Accounting Conceptual Framework and Regulatory Framework in the UK - Essay Example

? Compare and contrast the accounting conceptual framework and the accounting regulatory framework in the UK Supervisor: Date: October 29, 2013. Compare and contrast the accounting conceptual framework and the accounting regulatory framework in the UK Introduction The scope of accounting that defines collection, classification, recording, analysis, and reporting of accounting information to relevant stakeholders identifies the profession’s sensitivity problems that amount to legal and ethical concerns. Accounting conceptual framework exists to for an objective approach to evaluation and resolution of the concerns and is developed by an established body. Regulatory framework defines rules and regulations that concerns accounting practices. Such rules and regulations vary across countries and this paper discusses accounting conceptual framework and accounting regulatory framework in the United Kingdom. The accounting conceptual framework in the UK One of the elements of the accounting conceptual framework, as applicable in the United Kingdom, relates to goal of financial statements that is to offer information on “financial position, performance and changes in financial position” of an enterprise (Rolfe 2006, p. 123). The subject information must however be significant to the entity’s stakeholders. Three documents, financial statements meet the objectives. Cashbook reports an entity’s financial position, income statement reports financial performance and cash flow statement reports and entity’s change in financial position. Basic assumptions in accounting are another set of factors that form elements of accounting framework. The framework identifies two assumptions: the going concern, an assumption that an entity will exist until unforeseeable future and upon which accounts are prepared, and accruals basis, a requirements that value in transactions are realized as soon as the transactions occur and not money on the transactions are received of remitted. Another element of the accounting framework relates to property of financial information and the framework identifies “understandability, relevance, reliability, and comparability” (Rolfe 2006, p. 124). These properties require that financial information be simple enough for users to understand, identify with users’ needs, be consistent, and offer a basis for comparison with the entity’s longitudinal information of comparison with other entity’s information (Rolfe 2006, p. 123, 124). The accounting conceptual framework also lists composition of financial statements. The balance sheet discloses an entity’s financial positions and items’ balances that contribute to the position. Assets, capital, and liabilities constitute the balance sheet. The income statement that discloses an entity’s sources of revenues and expenditure is another element of financial statements and shows an organization’s financial performance in a period. Statement of shareholders’ equity that illustrates changes in capital, and disclosures that concerns these statements is other components of financial statements (Rolfe 2006, p. 125, 126). Recognition and measurement are other aspects of the framework and required numerical disclosure of value of items and narratives that describe the numerical values (Weil 2012, p. 22; Spiceland, Sepe and Nelson 2013, p. 19). Treatment of capital and management of capital items are other aspects of the conceptual framework. The United Kingdom adopts financial approach to treatment of capital, an approach that recognize profit or loss on capital based on the difference between value of a capital at the end of an accounting period and the corresponding value at the beginning of an accounting period (Bellandi 2012, p. 271). The conceptual framework serves multiple purposes in accounting. It helps the accounting board in its role of reviewing current financial reporting standards and in formulating the standards for future applications. The accounting framework also informs the boarfd in the board’s role of harmonizing “regulations, accounting standards, and procedures” of communicating financial information (Rofle 2006, p. 122). It achieves this purpose through limiting the number of accounting steps through financial and reporting standards. The framework also informs national regulations on accounting standards assists accountants in accounting for items that have not been covered by existing accounting standards. The framework is also significant to auditors and to users of financial statements as it informs their opinions on presented statements. In addition, the accounting framework reports on the international accounting standards board’s approaches to development of financial and reporting standards and therefore promote understandability and acceptability of the standards in the United Kingdom (Rofle 2006, p. 122). Rationale for a conceptual framework, according to Haslam and Chow and with respect to the framework’s scope in the United Kingdom, also explains the roles of accounting conceptual framework. The framework informs decisions on contentious issues and therefore aids solutions to problems and conclusions on discursive accounting matters. The framework also offers a theoretical reference basis for problem solution and therefore eliminates the need to apply first principles in each isolated case, processes that are demanding and takes a lot of time. Its theoretical scope that offers general basis for resolving accounting problems also eliminates the need for many regulations that would otherwise be used to resolve each accounting problem. In addition to the roles of the accounting framework, its application in the United Kingdom identifies various advantages. The framework explains basic assumptions of new accounting standards and ensures consistency in developed accounting standards. The explanatory role of the framework also promotes development of new accounting standards by eliminating the need for deliberations each time standards are developed of reviewed (Haslam and Chow 2012, p. 31). The accounting regulatory framework in the United Kingdom: Comparing and contrasting with the accounting framework The accounting regulatory framework in the United Kingdom is universally accepted as a basis for governing accounting practices and reporting of accounting information to stakeholders. Harvey, McLaney and Atril explains two categories of the regulatory framework in the united state, statutory and non statutory frameworks. Statutory framework consists of a set of rules that are legally binding because there are entrenched in the country’s sources of law. This means that a breach of provision of the category of framework amounts to a crime and this form one of the differences between the United Kingdom’s accounting conceptual framework and accounting regulatory framework because breach of any provision of accounting conceptual framework does not amount to legal liability. Non-statutory category of United Kingdom’s regulatory framework, like in other countries, is independent of legal systems. Its provisions are not enforceable under legal systems and this identifies similarities between the country’s accounting regulatory framework and accounting conceptual framework (Harvey, McLaney and Atril 2013, n.p.). Applicability of the accounting regulation is another identifiable element and exists in two perspectives. Regulations that apply to companies listed in the United Kingdom are different from regulations that apply to companies that operate in the country but are listed in other countries and the difference is evident in applicable source of law. United Kingdom listed companies are subjected to regulations by the International Accounting Standards Board while companies not listed in the United Kingdom are only subjected to regulations by the Accounting Standards Board, a local body, another aspect that identifies difference between the universally applicable accounting conceptual framework from the accounting regulatory framework. Another difference between the accounting conceptual framework and accounting regulatory framework, based on non-uniformity is the regulatory framework’s reliance on conceptual framework as a source of rules and regulations for United Kingdom listed companies while the conceptual framework does not inform regulation over companies that are not listed in the United Kingdom. Other elements of the regulatory framework that differentiate it from the conceptual framework, based on uniformity in applicability are existing of listing rules in regulating listed companies while listing rules do not influence regulation of non listed companies and non listed companies’ freedom to avoid regulation by United Kingdom’s accounting standards. The non-listed company can choose to be regulated by United Kingdom’s accounting standards or to be regulated by International Financial Reporting Standards while companies (Maynard 2013, p. 56- 58). Some elements of the rules in the country’s regulatory framework, such as conventional rules that includes principles of accrual concepts and going concerns and offers a basis for comparing the two frameworks because they both stipulate the concepts (Pearsoned n.d., p. 25- 30). Exploration of advantages of the United Kingdom’s accounting regulatory framework also establishes the framework’s similarity with the country’s accounting conceptual framework. Both frameworks offer uniform grounds for accounting practices because even though the country’s regulatory framework has domestic regulations, its application of international and generally accepted accounting standards develops a significant level of uniformity in accounting practices with practices in other nations. This leads to secondary benefits such as direct investment inflow and a better understanding of financial statements by stakeholders (Hanif n.d., p. 1-4, 1-5). A review of people’s attitude towards accounting regulation framework further identifies a wide acceptance by people and indicates that like the accounting conceptual framework that is uniformly applicable, accounting regulatory framework is generally accepted and therefore generally applied (Fearnley and Hines n.d., p. 1). Conclusion Accounting conceptual framework defines an approach for evaluation and resolution of accounting issues while accounting regulatory framework defines sets of rules and regulations that governs accounting. Elements of the conceptual framework such as assumptions in going concern and accrual concepts exist in the United Kingdom’s regulatory framework to identify similarities between the two frameworks. Purpose and benefits of the two frameworks such as guiding and simplifying the scope of accounting also identify similarities in the two frameworks. Differences also exist in the frameworks’ scope and the major differences are with respect to universal application of the accounting conceptual framework whole the accounting regulatory framework differentiated applications. Works cited Bellandi, F 2012, Dual reporting for equity and other comprehensive income under IFRSs and U.S. GAAP, John Wiley & Sons, Hoboken. Fearnley, S and Hines, H n.d., “The adoption of international accounting standards in the U.K.: A review of attitudes,” Illinois University, Retrieved October 29, 2013, . Hanif, M n.d., Accounting: For Ca Ipcc exam, Tata McGraw-Hill Education, New Delhi. Harvey, D McLaney, E and Atril, P 2013, Accounting for business, Routledge, Oxon. Haslam, J and Chow, D 2012, “Financial reporting,” University of London, Retrieved October 29, 2013, . Maynard, J 2013, Financial accounting, reporting, and analysis, Oxford University Press, Oxford. Pearsoned n.d., “Accounting rules and regulations,” Retrieved October 29, 2013, . Rolfe, T 2006, Financial accounting and tax principles 2007, Elsevier, Oxford. Spiceland, D Sepe, J and Nelson, M 2013, Environment and theoretical structure of financial accounting, McGraw-Hill Education, London. Weil R 2012, Financial accounting: An introduction to concepts, methods and uses, Cengage Learning, London. Read More