The regulatory framework

The need for regulation

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. Given the growth in multinational companies and global investment this arena is an increasing international one.
• To increase users' confidence in the financial reporting process.
• To regulate the behaviour of companies and directors towards their investors.

Financial reporting standards on their own would not be sufficient to achieve these aims. In addition there must be some legal and market-based regulation.

National regulatory frameworks for financial reporting

There are many elements to the regulatory environment of accounting. A typical regulatory structure includes:

• National financial reporting standards
• National law
• Market regulations
• Security exchange rules.

For example; the UK has its own national financial reporting authority, the Accounting Standards Board (part of the Financial Reporting Council) that issues financial reporting standards in the UK. The main piece of legislation affecting businesses in the UK is the Companies Act 2006. However, there are also many other pieces of UK, EU and even US legislation (such as the Sarbanes Oxley Act) that affect accountability in the UK. There are also numerous industry specific regulatory systems that affect accounting in the UK, for example; the Financial Services Authority, whose aim is to achieve public accountability of the financial services industry. Finally, there are regulations provided by the London Stock Exchange for companies whose shares are quoted on this market

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Tags:	regulatory framework;the companies act 2006;Sarbanes Oxley