Lecture 2 - Theoretical Aspects Of Accounting Regulations Flashcards

1
Q

What is ‘Agency theory’? And how is it solved?

A

Agency theory is when the objectives of owners and managers don’t correlate.
Managers work towards their own goal, not mirroring the wishes of the owners.

Solution:
Performance related pay
Goal congruence

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2
Q

Four arguments against the need for regulation/too much regulation.

A

1) Voluntary disclosure (to show investors why they should invest)
2) Cost to businesses
3) Politically charged regulations
4) Cost to enforce regulations

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3
Q

Two problems of not having regulations

A

1) Public interest

2) Free-riders

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4
Q

Three advantages of regulation

A

1) Simple and effective way of making information available to the public.
2) Verification stage
3) Easy comparability between firms

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5
Q

Two arguments against regulation

A

1) Standard overload

2) Regulatory capture

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6
Q

What two ‘forms’ can regulations take?

A
  • Legal requirements

- Accounting standards

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7
Q

What legal acts are in place now within the UK?

A

EU 2nd and 4th directive and 7th directive (Statutory backing for accounting standards)
Companies act 2006

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8
Q

What is the “True and Fair View’? And What implementations does it have?

A

Information provided is true and fair.
The ‘True and Fair View’ overrides any specific requirements of accounting standards.
In the EU 7th and 8th directives, a “True and Fair View” overrides the International accounting standards (IAS).

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9
Q

Who is responsible for setting accounting standards in the UK?

A

Financial Reporting Council (FRC)

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10
Q

What two committees make up the Financial Reporting Council? And What councils fall under these committees?

A
Codes and standards committee
- Audit and assurance Council
- Corporate reporting council
- Actuarial council
Conduct Committee
- Corporate reporting review
- Audit quality review
- Case management
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11
Q

What are the Three stages in the Financial Reporting Council standard setting process?

A

The council creates a Statement of principle.

1) Discussion paper (DP)
2) Exposure Draft (FRED)
3) Accounting standards (FRF)

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12
Q

Name three influences on UK accounting standards

A
IASB
FRC
Government (company law)
EU
FASB (American FRC)
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13
Q

Name some reasons for the international differences in financial reporting

A
  • National legal system’
  • National GAAP
  • Influence/status of accounting profession
  • Accidents of history
  • Language
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14
Q

What is the IFRS?

A

International Financial Reporting Standards

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15
Q

What are the four steps to developing IFRS standards?

A

1) Agenda consultation stage (Request information)
2) Research programme stage
3) Standards programme (Exposure draft, Final IFRS)
4) Implementation

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16
Q

In what year was the IASB adopted by the EU?

A

2002, all EU listed companies had to prepare consolidated accounts in accordance with the IFRS and IAS

17
Q

What are the concerns regarding the adoption of IASB by the EU?

A
  • Enforcement and effective monitoring
  • Translation between languages
  • What are the future roles of standard setters (FRC)
18
Q

Where does the IASB gain its power from?

A

It relies on the acceptance of nations.
Multinational company directors want a single set of accounting standards
Emerging countries can simply adopt these standards