REFERENCE- CHAPTER 2
THE REGULATORY FRAMEWORK
The Regulatory System
The purpose of this section is to give a general picture of some of the factors which have
shaped financial accounting. We will concentrate on the accounts of limited liability
companies, as these are the accounts most closely regulated by statute or
otherwise.
The following factors that have shaped financial accounting can be identified.
National/local legislation
Accounting standards
Fair presentation
National/local legislation
In most countries, limited liability companies are required by law to prepare and
publish accounts annually. The form and content of the accounts is regulated
primarily by national legislation.
Accounting concepts and individual judgement
Financial statements are prepared on the basis of a number of fundamental accounting
assumptions and conventions. Many figures in financial statements
are derived from the application of judgement in putting these assumptions into
practice. It is clear that different people exercising their judgement on the same facts
can arrive at very different conclusions.
Examples of areas where the judgement of different people may vary are as follows.
a) Valuation of buildings in times of rising property prices.
b) Research and development: is it right to treat this only as an expense? In a
sense it is an investment to generate future revenue
c) Accounting for inflation.
Accounting standards
In an attempt to deal with some of the subjectivity, and to achieve comparability
between different organisations, accounting standards were developed. These are
developed at both a national level (in most countries) and an international level. The
FFNF3 syllabus is concerned with International Financial Reporting Standards (IFRSs).
International Financial Reporting Standards are produced by the International
Accounting Standards Board (lASB).
take account of the financial reporting needs of emerging economies and small
and medium-sized entities (SMEs)
Appoints
Reports to ____
Advises -- - - -
The IFRS Advisory Council (formerly called the Standards Advisory Council or SAC) is
essentially a forum used by the IASB to consult with the outside world. It consults with
national standard setters,
academics, user groups and a host of other interested parties to advise the IASB on a
range of issues, from the IASB's work programme for developing new IFRSs, to giving
practical advice on the implementation of particular standards.
The IFRS Advisory Council meets the IASB at least three times a year and puts
forward the views of its members on current standard-setting projects.
IFRS Interpretations Committee
The IFRS Interpretations Committee (formerly called the International Financial
Reporting Interpretations Committee or IFRIC) was set up in March 2002 and provides
guidance on specific practical issues in the interpretation of IFRSs. Note that despite the
name change, interpretations issued by the IFRS Interpretations Committee are still
known as IFRIC Interpretations. In your exam, you may see the IFRS Interpretations
Committee referred to as the IFRS IC.
The IFRS Interpretations Committee has two main responsibilities:
As national requirements
By companies themselves
In the UK the consolidated accounts of listed companies have had to be produced in
accordance with IFRSs since January 2005
Consultative Group
Board
On acceptance
Steering Committee
( Chaired by board members)
Discussion Paper
Public Comment
Exposure draft
Public Comment
IFRS
Current IFRSs
The current list is as follows. Those examinable in FFA/F3 are marked with
a *.
Framework for the Preparation and Presentation of Financial Statements*
IFRS 1
IFRS 2
IFRS 3*
IFRS 5
IFRS 6
IFRS 7
IFRS 8
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 13
IAS 1 *
IAS 2*
IAS 7*
IAS 8*
IAS 10*
IAS 11
IAS 12
IAS 16*
IAS 17
IAS 18*
IAS 19
IAS 20
IAS 21
IAS 23
IAS 24
IAS 27*
IAS 28*
IAS 29
IAS 31
IAS 32
IAS 33
IAS 34
IAS 36
IAS 37*
IAS 38*
IAS 39
IAS 40
IAS 41
Leases
Revenue
Employee benefits
Accounting for government grants and disclosure of government
assistance
The effects of changes in foreign exchange rates
Borrowing costs
Related party disclosures
Consolidated and separate financial statements
Investments in associates
Financial reporting in hyperinflationary economies
Interests in joint ventures
Financial instruments: presentation
Earnings per share
Interim financial reporting
Impairment of assets
Provisions, contingent liabilities and contingent assets
Intangible assets
Financial instruments: recognition and measurement
I nvestment property
Agriculture