Scribd
Upload
869 views

FA - Financial Accounting: Chapter 2 - Regulatory Framework

The regulatory framework for financial accounting has been shaped by several factors, including national legislation, accounting concepts and judgment, accounting standards, and generally accepted accounting practices (GAAP). National laws require companies to prepare and publish annual accounts, with the form and content regulated by legislation. Many accounting figures involve judgment. Accounting standards were developed to introduce objectivity and comparability. The International Accounting Standards Board issues International Financial Reporting Standards. The conceptual framework establishes principles for financial reporting and provides the foundation for accounting standards. It outlines objectives, qualitative characteristics and elements of financial statements.

Uploaded by

Sumiya Yousef
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
869 views

FA - Financial Accounting: Chapter 2 - Regulatory Framework

The regulatory framework for financial accounting has been shaped by several factors, including national legislation, accounting concepts and judgment, accounting standards, and generally accepted accounting practices (GAAP). National laws require companies to prepare and publish annual accounts, with the form and content regulated by legislation. Many accounting figures involve judgment. Accounting standards were developed to introduce objectivity and comparability. The International Accounting Standards Board issues International Financial Reporting Standards. The conceptual framework establishes principles for financial reporting and provides the foundation for accounting standards. It outlines objectives, qualitative characteristics and elements of financial statements.

Uploaded by

Sumiya Yousef
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 23

FA – Financial Accounting

Chapter 2 – Regulatory Framework


THE REGULATORY FRAMEWORK
A number of factors have shaped the
development of financial accounting.

 National/local legislation
 Accounting concepts and individual
judgment
 Accounting standards
 Generally accepted accounting
practices (GAAP)
1. NATIONAL / LOCAL
LEGISLATION
 Inmost 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.
2. ACCOUNTING CONCEPTS AND
INDIVIDUAL JUDGMENT
 Many figures in financial statements are
derived from the application of
judgment
 It is clear that different people
exercising their judgment on the same
facts can arrive at very different
conclusions.
 Eg: Valuation of buildings in times of
rising property prices. Research and
development. Accounting for inflation.
3. ACCOUNTING STANDARDS
 Inan attempt to deal with some of the
subjectivity, and to achieve
comparability between different
organisations, accounting standards
were developed.
 InternationalFinancial Reporting
Standards (IFRS) are produced by the
International Accounting Standards
Board (IASB)
IASB
 IASBis an independent, privately-funded body
that develops and approves IFRSs.
 Prior
to 2003, standards were issued as
International Accounting Standards (IASs) In
2003 IFRS 1 was issued and all new standards
are now designated as IFRSs
IFRS FOUNDATION
 The IASB operates under the oversight of the IFRS
Foundation.
 objectives of IFRS Foundation :
 Develop a single set of high quality,
understandable, enforceable and globally
accepted IFRSs through IASB
 Promote use and application of those standards
 Take account of the financial reporting needs of
emerging economies and SMEs
 Bring about convergence of national accounting
standards and IFRSs to high quality solutions.
TWO COMMITTEES
 IFRS Advisory Council-
isa forum used by the IASB to consult
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.
IFRS Interpretations Committee
Provides guidance on specific practical
issues in the interpretation of IFRSs.
formerly called the International
Financial Reporting Interpretations
Committee or IFRIC
Interpretations issued by the IFRS
Interpretations Committee are known
as IFRIC Interpretations
Chapter 3
Conceptual Framework
• Conceptual framework and GAAP
The • The IASB's Conceptual Framework
conceptual • Underlying assumption
Qualitative characteristics of
framework •
financial information
Summary diagram
Generally
Need for a
Advantages and Accepted
conceptual
disadvantages Accounting
framework
Practice (GAAP)

Conceptual framework and


GAAP

The Conceptual Framework True and fair view

The IASB's conceptual


framework
Conceptual framework
What is a conceptual framework?
• A statement of generally accepted
theoretical principles which form a frame of
reference for financial reporting.
• These provide a basis for developing new
accounting standards and a platform to
evaluate those already in existence
Scope of Conceptual Framework
The Conceptual Framework deals with:
(a) The objective of financial statements
(b) The qualitative characteristics of useful
financial information
(c) Financial statements and the reporting entity
(d) The elements of financial statements
(e) Recognition and derecognition
(f) Measurement
(g) Presentation and disclosure
(h) Concepts of capital and capital maintenance
Generally Accepted
Accounting Practice (GAAP)
• Comprises the rules, from all sources, which govern
accounting
• The major components include:
– National accounting standards, for example those
prepared by the Financial Accounting Standards Board
(FASB) in the USA
– National company law, for example the Companies Act
in the UK
– Local stock exchange requirements
– Regional bodies, such as the European Union. For
example, an Accounting Directive issued by the EU
requires companies listed on an EU stock exchange to
prepare their consolidated financial statements using IFRSs.
IASB's Conceptual Framework

 The IASB's Conceptual Framework was


Published in September 2010 to update
the IASB Framework for the preparation
and presentation of financial statements
which was issued in 1989.
 Updated in March 2018
 The IASB's Framework is a conceptual
framework on which IFRSs are based.
Conceptual Framework
 A revised Conceptual Framework was published in
early 2018:
• Revisions to the definitions of elements in the
financial statements
• Guidance on derecognition
• Discussions on measurement bases
• Principles for including items in other
comprehensive income

 The Conceptual Framework is NOT an accounting


standard
Basis of preparation of Financial
Statements
This information should be prepared on an accruals
basis.
‘Accruals basis: The effects of transactions and other
events and circumstances on a reporting entity’s
economic resources and claims are recognised in
the periods in which they occur even if the resulting
cash receipts and payments occur in a different
period.’
(Conceptual Framework, para.1.17)
Underlying assumption
• Going concern:
‘The financial statements are normally
prepared on the assumption that the entity
is a going concern and will continue in
operation for the foreseeable future’
(Conceptual Framework, para.3.9)
• It is assumed that the entity has neither the
intention not the need to liquidate the
business or curtail major operations.
• If it did the financial statements would be
prepared on a different basis and this basis
would be disclosed.
Qualitative characteristics of
useful Financial information
• These describe the attributes that information
needs to have in order for it to be most useful for
existing and potential investors, lenders and other
creditors for making decisions about the reporting
entity.
• They are divided into two categories:
– Fundamental qualitative characteristics
– Enhancing qualitative characteristics
QUALITATIVE CHARACTERISTICS
Fundamental Enhancing
1. Relevance 1. Comparability
 Materiality  Corresponding information
(influence on  Consistency
decisions)
2. Verifiability
2. Faithful
 Independent Auditor
Presentation
3. Timeliness
 Complete
 Older information – no use
 Neutral
4. Understandability
 Free of errors
 Clearly, Concisely
 Substance over
form  Presented
OTHER CONCEPTS :
 Consistency
 Business Entity Concept
 Accrual / Matching concept
 Prudence concept
 Money measurement concept
 Accounting period Concept
 Dual Aspect concept
THANK YOU 

You might also like