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REGULATION OF FINANCIAL ACCOUNTING - Coggle Diagram
REGULATION OF FINANCIAL ACCOUNTING
DEFINITION OF REGULATION
Rule or behaviour or practice such as established and maintained by an auhtority
Discussing the rule that have been developed by an independent authorative body that power to govern how to prepare financial statement
The regulation of financial accounting:
The free-market perspective
Private economic based incentives to provide credible info or otherwise the operation cost of organisation will increase
Managers operating the business for their own benefits
Demand and supply should allowed to operate freely to generate optimal supply of accounting information by an entity even in absence of regulation
Absence in regulation, managers will encouraged to adopt strategies to maximize the value of organisation with optimal information of financial accounting information
The pro-regulation perspective
It should not be treated the same as other goods
Leads to underproduction of information
Accounting information is public or 'free good'
Regulation to necessary to reduce impacts of market failure
Public interest theory
Accounting informstion is considered as a public good
Favors regulation to protect consumer interests.
Monopoly power and abuses
Argues that firm is monopoly supplier of information
Capturee theory
The regulated seeks to take charge of regulator
Seeks to ensure rules subsequently released are advantageous to the parties subject to regulation
While regulation might be introduced with the goal of benefiting the public this goal may not subsequently be achieved
Although regulating initially in the public interest, difficult for regulator to remain independent.
Accounting regulation as an output of a political process
These group attempt to influence the introduction of regulation
Political behavior =Public Choice Theory of Regulation= The political process means of pursuing individual or group self interest
Because of its potential to significantly affect the wellbeing of a wide variety of interest groups
Different group affected differently by accounting regulation
THE REGULATORY FRAMEWORK FOR FINANCIAL REPORTING
CORPORATE GOVERNMENT
Corporate governance are derived from laws which require directors to carry out specific actions in relation to the management for their companies
Includes
Required to hold meetings with shareholders
Directors remuneration
The structure, processes and institutions within and around organizations that allocate power and resources control among participants
AUDITORS AND OVERSIGHT
Auditors perform a vitally function in providing assurance about the quality of information provided by companies in their financial statement
Auditing profession to be regulated in some way :
Limiting person with particular qualifications and experience
Requiring registration to practice
Requiring membership of particular professional bodies
Commitment to ethical conduct
Demonstrating behavior appropriate to members of a profession
STATUTORY REQUIREMENT
Taxation law another statutory influence on financial accounting ; as tax rules
Company law as form part of a wider legal system which is likely to include ways of monitoring compliance with statutory.
Company law mandates directors provide audited accounts. The directors and auditors need to fulfill statutory reporting requirement as contained in company law.
Example : must disclose environmental performance, to adopt IASB Standard etc
INDEPENDENT ENFORCEMENT BODIES
Independent enforcement body is an extension of lodgment supervision, a basic part of the regulatory framework : :
Importance for a comprehensive and consistent of IFRS adoption
A securities market regulator is the most commonly observed form for an independent enforcement body
Roles ; to promote compliance with the regulations governing the production of financial statement which are contained in law and accounting standards