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THE IMPORTANCE OF FINANCIAL
ACCOUNTING REGULATIONS

CONTENTS
This presentation will discuss the significance of accounting regulation to our group and how
we should use it to guide us with the preparation of financial statements in the near future,
with specific reference to the regulation we must follow if we are to be listed on the London
Stock Exchange in the near future
...
When the information is both relevant and
reliable, it can be concluded that a ‘true and fair view’ 5 of a company’s financial position is
being shown by its financial reports; this is required by the Companies Act 2006 so is
ultimately required by law
...
A
secondary reason for the regulation of financial reporting is to make sure that the financial
information companies provide is useful primarily to its shareholders, and also other users
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EXAMPLE – LEHMAN BROTHERS SCANDAL

More examples like this can be found at http://www
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org/scandals/ 7

EXAMPLE – LEHMAN BROTHERS SCANDAL
The Lehman Brother’s Scandal of 2008 is a prime example of the importance of the
regulation of financial reporting
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The executives at Lehman decided to avoid following these regulations,
leading to the following problems:
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The company went bankrupt – largest bankruptcy in US history

• 

Seriously damaged the reputation of the executives and Ernst & Young

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Played a large part in the recession of 2008, so held partly responsible for the collapse of
many other companies and caused the loss of many jobs

UK ACCOUNTING STANDARDS
UK Financial Reporting Standards (FRS), formerly Statements of Standard Accounting Practice
(SSAPs), are mandatory statements
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They are set
in place by the UK Financial Reporting Council (FRC) which was previously, before 2012, the
Accounting Standards Board (ASB)
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Additionally, accounting bodies expect their members to abide by
accounting standards and be knowledgeable about them
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INTERNATIONAL ACCOUNTING STANDARDS
International Accounting Standards (IAS) were issued by the International Accounting
Standards Council (IASC) up to 2001
...
The EU made
compliance with IFRS mandatory in 2005 2 , and as part of the EU, the UK is obliged to follow
these standards regardless of whether or not it is required by UK law
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INTEGRATION OF UK & INTERNATIONAL
STANDARDS: THE ADVANTAGES
The main reason for the harmonization of UK and international standards is to create
uniformity between them and therefore comparability between financial statements created in
different countries is made much simpler
...

This could benefit our company in the future when we are looking to expand further
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The following will need to occur:
• 

Compulsory external audit 8

• 

Financial reports easily available to the public and shareholders

• 

EU requirements mean IFRS must be followed

Accounting standards will aid us in meeting the requirements to become listed
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Additionally, as our financial reports will be easily
accessed by potential shareholders, we want to be seen to be complying as this reflects well
on our company and our methods and will encourage trust in our company leading to
investment
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This information will be scrutinised so it is essential that it follows IFRS
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londonstockexchange
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pdf

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OTHER REASONS TO COMPLY
• 

Non-listed companies and other groups are required under UK law to use either IAS
accounts or UK GAAP accounts (this will be explained in further detail)

• 

We are not listed yet so this applies to us currently

• 

All EU listed companies are required by EU regulation to use IFRS 11

• 

The Financial Reporting Review Panel (FRRP) monitors which companies are complying
with accounting standards by taking samples and have the authority to apply to the court
to make companies revise their accounts 2

CONSEQUENCES OF FAILURE TO COMPLY
Failure to comply with accounting standards could lead to a number of problems for us, some
more serious than others
...
Alternatively, as our statements will be published, unusual figures could provoke
investigation
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accounting-degree
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If our company is to become
listed and therefore require an external audit, any carelessness in preparing the financial
statements will be detected
...

External auditors have more motivation to expose these fraudulent activities because
although the firm they work for may lose a client, their reputation may be severely damaged if
they did not uncover such serious activities
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6 These include:
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The IFRS book or website

• 

CCH Publications (books, manuals, electronic publications and subscriptions)

• 

The Financial Reporting Council (FRC) Website

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The Statement of Recommended Practice (SORP) for accounting in our area of business

Accounting standards are often changing so it is important that we ensure we are complying
with up to date standards, therefore using a previous year’s IFRS book, for example, should be
avoided where possible
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UK GAAP is simply a grouping together of all of
the different accounting regulations set by UK organisations
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CONCEPTUAL FRAMEWORK
The ASB of each country has also created a document called the conceptual framework to
assist companies in creating their financial statements to comply with accounting standards,
and also assist the FRC in the standard setting process
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3

Element: A broad class of transactions that have had a financial effect on an entity
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4 Examples of elements include: assets,
liabilities, equity, income and expenses
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g
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4

THE STATEMENT OF PRINCIPLES
The Statement of Principles is a conceptual framework written by the ASB
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This means that standards are reliable for us to follow because they are
constantly being updated using a consistent framework
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For information to be relevant it must have either predictive or confirmatory value
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Neutral: Free from bias or manipulation
Free from error: The process used to produce useful information must be carried out correctly
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CONCLUSION
Working together to achieve compliance with both UK and international standards will be of
great benefit to us
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frc
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uk - for UK
www
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org - for international
www
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gov

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