The role of the regulatory systems

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The role of the regulatory systems

Introduction

Limited liability companies are required by law to prepare and publish financial statements annually. 

The form and content of these accounts are primarily regulated by national legislation. 

They must also comply with International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs).

Accounting Standards

International Accounting Standards were issued by the IASC from 1973 to 2000. 

They provide guidance as to how items should be shown in a set of financial statements both in terms of their monetary value and any other disclosures. 

They are a single set of high quality, understandable and enforceable global standards.

The IASB replaced the IASC in 2001.

Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs with new International Financial Reporting Standards, and has adopted or proposed certain new IFRSs on topics for which there was no previous IAS. 

Accounting standards were developed for two main reasons

  • To reduce subjectivity

  • To achieve comparability between different organisations

Financial statements may not be described as complying with IFRSs unless they comply with all of the requirements of each applicable standard and each applicable interpretation.

The IFRS Foundation (IFRSF)

The IFRS Foundation is an independent organisation having two main bodies:

- the Trustees and 
- the International Accounting Standards Board (IASB), as well as the IFRS Advisory Council (IFRS AC) and the IFRS Interpretations Committee (IFRS IC). 

The IFRSF is governed by a board of 22 trustees.

  • The IFRS Foundation Trustees are responsible for governance and fundraising, and publish an annual report on the IASB's activities.

  • The Trustees also review annually the strategy of the IASB and its effectiveness.

  • The Trustees approve the annual budget of the IASB

  • These trustees also raise the funds necessary to support the IFRSF.

  • The trustees appoint the members of the IASB, IFRS IC and the IFRS AC

The International Accounting Standards Board (IASB)

The International Accounting Standards Board (IASB) is an independent, privately-funded accounting standard-setter based in London, UK. 

There are 14 Board members, each with one vote.

The IASB is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.  

In addition, the IASB co-operates with national accounting standard-setters to achieve convergence in accounting standards around the world.

How are standards developed?

International Financial Reporting Standards (IFRSs) are developed through an international consultation process, the "due process” that involves interested individuals and organisations from around the world.

The due process comprises six stages:

  1. IAASB reviews auditing developments and takes suggestions from interested parties.

  2. Planning the project, including forming a 'working group' to advise the IASB and its staff on the project;

  3. Developing and publishing the discussion paper for public comment;

  4. Draft standard produced and commented on by interested parties for a period of 120 days (Exposure period).

  5. Project task force considers comments and amendments made if appropriate.

    If changes significant there may be another exposure period.

  6. Standard finalised and approved by meeting of IAASB at which there must be a minimum of 12 members.

ACCA FA A4a regulatory systems graph
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