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The Need For Regulation In Financial Reporting

1389 words - 6 pages

The Need for Regulation in Financial Reporting

Discuss:

Since 1990 the Accounting Standards Board has produced Financial
Reporting Standards (FRSs) It has been performing a very important
role in the economics market as the published accounts are the
essential sources of information about the organizationsÂ’ performance
which is available of the both internal and external user group in
large organizations.

l Financial Reporting Regulations in UK

Regulators that establish requirements for the reporting of financial
results have recently issued several new initiatives targeted at the
practices of many firms. The creation of regulations for financial
reporting in the UK combine both legislative authority and the work of
private organizations. The issuing organizations and their
responsibilities are discussed below and represented in Table 1. The
UK Companies Act of 1985, and amended in 1989, requires firms to
provide financial statements that comply with 'accounting standards'
and disclose any departures from those standards along with the
accompanying reasons. Departures should only be made when they are
necessary to provide a 'true and fair view' of the underlying
transactions of the firm. In 1990, a system for developing standards
was created which included an independent standard-setting board and
an oversight board, the Accounting Standards Board (ASB) and the
Financial Reporting Council (FRC), respectively. Similar to the US
structure, the ASB also has a separate branch that targets the most
recent accounting concerns called the Urgent Issues Task Force (UITF).
The financial reporting regulations set by the ASB extends to all
limited liability companies, not just those that are publicly traded.
Enforcement of accounting regulation in the UK is governed by the
FRC's Financial Reporting Review Panel and the Department of Trade and
Industry. The Review Panel is empowered by the Companies Act to go to
the courts to have a firm revise its financial reports, if necessary.

United Kingdom

Legislative authority to regulate accounting standards

Companies Act of 1985, amended by Companies Act of 1989

Private, independent standard-setting board

Accounting Standards Board (ASB) guided by the Financial Reporting
Council (FRC)

Division of standard-setting board charged with addressing current
topics

Urgent Issues Task Force (UITF)

Enforcement of financial reporting rules

FRC's Financial Reporting Review Panel and the Department of Trade and
Industry

There are several rules to constrain the financial reporting. Because
of information Asymmetry and comparability that management should not
be given complete freedom to determine what accounting information
should be included in the published financial statements.

In that case, managers do not have access to information about all
aspects of the organization’s activites, which also helps the user
accounts to compare the...

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