Question

Evaluate Financial Reporting Methods

E2:Assess the regulatory framework for financial reporting.
2.1Examine reasons for the existence of a regulatory framework

Why a regulatory framework for accounting profession is important to produce quality financial information to help internal and external users?

Answer 1

• Financial statements comprises of following documents :

1. Balance sheet
2. Profit and loss account
3. Statement of changes in equity
4. Cash flow statement
5. Notes to accounts

E2.

• The financial reporting method depends on the adoption of accounting principles eg. GAAP . Further, it also depends on the accounting method adopted by an entity viz. Cash method or merchantile/accrual method of accounting.
• The regulatory framework structure includes following elements:

1. Financial Reporting standards
2. Regulatory Law
3. Stock exchange requirements
4. Market regulatory authorities.

• The financial reporting framework is primarily set up to define the nature and purpose of accounting.

2.1

Reasons for the existence of regulatory framework:

• To assist in development new standards and the review of existing.
• To assist the users and makers of financial statements in adhering to accounting standards.
• To bring uniformity in the accounting policies and standards.
• To provide users with accurate and complete financial position about the entity.

A regulatory framework is important to produce qualitative financial information to help internal and external users because :

• It helps to show true and fair financial picture of the entity
• It helps in building trust and worthiness among the investors
• It helps to keep uniformity and enable comparability of financial statements among other entities in industry
• It prevents from frauds and manipulations
• Improves reliability of accounts of entity
• Assists auditors in compliances.