Is there too much regulation?
The financial statements serve as a secondary checklist. For each line item on the statements, the investor must understand the terminology and the specific composition of each account. Accounting statements are extremely diverse in format, definitions of terminology and content of accounts. How business transactions are recorded and the flow in and out of accounts is vital information for comprehension of the statements (Grossfeld 2004). Accounting terminology is not defined like the laws of nature, nor is there a universal chart of accounts that precisely states each account's contents. Incomplete or inaccurate financial statements are so prevalent in privately held businesses and subsidiaries or divisions of public companies that it is reasonable to start with the assumptions they are inaccurate but hope they are not (Comes & Riley 1999). Intentionally deceptive information is an important matter, and the investor has to decide how much will be tolerated before walking away. This is to be expected and a sophisticated investor will look at it as such. It is well-established that the auditors do not guarantee the absolute accuracy of the client's records and its financial statements (Barsky & Jablonsky 2001). Proper accounting should provide an understanding of past cash flow for use as a basis combined with projected income, business programs and conditions to develop forecasts of future cash flow. If the business has its own cash-flow history and projections they should be reviewed. A business may be showing profits on its financial statements while being unable to pay its bills because of inadequate cash flow (Case, Kremer & Rizzuto 2000). Financial statements help in describing a firm’s financial status, due to regulations the result varies from one country to another. This paper intends to determine if whether or not there is too much regulation.
Legal requirements that a company need to comply
Legal requirements needed by a company to comply laws include financial statements like balance sheet, statements of assets and liabilities and many others. Legal requirements are needed because it depicts the current standing of a company and what a government can do to help. Compliance with the law regarding record retention is not as difficult as it might seem. Essentially, laws tend to reflect good business practices (Ives 1995). As an example, every business normally creates and maintains many of the financial records that are needed for tax returns in order to meet its own needs. A retention program simply makes sure that these records are protected and maintained for the appropriate period of time to meet legal requirements (Hopwood, Leuz & Pfaff 2004). Government regulations do exist that deviate from generally accepted business practices. These differences between government and business needs primarily occur in situations where the public interest is not yet fully defined, or where government purposes for the records differ from those of business. For example, the government requires for medical records of employees exposed to hazardous substances a much longer retention period than a business normally would, because the government's interest is in monitoring problems that may not develop for many years (Sampson 2002).
Government requirements may contain clearly stated record-keeping instructions, implied requirements, instructions that are confusing or that contradict other record-keeping requirements, or no instructions at all. Requirements may exist where federal requirements do not, or they may be different from federal requirements (Zheng 2002). More than half of the stated requirements to create or maintain records do not specify how long to retain those records. There are requirements that specify the acceptable form of a record and the conditions under which each form is acceptable. A few government record-keeping requirements go so far as to specify storage conditions and information security methods. Many regulations do not specify any record-keeping requirements at all, but it would be in the best interest of a business to anticipate the implications of its record-keeping practices regarding rules of evidence and the demonstration of compliance. Not all of the thousands of federal, state, local, and foreign records retention requirements impact every business (Harris & Hawkins 1997). Companies normally need to comply with those federal requirements applicable to every business and those related to their industries and individual business activities. Every location where the company is doing business, where it has a facility, property, or employees, is subject to a number of state and local requirements. A business also needs to research other legal considerations, such as statutes of limitations and rules of evidence. Most corporate legal departments are reluctant to devote the time necessary for research and interpretation of the laws as they apply to business situations. Outside counsel often is used for this service. Legal counsel should review and approve the results of research done by anyone not formally trained in conducting legal research. Regardless of who does the research, it is important to make a reasonable attempt to find, interpret, and apply the law, and to update the research every year. Business executives proud of their results are usually eager to give a serious investor current financial statements. The lack of uniformity in financial statements is a constant source of confusion and erroneous conclusions (Hollingsworth & White 1999).
History & changes from IAS to IFRS
The International accounting standards (IAS) was created in 1973 and was still in effect until 20001 (Fleming 2002). It was instituted by the Board of the International Accounting Standards Committee (IASC). In April 1, 2001, the new members of the Board of the International Accounting Standards Committee adopted existing IAS and SICs to create a new standard called International Financial Reporting Standards (IFRS). The IFRS aims to establish finance and accounting rules as well as dictating specific treatments to certain situations in different countries (Casabona & Shoaf 2002). Both IFRS and IAS make sure that financial reporting and financial transactions would be done in a regulated and legal manner. Both IFRS and IAS were aligned to changing situations in the local and global environment.
Why regulatory requirements are necessary to complete the financial report and audit standard?
Regulatory requirements affect financing and financial statements since business have to adapt to what the requirements need to achieve. Regulatory requirements guide an individual so that he/she can complete a credible financial report and a legal audit standard. Regulatory requirements make sure that in making a financial report and audit standard there will be proper guidance and boundaries would be observed by the company and those who will take part in creating the financial report. Management has an obligation to determine how much capital the enterprise will need in order to conduct its business operations properly (Berkowitz 2005). Once a decision has been made regarding the amount of capital, and assuming that the corporate form is used, it is then necessary to allocate the financing burden among equity-based capital, which is raised through the sale of stock to existing and new investors and by the retention of corporate earnings otherwise available for distribution to shareholders (Alexander, Dhumale & Eatwell 2006). Counsel working with businesses on financing activities must be familiar with corporate, tax, and securities laws. Counsel may be involved in assisting management in preparing the necessary disclosure documents for review by potential investors and lenders, assisting in the negotiation of the terms of the financing, and in rendering the legal opinions required for the financing process to be completed. Counsel will need to provide substantive advice on securities matters and the tax consequences of choosing a given form of financing instrument. Attitudes have an important influence on the nature of a country's accounting principles. The words generally accepted mean a consensus, a general acceptance, of how financial results are to be reported by a company to its shareholders (Heely & Nersesian 2003). General acceptance for the conduct of global business is dependent on where a company is domiciled. The attitude of management in Belgium, Italy, and Switzerland is generally against disclosure of detailed financial results to the public. (Nanda & Narayanan 2004).
On the other side of the coin, managements in Brazil, the United Kingdom, the United States, and Zimbabwe have a more positive attitude toward disclosure. It is more positive in comparison with the managements of companies in Belgium, Italy, and Switzerland human beings are not prone to admitting to their errors (Drake & Rhyne 2002).Financing transactions, especially an initial public offering, can be quite time consuming and stressful to the firm's managers. As a result, it is important that the business engage counsel with sufficient experience to balance the requirements of the law, the business needs of the firm, and the demands that may be imposed by potential investors realistically. Obviously, counsel must be familiar with the business activities of the firm; however, it is generally just as important for him to devote all of the time necessary to understand the particular concerns of the managers and the goals and objectives that they have for operation of the business, both immediately following the financing and well into the future. A company and its personnel must face the risk of competitors transforming the nature of the market by introducing an improved, or a new, version of a product that makes a company's product dated or obsolete. There is the risk of adverse government legislation, regulatory requirements, barriers to trade, and product liability suits. A receivable may not have the anticipated value in the domestic currency of a company that was envisioned when the transaction was consummated (Gutterman 2004).
The importance of financial reporting
Financial reports are known as a reported record of the financially related activities of a business. Financial reports in a business setting involve financial information that is presented in an organized manner that is easy to understand. Financial reports include the balance sheet, income statement, statement of retained earnings and Statement of cash flows. For larger firms financial reports usually include notes that describe a certain item on the financial report. Financial reports for large companies often are complex and must be complete to the last detail. Financial reports are put into regulation so that it would be guided and there would be restrictions on what parts can be hidden.
Is there too much regulation?
International and domestic regulation and rules on financial statements make it harder for companies to follow and make sure that the financial statement would be the most appropriate. Domestic rules should have a higher importance than international regulations since domestic rules cater to the internal situation of a country and the business within it. Domestic rules tend to adjust better on how businesses in a local setting respond to financial rules and regulations. The rationale for regulating is strongest where the windfall is due to accident rather than planned investments of money, effort, or research. Where such investments have taken place or where society might want to create incentives to search for new efficiencies, products, or areas of demand, there is a case for allowing windfall or excess profits to be retained (Baldwin & Cave 1999). Regulation, by making information more extensively accessible, accurate, and affordable, may protect consumers against information inadequacies and the consequences thereof and may encourage the operation of healthy, competitive markets (Engwall & Morgan1999). Regulation may be used to sustain services through troughs for example by setting minimum prices at levels allowing the covering of fixed costs through lean periods (Poole Jr., 2002).
Is there too much regulation for management accountant?
Management accountants need to make sure that any financial report would be made in accordance with existing rules and regulations. Regulations do not hamper management accountants much since it guides them on how to assess a financial record. The problem the management accountant has on regulations and laws on financial records is its numbers and the number of things they need to learn and understand just to make a decision on the correctness of a financial report. Management accountants need to also make sure that they follow the specific regulations set by a country.
Is there too much regulation for Shareholders and investors?
Shareholders and investors need to make sure that their assets will be protected thus they need regulations to ensure that a firm will show every financial activity. The shareholders and investors put a certain interest in a firm thus they need to know the financial status of the company and they need to determine if the firm is on the verge of bankruptcy. Shareholders and investors need to have clear and strict regulations even if there is too much of it because they need to be assured that their investors would not be put into waste and they will have a good idea of the financial status of the organization they invested their money or resources into.
Is there too much regulation for auditor?
Auditors are the one that creates the financial report and are put under restrictions based on regulations. Auditors cannot complain that there is too much regulation since they have to show fairness and truthfulness in creating a regulated financial report. But just like the management accountant they have difficulty with too much regulation since they have to understand or memorize regulations and interject it with the local environment. Auditors need to combine local issues with the existing international laws and restrictions.
Is there too much regulation for Government and Country?
Regulations are considered good by countries and governments since it can be used to adapt financial reports. Too much regulation only helps governments and countries assess a firm and determine if it would help them achieve national goals and objectives. Regulation may be justified in order to produce socially desirable results even though the cross-subsidizations affected may be criticizable as inefficient and unfair (Ayres & Braithwaite 2002).
Is there too much regulation for Banker / lenders and suppliers?
Bankers, lenders and suppliers would need more regulation since it can help them assess which company should they trust and which company can help them achieve their goals. Regulations will help bankers, lenders and suppliers to discern how a company is performing and whether a firm can still withstand competition amidst its performance. Regulations will help bankers, lenders and suppliers determine if a firm should be given any financial assistance.
ORP32 - Compliance with the Revised SORP 'Financial Reports of Pension Schemes' - empirical evidence
This study was made in 2000 by Klumpes and Manson. The study found out that the level of compliance of companies was increased after the use of legislations and regulations. The study also found out that there are some companies follow but not fully comply with the thing stated in the regulations. This implies that firms only follow regulations just to satisfy the law and requirements. It doesn’t mean that business will act on what is stated exactly in the law and regulations.
There is a difference in the perspective of whether there is too much regulation. For management accountants, regulations do not hamper them since it guides them on how to assess a financial record. The problem the management accountant has on regulations on financial records is the number of things they need to learn and just to make a decision on a financial report. Shareholders and investors need to make sure that their assets will be protected thus they need regulations to ensure that a firm will show every financial activity. Just like the management accountant auditors have difficulty with too much regulation since they have to understand or memorize regulations and interject it with the local environment. Bankers, lenders and suppliers would need more regulation since it can help them assess which company should they trust and which company can help them achieve their goals. Regulations are considered good by countries and governments since it can be used to adapt financial reports. Too much regulation only helps governments and countries assess a firm and determine if it would help them achieve national goals and objectives. It seems that for different individuals and groups the number of regulations can either be a good or bad thing. For some individuals and groups regulations need to be lesser since it would entail more issues and problems. For them regulations would mean more things to consider and additional difficulty in coming up with a financial report and financial statement. For some additional regulations would be necessary since it would entail a more truthful financial report. Regulations may be dreaded by some and liked by others but it would remain as an important concept used in making important official reports like the financial statements.
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