Regulatory Framework and

corporate governance
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
In most countries, limited liability companies are required by law to prepare and publish accounts
annually. The form and content of the accounts is regulated primarily 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. Although this leads to a degree of subjectivity in the FS
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 are 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

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Company, Ownership And Control
A company is a corporate body that has registered in accordance with the requirements of relevant
national company law (e.g. the Companies Act 2017), thus becoming its own legal entity. Ownership
of the company is evidenced by the issuing of shares to the owners (i.e. the shareholders).
For some smaller and medium sized companies the owners may also be the directors/managers of
the company. However, in typically large, listed companies directors are appointed to manage the
business on behalf of the owners. This leads to the separation of ownership and control within the
company.
Corporate Governance
The system by which companies are directed and controlled in the interests of shareholders and in
relation to those stakeholders beyond the company boundaries.
Directors of a company have a responsibility to these groups then they must also be held accountable
to them.
Purpose and objectives of corporate governance
Corporate Governance
Purpose Objectives
Primary Primary
Monitor those parties within a company who Contribute to improved corporate performance
control the resources owned by the investors and accountability in creating long-term
shareholder value
Secondary Secondary
 Ensure there is suitable balance of power  Control the controllers by increasing the
in the board of directors amount of reporting and disclosure to all
 Ensure executive directors are stakeholders
remunerated fairly  Increase the level of confidence and
 Make the board of directors responsible transparency in company activities for all
for monitoring and managing risk investors
 Ensure the external auditors remain  Ensure that the company is run in a legal
independent and free from the influence and ethical manner
of the company  Build in control at the top that will
‘cascade’ down the organisation

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