Regulatory Framework in Accounting

Overview of Regulatory Framework

• Purpose: Understanding the regulatory system for developing International Financial Reporting Standards (IFRS).

• Focus: Different regulatory bodies and their roles in producing comparable and fair financial statements.

Importance in Examination

• Knowledge-based area with factual questions.

• Questions will typically focus on identifying regulatory bodies and their functions.

Financial Reporting Standards

• Established to ensure financial statements are:

  • Comparable

  • Present a true and fair view of the company’s financial position.

• Stakeholders include:

  • Owners

  • Employees

  • Customers

• Key term: "True and Fair View" - highlights the need for accuracy and fairness in financial reporting.

National Legislation

• Companies must prepare and publish annual accounts under national laws.

• National regulations may connect with international frameworks for accountability.

• Necessity for accounting standards arises from potential subjectivity in using general accounting concepts without standards.

IFRS Standards

• Standards aim for consistency and comparability in financial reporting across different organizations.

• Current focus is on IFRS standards, mixtures of International Accounting Standards (IAS) and IFRS.

Key Regulatory Bodies

IFRS Foundation

• Role: Manages the overall regulatory system.

• Appoints trustees to other regulatory bodies (e.g., IASB) and provides financial support.

• Does not directly issue standards but oversees the process.

International Accounting Standards Board (IASB)

• Issues accounting standards under the IFRS framework.

• Works with national accounting standards to achieve global convergence.

IFRS Interpretations Committee

• Provides guidance on applying IFRS standards in practice.

• Clarifies conflicting interpretations and addresses emerging financial reporting issues.

International Sustainability Standards Board (ISSB)

• Established in 2021 to address the need for sustainability reporting standards.

• Focuses on regulating disclosures about environmental impacts and social responsibility relevant to investors.

Advisory Council

• Consults with various stakeholders to ensure standards are practical and applicable.

• Provides advice to IASB based on external input.

Role of IFRS Standards

• Recognition: When to record transactions in financial statements.

• Measurement: How to determine the value at which transactions are recorded (e.g., cost vs. market value).

• Presentation: Guidelines for structuring main financial statements (Statement of Financial Position, Statement of Profit or Loss).

• Disclosure: Requirements for footnotes and detailed information accompanying financial statements.

Key Activities and Concepts

• Understanding regulatory roles is essential for exam preparation.

• Interaction between IFRS standards and national regulations.

• Process of developing IFRS standards, including consultation and exposure drafts.

Summary Points for Recollection

• Remember key bodies: IFRS Foundation, IASB, IFRS Interpretations Committee, ISSB.

• Know that IFRS standards guide companies on recording, measuring, presenting, and disclosing financial information.

• Keep track of recent trends in sustainability and how they relate to financial reporting standards.