REGULATORY FRAMEWORK

REGULATORY FRAMEWORK
Need for regulation Theories of regulation Revision of UK regulatory framework International regulation Guidance in issue Conceptual frameworks Ethics for accountants
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FREE MARKET PERSPECTIVE

Free market should ensure accounting information is reliable. BUT: Free market does not work
Wider share ownership Nature of information Differing user needs
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IMPACT OF NO REGULATION
Directors lack knowledge Lack of consistency and comparability Aggressive earnings management

THEORIES OF REGULATION
Questions to answer: Who should be the regulator? How should regulations be developed and enforced? Which entities should be regulated?

THEORIES OF REGULATION
Public interest theory Capture theory Private interest theory (economic interest group)

TYPES OF REGULATION IN THE UK

Statute Stock Exchange Financial Reporting Council International regulation
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STATUTE
EU directives Companies Act 2006

STOCK EXCHANGE
Requires additional information to be disclosed. Sanctions
Publicity Fines De-listing

FINANCIAL REPORTING COUNCIL

Financial Reporting Council Council

Accounting standards board

Auditing practices board

Financial Reporting Review panel

Accountancy Actuarial Discipline Board

Professional Oversight Board

Committee On Corporate Governance

Urgent Issues Task force

Audit Inspection Unit

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DEVELOPMENT OF FINANCIAL REPORTING

Legal system Financing methods Taxation requirements Cultural factors Other factors Accidents of history

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INTERNATIONAL REGULATORY STRUCTURE

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GUIDANCE ISSUED
Corporate Governance Codes
UK Corporate Governance Code for Listed Companies UK Stewardship Code

Conceptual frameworks Accounting standards UITF Abstracts

Statements of Recommended Practice

Discussion papers and exposure drafts etc. Other statements
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CONCEPTUAL FRAMEWORKS
A statement of generally accepted theoretical principles which form the frame of reference for financial reporting.

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NEED FOR CONCEPTUAL FRAMEWORK

Standards may be: Rationalising existing practice Based on theoretical assumptions Developed on ad hoc basis

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USE OF FRAMEWORKS
Assist standard setters
Developing new regulation Reviewing existing regulation Avoids too much detail Protects setter from lobbyists Acceptance of standards Improves communication

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USE OF FRAMEWORKS
Assists others
Preparers Auditors Users

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AREAS TO COVER
How should an item be recorded? How should an item be measured? What presentation should be used?

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CONTENT OF UK SOP
Objective of financial statements Reporting entity Qualitative characteristics of financial information. Elements of financial statements Recognition in financial statements Measurement in financial statements Presentation of financial information Accounting for interests in other entities
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ACCOUNTING STANDARDS
Statements of Standard Accounting Practice (SSAPs) Financial Reporting Standards (FRSs) Financial Reporting Standard for Smaller Entities (FRSSE) International Accounting Standards (IAS/IFRS) IFRS for Small and Medium Sized Entities
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SWITCH TO IAS
Theoretically sound but practice? Use of own GAAP in communications High degree of compliance, but poor disclosures. Distrust Less understandable More complex rules Compliance focussed Increased use of fair values Impact on profit Translation issues Still not international harmonisation Future of UK GAAP?

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FUTURE OF UK GAAP
Approach suggested: Publicly accountable entities to use IFRS Unquoted large & medium sized entities to use IFRS for SMEs Small companies to adopt FRSSE

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DISADVANTAGE OF REGULATION
Cost of development, issue & enforcement. Economic consequences Regulation overload Increasing complexity of financial accounts

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ETHICS FOR ACCOUNTANTS

Fundamental principles Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour

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ACCOUNTANT AS GUARDIAN
Professional training includes: Ethics Internal controls and systems Stewardship concept Rule orientation Application of judgement Professionalism
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RESOLVING CONFLICTS
Ensure relevant facts known Refer to guidance Consider internal procedures Consider consultation Weigh up courses of action Consider resigning if necessary

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