules based system contains rules which apply to specific scenarios

principles based systems cover a wide range of scenarios through principles do do not set out rules for each eventuality

Question 2

The US has historically used a rules based system, how have many scandals arisen from this

Answer 2

companies acting in a way that avoids the rules/finds loop holes

Question 3

what are the advantages of a principles based approach

Answer 3

rules can be broken and loopholes can be found where as principles are more likely to “catch all” scenarios

principles reduce the need for excessive detail

Question 4

what are the disadvantages of principles based approach

Answer 4

principles can be overly flexible and therefore subject to manipulation

Question 5

who are the users of accounting information

Answer 5

owners
competitors
customers
employees
government
investors
suppliers
lenders

Question 6

what are the sources of regulation

Answer 6

legislation
accounting standards
stock exchange regulations

Question 7

What are some of the requirements under Companies Act in Ireland

Answer 7

• outlines the accounting records that companies must keep
• requires companies to prepare a financial statement
• requires that these financial statements give a true and fair view
• outlines circumstances in which an audit is requireed

Question 8

who creates accounting standards in UK and Ireland

Answer 8

Financial Reporting Council

Question 9

who creates accounting standards in US

Answer 9

Financial Accounting Standards Board (FASB)

Question 10

who creates international accounting standards

Answer 10

International Accounting Standards Board (IASB)

Question 11

to which companies do stock exchange regulations apply to

Answer 11

companies quoted in a stock exchange

Question 12

how might stick exchange regulations differ from normal regulation

Answer 12

eg requirement to publish quarterly figures

provide more detailed analysis than required by law or accounting standards

Question 13

What is big GAAP

Answer 13

accounting regulations that apply for large companies

Question 14

what are little GAAP

Answer 14

accounting regulations that applu for smaller companies

Question 15

what does the IASB do

Answer 15

develop and amend international financial reporting standards

Question 16

objectives of IASB

Answer 16

• develop accounting standards, in the public interest
• promote application of these standards
• work with national accounting standards setters to converge national accounting standards with IFRS

Question 17

Steps in developing an international accounting standard

Answer 17

• identify topic area
• consider how conceptual framework applies to this area
• consult with national standard setters
• publication of discussion document and consider comments
• publication of draft
• publication of standard

Question 18

what is the purpose of accounting standards

Answer 18

• reduce variation, promote uniformity, allow for comparisons to be drawn over time and between entities
• more likely that financial statements with provide faithful representation of entity’s financial performance and financial position

Question 19

problems with international accounting standard

Answer 19

• lack flexibility
• allows entities to override a standard is compliance with standard would prevent faithful representation

Question 20

Advantages of international standards for MNCs

Answer 20

• international financial information more understandable
• accounting for international subsidiaries prepared on the same basis

Question 21

Advantages of international standards for investors

Answer 21

consistent, comparable

allows for more informed decision making

Question 22

Advantages of international standards for tax authorities

Answer 22

tax liabilities easier to calculate

Question 23

Advantages of international standards for accounting firms

Answer 23

practices exist on global basis

Question 24

steps when changing to IFRS

Answer 24

1. recognise all assets and liabilities required by international accounting standards
2. don’t recognise assets and liabilities not permitted by international standards
3. reclassify what was recognised as asset or libability previously but no longer is
4. apply international standards in measuring all recognised assets and liabilities