Bus1002 Unit 2 Assignment
5BUS1002 - Analysing Financial Information
Module leader -
5BUS1002 - Analysing Financial Information
Module leader -
Compare and Contrast the Regulatory Framework and the Conceptual Framework as used by public companies in the UK. How does each contribute to the preparation of a set of accounts? Use examples to support your answer.
In this piece of coursework I am going to be comparing and contrasting the Regulatory Framework and Conceptual framework which are used by UK public companies. I am also going to be going through how each of the frameworks contributes towards its companies accounts and how each is affected by the different Laws like the Companies act.
In the UK all the accounts …show more content…
of companies are prepared in accordance with the Companies Act 2006. The companies act 2006 is a law which sets out all the requirements for the accounts of all businesses, and that they are prepared in accordance with accounting standards and that they show a true and fair reflection on the company.
Accounting standards are rules relating to which accounts have been drawn up. The rules are made up of demanding minimum levels of disclosure, lay down the fundamental principles of accounts and they define and specify meanings of terms and how numbers should be calculated. The benefits of having the accounting standards its allows companies to have comparability, credibility and discipline.
To achieve the accounting standards it is split into two different frameworks which cover the standards depending upon how the accounts are drawn up. They are the conceptual framework and the regulatory framework.
The current conceptual framework is issued by the IASB and is being updated with the FASB (Financial Accounting Standards Board in the US) The conceptual framework is set out for the purpose of financial reporting and to clarify the accounting characteristics the financial statements should have.
The framework consists of 9 fundamental points, the objective of general purpose financial reporting, The Reporting Entity , Users of accounts, Objectives of Financial Statements, Underlying Assumptions , Qualitative Characteristics , Elements , Recognition , Measurement . The conceptual framework is based on two underlying accounting concepts, the accrual basis of accounting and the going concern. The accrual basis accounting portrays the results of transactions and other events on a reporting entity’s economics resources and claims. This is important because the information on the events of the reporting entity at the time which they are published can affect the way in which the entity is assessed as a good judgment cannot be made just on the cash receipts and payments during the period it took place. These financial statements are usually prepared on the assumption that the business is a going concern and will continue to operate in the projected
future.
The conceptual framework states that the types of information likely to be most useful to providers of capital are identified by various qualitative characteristics, two fundamental characteristics are: relevance and faithful representation, which are supplemented by four enhancing characteristics: comparability, verifiability, timeliness, and understandability. It is important the information provided to exciting and future investors, lenders and other creditors is relevant as it makes a huge difference in the decisions made by the users. For the information to be faithful represented it is made up of three things, it would be ‘complete, neutral and free from error.’ It is also said that ‘Perfection is seldom if ever achievable’.
The regulatory framework unlike the conceptual framework which are guidelines enforces the different rules and regulation through laws. Unfortunately it is said that accountants have a tendency for producing misleading information about their companies and therefore need to be constantly looked over and managed.
The regulatory framework is made up of many different laws including, accounting standards, financial reporting standards, international financial reporting standards, and Generally Accepted Accounting Practice (GAAP) which is a combination of the company’s law, accounting standards, and the stock exchange requirements. The framework is also responsible for the EU requirements and the industry specific requirements.
The accounting standards are made of two different accounting standards, the ‘UK accounting standards’ and the ‘international accounting standards’. the regulatory framework also enforces the EU requirements within the UK. This is where the EU has made all public companies within the EU to follow the International accounting Standards. However the private companies within the UK have the option of using either of the accounting standards.
To evaluate the situation as a whole, when a company is set up within the UK it has to produce its accounts appropriately. When looking at both frameworks the regulatory and conceptual, they both really work in unison for the accounts to be prepared correctly. The regulatory framework it ensures that the main laws are placed and that the accounts go by laws not only in the UK but also internationally. The conceptual framework is derived from within the regulatory framework. When looking at the international Generally Accepted Accounting Practice (GAAP) in the UK, it really has ‘no statutory or regulatory authority or definition’ (financial Kaplan) therefore due to international accounting standards committee not being very prescriptive and having no coherent logical structure to their work, the International Accounting Standards Board (IASB) was set up and this later produced the International Financial Reporting Standards (IFRSs) which is based upon the Conceptual framework. Therefore the conceptual framework is one of the keys to the regulatory framework working. The conceptual framework covers such legal items like leasing for example. Within a company’s accounts they can show the value of certain assets to be higher than they actually are, this is done by putting down leased assets like an piece of machinery. This can fool for example future investors who may look at this particular companies account and value them at a higher position than they are. This is where the conceptual framework can catch these kind of moves out by enforcing the guidelines where the ‘true and fair’ where accurate recording and reporting of transactions have to be shown, it cannot be bias and needs to have completeness of information.
To summarise both frameworks are great however the regulatory framework has a more of an effect upon the way accounts are drawn up within companies whether they are a public limited company or a private limited company. The standards that the frameworks bring allow the accounts to be relevant, reliable and the discipline in which it brings to The UK entities protects investors, lenders and other creditors from being mislead into false accounts. Although the disadvantages to the regulatory framework that it does enforce many laws and some companies may be scrutinised to much with the laws however the conceptual framework us alone only guidelines and are there to ensure a fair and non bias view is looked upon in the UK accounting standards. My opinion on the subject would be that both frameworks are excellent at that’s why the UK continues to be the leader when it comes to producing the accounts of the companies, and although international standards are alongside our standards soon global accounting will all be running the same standards and regulations.
References
• John Wiley, JW, (2008) International GAAP 2008: Generally Accepted Accounting Practice under International Financial Reporting Standards, volume 1, published by: John Wiley and sons LTD.
• IFRS (2011) Available at: http://www.ifrs.org [Accessed at 1st November 2012]
• IAS (2012) Available at: http://www.iasplus.com/en [Accessed at 1st November 2012]
• Dunn, John, JD, (1959) financial reporting and analysis, published by: Wiley, 2010
• Financial Kaplan, Available at: (http://financial.kaplan.co.uk/Documents/ICAEW/Financial_Accounting_Chapter_1.pdf [Accessed at 1st November 2012]
Module leader -
5BUS1002 - Analysing Financial Information
Module leader -
Compare and Contrast the Regulatory Framework and the Conceptual Framework as used by public companies in the UK. How does each contribute to the preparation of a set of accounts? Use examples to support your answer.
In this piece of coursework I am going to be comparing and contrasting the Regulatory Framework and Conceptual framework which are used by UK public companies. I am also going to be going through how each of the frameworks contributes towards its companies accounts and how each is affected by the different Laws like the Companies act.
In the UK all the accounts …show more content…
of companies are prepared in accordance with the Companies Act 2006. The companies act 2006 is a law which sets out all the requirements for the accounts of all businesses, and that they are prepared in accordance with accounting standards and that they show a true and fair reflection on the company.
Accounting standards are rules relating to which accounts have been drawn up. The rules are made up of demanding minimum levels of disclosure, lay down the fundamental principles of accounts and they define and specify meanings of terms and how numbers should be calculated. The benefits of having the accounting standards its allows companies to have comparability, credibility and discipline.
To achieve the accounting standards it is split into two different frameworks which cover the standards depending upon how the accounts are drawn up. They are the conceptual framework and the regulatory framework.
The current conceptual framework is issued by the IASB and is being updated with the FASB (Financial Accounting Standards Board in the US) The conceptual framework is set out for the purpose of financial reporting and to clarify the accounting characteristics the financial statements should have.
The framework consists of 9 fundamental points, the objective of general purpose financial reporting, The Reporting Entity , Users of accounts, Objectives of Financial Statements, Underlying Assumptions , Qualitative Characteristics , Elements , Recognition , Measurement . The conceptual framework is based on two underlying accounting concepts, the accrual basis of accounting and the going concern. The accrual basis accounting portrays the results of transactions and other events on a reporting entity’s economics resources and claims. This is important because the information on the events of the reporting entity at the time which they are published can affect the way in which the entity is assessed as a good judgment cannot be made just on the cash receipts and payments during the period it took place. These financial statements are usually prepared on the assumption that the business is a going concern and will continue to operate in the projected
future.
The conceptual framework states that the types of information likely to be most useful to providers of capital are identified by various qualitative characteristics, two fundamental characteristics are: relevance and faithful representation, which are supplemented by four enhancing characteristics: comparability, verifiability, timeliness, and understandability. It is important the information provided to exciting and future investors, lenders and other creditors is relevant as it makes a huge difference in the decisions made by the users. For the information to be faithful represented it is made up of three things, it would be ‘complete, neutral and free from error.’ It is also said that ‘Perfection is seldom if ever achievable’.
The regulatory framework unlike the conceptual framework which are guidelines enforces the different rules and regulation through laws. Unfortunately it is said that accountants have a tendency for producing misleading information about their companies and therefore need to be constantly looked over and managed.
The regulatory framework is made up of many different laws including, accounting standards, financial reporting standards, international financial reporting standards, and Generally Accepted Accounting Practice (GAAP) which is a combination of the company’s law, accounting standards, and the stock exchange requirements. The framework is also responsible for the EU requirements and the industry specific requirements.
The accounting standards are made of two different accounting standards, the ‘UK accounting standards’ and the ‘international accounting standards’. the regulatory framework also enforces the EU requirements within the UK. This is where the EU has made all public companies within the EU to follow the International accounting Standards. However the private companies within the UK have the option of using either of the accounting standards.
To evaluate the situation as a whole, when a company is set up within the UK it has to produce its accounts appropriately. When looking at both frameworks the regulatory and conceptual, they both really work in unison for the accounts to be prepared correctly. The regulatory framework it ensures that the main laws are placed and that the accounts go by laws not only in the UK but also internationally. The conceptual framework is derived from within the regulatory framework. When looking at the international Generally Accepted Accounting Practice (GAAP) in the UK, it really has ‘no statutory or regulatory authority or definition’ (financial Kaplan) therefore due to international accounting standards committee not being very prescriptive and having no coherent logical structure to their work, the International Accounting Standards Board (IASB) was set up and this later produced the International Financial Reporting Standards (IFRSs) which is based upon the Conceptual framework. Therefore the conceptual framework is one of the keys to the regulatory framework working. The conceptual framework covers such legal items like leasing for example. Within a company’s accounts they can show the value of certain assets to be higher than they actually are, this is done by putting down leased assets like an piece of machinery. This can fool for example future investors who may look at this particular companies account and value them at a higher position than they are. This is where the conceptual framework can catch these kind of moves out by enforcing the guidelines where the ‘true and fair’ where accurate recording and reporting of transactions have to be shown, it cannot be bias and needs to have completeness of information.
To summarise both frameworks are great however the regulatory framework has a more of an effect upon the way accounts are drawn up within companies whether they are a public limited company or a private limited company. The standards that the frameworks bring allow the accounts to be relevant, reliable and the discipline in which it brings to The UK entities protects investors, lenders and other creditors from being mislead into false accounts. Although the disadvantages to the regulatory framework that it does enforce many laws and some companies may be scrutinised to much with the laws however the conceptual framework us alone only guidelines and are there to ensure a fair and non bias view is looked upon in the UK accounting standards. My opinion on the subject would be that both frameworks are excellent at that’s why the UK continues to be the leader when it comes to producing the accounts of the companies, and although international standards are alongside our standards soon global accounting will all be running the same standards and regulations.
References
• John Wiley, JW, (2008) International GAAP 2008: Generally Accepted Accounting Practice under International Financial Reporting Standards, volume 1, published by: John Wiley and sons LTD.
• IFRS (2011) Available at: http://www.ifrs.org [Accessed at 1st November 2012]
• IAS (2012) Available at: http://www.iasplus.com/en [Accessed at 1st November 2012]
• Dunn, John, JD, (1959) financial reporting and analysis, published by: Wiley, 2010
• Financial Kaplan, Available at: (http://financial.kaplan.co.uk/Documents/ICAEW/Financial_Accounting_Chapter_1.pdf [Accessed at 1st November 2012]