Regulatory Framework

Question 1

Purpose of the Regulatory Framework

Answer 1

1) Ensuring consistency and objectivity across entities

2) Providing reliable and faithful financial information

3) Enable informed decision-making by investors

4) Increasing credibility and transparency

5) Regulating the behaviour of commercial entities

6) Supporting CSR and ESG Objectives

Question 2

Principles Based Systems

Answer 2

• IFRS
• More flexible, and allows for the exercise of judgement
• Widely adopted
• Requires skilled interpretation
• Complex and can be judgement reliant

Question 3

Rules Based

Answer 3

• GAAPs
• More rigid, very little room for judgement
• Country specific ie US GAAP
• More protection from litigation
• May increase regulatory burden without adequate protection from creative accounting

Question 4

Statutory & Regulatory Frameworks

Answer 4

National/Company Law - Companies Act 2006, Sarbanes Oxley USA

Financial Reporting Bodies - IASB or FRC

Market Regulations - FCA rules

Industry-Specific Exchange Rules

Corporate Governance Framework

ESG and CSR Reporting Guidelines

Question 5

Agency Theory

Answer 5

• Conflict of interest between agents/managers and principals/owners
• Financial reporting helps to reduce information asymmetry
• External audit can mitigate conflicts

Question 6

Role of Financial Reporting

Answer 6

1) To improve transparency

2) To minimise creative accounting

3) To ensure comparability between entities and across time

4) To provide high quality information to stakeholders

Question 7

Arguments Against Standardisation

Answer 7

1) Ignores cultural and sectoral differences

2) Reduces the need for professional judgement

3) Creates an illusion of comparability

4) May create complex, inflexible rules

Question 8

UK Specific Framework

Answer 8

CA 2006 requires either use of IFRS or UK GAAP depending on:

Whether or not company is listed, and simplified rules for small companies

Purpose is to improve communication, stakeholder protection, and investment climate

Question 9

IFRS by IASB

Answer 9

Fundamental and enhancing qualitative characteristics (e.g. relevance, faithful representation)

Definitions and recognition criteria for elements

Concepts of capital maintenance

Supports global comparability and cross-border listings

Question 10

IFRS Pros

Answer 10

Facilitates cross-border M&A, investment, and global operations

Improves transparency and reliability

Framework is readily available as a guide for preparation and interpretation

Question 11

IFRS Cons

Answer 11

High costs of implementation

Possible conflicts with local GAAP

Potential issues for emerging economies

Question 12

Environmental & Social Reporting

Answer 12

Mandatory GHG emissions reporting for quoted companies

Provides:

Risk management
Competitive & legal advantage
CSR compliance
Marketing benefits

Question 13

Integrated Reporting

Answer 13

Holistic view combining financial, environmental & social performance

Adds value to reporting for a broader range of stakeholders

Question 14

CSR Commitments

Answer 14

Ethical operations in pursuit of profit (profit remains central)

Categories:

Economic – long-term profitability

Legal – law compliance in all jurisdictions

Ethical – fair supplier/employee treatment

Philanthropy – support for social causes

Question 15

Social Accounting

Answer 15

Tracks and reports non-financial performance related to CSR

Can influence investor trust and public reputation