Accounting theory & Accountability essay on stock exchange
Sharonhy
Powerpointslides-StandardSetting22.pptxAccounting Theory and Accountability
Standard Setting (Godfrey Chapter 3)
1
The Learning Objectives for this lecture:
Applying theory to Accounting regulation
The Regulatory framework for financial reporting
The Institutional structure for setting accounting standards.
2
Private interest theory
Governments are not independent arbiters, but are rationally self-interested
They seek re-election
They will ‘sell’ their power to coerce or transfer wealth to those most likely to achieve their re-election (if they are elected officials) or increase their wealth (if they are appointed officials) or both
Standard setting as a political process
Standard setting is a political process because it can affect many conflicting and self-interested groups
The regulator must make a political choice
The regulator must have a mandate to make social choices
The recognition of doubtful debts can affect entities differently
4
Political Nature of Setting Accounting Standards
There is a mix of private and public participation in the standard setting process.
Parties that have an interest in accounting standards often have conflicting interests. E.G
-internal stakeholders may like flexibility
- External stakeholders may like comparability
- Auditors like objective (auditable) reporting.
Financial Instruments
The adoption of IAS39 Financial Instruments – Recognition and Measurement in the EU has been a highly political process.
Intangible Assets
The adoption of IAS38 Intangible Assets in Australia illustrates the role of politics in the standard setting process.
Regulatory framework for financial reporting
A financial reporting environment is made up of:
legal setting
economic setting
political setting
social setting
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Regulatory framework for financial reporting cont
The elements of a regulatory framework are :
statutory requirements
corporate governance
auditors and oversight
independent enforcement bodies
9
Institutional structure for setting accounting standards
Formation of IASC – 1973
Aimed to develop accounting standards for use throughout the world
IOSCO’s support for a set of core standards
IASC not independent so restructured in 2001 the IASB.
In 2002 the EC decided to adopt IASB standards in 2005 in EU.
Australia adopted IFRS on 1 January 2005
IASB and FASB convergence program – 2002 (Norwalk agreement)
Accounting Standards for the public sector
Individual countries must decide the extent to which IASB standards will be followed by public sector entities.
Australia has pursued one set of standards that can be used by both public and private sector entities.
What we have discussed in this session…
we reviewed theories proposed to explain the practice and regulation of financial reporting
we reviewed the regulatory framework for financial reporting and the institutional structure for setting accounting standards
The End
