Chapter 2 - The Regulatory Framework

Question 1

Why do we need regulation?

Answer 1

• it ensures the financial statements can be relied upon by a variety of users when making decisions, and
• it promotes consistency and comparability of accounting information to help users interpret the financial statements

Question 2

What are the elements of regulation?

Answer 2

National financial reporting standards
National law
Market Regulations
Security exchange rules

Question 3

What are the 4 separate but related bodies which control the setting of IFRS Standards?

Answer 3

The IFRS Foundation
IASB
IFRS IC
IFRS AC

Question 4

What is the IFRS Foundation?

Answer 4

body with overall responsibility for development, publication and promotion of IFRS Standards

Question 5

What is the IASB?

Answer 5

International Accounting Standards Board - experts used to develop and publish IFRS Standards

Question 6

What is the IFRS IC?

Answer 6

IFRS Interpretations committee - issues rapid guidance where there are differing interpretations

Question 7

What is the IFRS AC?

Answer 7

IFRS Advisory Council - advises the IASB

Question 8

What is corporate governance?

Answer 8

The cadbury report 1992 defines it as: the system by which companies are directed and controlled.
An expansion may be:
In the interests of shareholders and in relation to those stakeholders beyond the companies boundaries.

Question 9

What is the purpose of corporate governance?

Answer 9

to monitor those parties in a company who control the resources and assets on behalf of the owners. The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term sharholder value.

Question 10

How can corporate governance be controlled?

Answer 10

• ensure that there is a suitable balance of power on the board of directors
• ensure that executive directors are remunerated fairly
• make the board of directors responsible for monitoring and managing risk
• ensure that the external auditors remain independent and free from the influence of the company
• address other issues e.g., business ethics, corporate social responsibility, and protection of ‘whistle-blowers’.

Question 11

What are the ways to contribute to improved corporate performance and accountability in creating long-term shareholder value?

Answer 11

• ‘controlling the controllers’ by increasing the amount of reporting and disclosure to all stakeholders
• increasing the level of confidence and transparency in company activities for all investors
• ensuring that the company is run in a legal and ethical manner
• building in control at the top that will ‘cascade’ down the organisation

Question 12

What are the basic elements of sound corporate governance?

Answer 12

• effective management
• effective systems of internal control
• oversight of management by non-executive directors
• fair appraisal of director performance
• fair financial reporting
• fair remuneration of directors