Accounting regulatory framework

The regulation of accounting has evolved over time

The content and format of reporting financial information is governed by national and international standards

Financial Reporting Standards (FRS)

This two tier approach to the governance of financial information reporting has emerged since the birth of the first International Financial Reporting Standard in June 2003

Many countries have adopted International Financial Reporting Standards

The UK has moved towards harmonisation with IFRS in stages

From January 2005, public listed companies have been required to present their financial statements using IFRS while non public listed companies were able to follow UK GAAP

From January 2015, non-listed UK companies are obliged to adopt three new financial reporting standards (FRS 100,101 and 102) as a replacement to UK GAAP

Only small companies, as defined by Companies Act 2006 follow the Financial Reporting Standard for Smaller Entities (FRSSE)

Additional regulation in the UK is provided by Companies Act 2006 and the requirements of the London Stock Exchange

The Financial Reporting Standards set out the principles that should underlie the preparation and the terminology to be adopted in the presentation of general purpose financial statements

FRS 18 Accounting policies identified the bedrock accounting concepts

Going concern concept

Accruals concept

FRS 18 Accounting Policies identified 'desirable qualities of financial information'

Prudence concept

Consistency concept

International Financial Reporting Standards (IFRS)

Provide an international framework for the preparation and presentation of financial statements

A set of principles-based standards, interpretations and framework for financial statements

The framework is a set of principles-based general rules plus some prescriptive treatments

Identified four underlying concepts

Accruals basis

Going concern

Stable measuring unit

Units of constant purchasing power

Many pieces of of accounting information are based on personal judgements, ie they are subjective.The accounting profession has developed accounting concepts, conventions and standards

The accounting concepts, conventions and standards are the rules financial accountants and auditors are expected to comply with when preparing financial statements

The concepts underpin both the FRS and IFRS

The concepts and standards aim to increase the objectivity of the methods used to record the business activities in the financial statements