Chapter # 2 Regulatory Framework

Regulatory Framework
A body comprising of National Legislation, Accounting Concepts, Accounting Standards and other
International Influences (IASB) to supervise/overlook the financial reporting practices of a company.

Need of Regulatory Framework

A regulatory framework for the preparation of financial statements is necessary for a number of
reasons:
 To ensure that the needs of the users of financial statements are met with at least a basic
minimum of information.
 To ensure that all the information provided in the relevant economic arena is both comparable
and consistent
 To increase users’ confidence in the financial reporting process
 To regulate the behavior of companies and directors towards their investors.

National Legislation
It is the body that requires the limited liability companies of any country to prepare and publish
accounts annually. The form and content of account is also specified by National legislation

Accounting Concepts
Financial statements are prepared on the basis of a number of fundamental accounting assumptions
and conventions. Many figures in financial statements are derived from the application of judgement
in putting these assumptions into practice.

Accounting Standards
In an attempt to deal with some of the subjectivity, and to achieve comparability between different
organizations, accounting standards were developed. These are developed at both a national level (in
most countries) and an international level

International Accounting Standards Board (IASB)

The IASB develops IFRSs. The main objectives of the IFRS Foundation is to raise the standard of financial
reporting and eventually bring about global harmonization of accounting standards

IFRS Foundation
The IFRS Foundation is a not for profit, private sector body that oversees the IASB. The objectives of
the IFRS Foundation are to:
 Develop a single set of high quality, understandable, enforceable and globally accepted IFRSs
through its standard-setting body, the IASB
  Promote the use and rigorous application of those standards
 Take account of the financial reporting needs of emerging economies and small and medium
sized entities (SMEs)
 Bring about convergence of national accounting standards and IFRSs to high quality solutions

Need and Use of IFRSs

IFRSs are used in the following manner:
 As national requirements
 As the basis for all or some national requirement
 As and international benchmark for those countries who develop their own requirements
 By regulatory authorities
 By companies themselves