Question

. Globally, accounting standards are developed based on different methods. It is generally agreed that the nature of accounting standards depends on the systems of regulation. It has been argued that there are two main systems of regulation. Required: Identify and explain the difference between the two systems of regulation, stating clearly which system you believe describes the International Financial Reporting Standards (IFRS) Miss Nsiah is a qualified chartered accountant who prepares financial statements for a firm located at Tesano. Miss Nsiah does not qualify for a practicing certificate and so she does not provide audit service to the client. This is her first year of preparing financial statements for the firm. When compiling the most recent accounts, she detected some material errors in the previous financial statements. It seemed that the accounts were based on incomplete records as certain costs were excluded, either deliberately or because records were not maintained. 5 The Chief Executive Officer of the firm has also requested some additional work to be completed on a complex tax issue. However, she has no prior experience and does not feel competent to the work. The CEO would also like her to provide an audit opinion as they are planning to apply for funding from a bank and the bank would like some further assurance. Required: With reference to Code of Ethics for accountants, discuss the ethical principles applicable to the above scenario.

Answer 1

I

There are mainly two system of regulation:Principls vs rules based system of regulation

Principles-based accounting is   popular accounting method around the world

It adjust accounting principles to a company’s transactions rather than adjusting a company’s operations to accounting rules.

In Rules Based,Companies and their accountants is adhering to the rules when they compile their financial statements

Principles-Based vs. Rules-Based Accounting

Principles-based accounting is very practical for a variety of circumstances.

Accurate requirements can sometimes compel managers to change the statements to fit what is compulsory.

However If companies were able to report their financial numbers in any manner they chose, investors can be at risk.

Companies could report only the numbers that made them appear financially successful

while avoiding reporting any negative news or losses.

If there is a set of rules , It increase accuracy and reduce the ambiguity in financial reporting

Companies will have standardized   methods, terminology, definitions, and financial ratios.

Rules based allows investors to compare the financial statements of two companies by having standardized reporting methods.

Companies must formulate their balance sheet, income statement, and cash flow statement in the same manner, so that they can be more easily evaluated.

II

Competence is one of code of ethics for accountants.

This code states that accountants are to prepare complete, accurate and clear reporting of the business’ financial information.

The Chief Executive Officer of the firm has also requested some additional work to be completed on a

complex tax issue. However, Miss.Nsiah has no prior experience and does not feel competent to the work.

And also Miss Nsiah does not qualify for a practicing certificate and so she does not provide audit service

to the client.

Both cases, She is not competent.She will not able to prepare complete, accurate and clear reporting of the business’ financial information.