BUSINESS & TECHNOLOGY

CHAPTER- 12
Law and Regulation Governing Accounting
Authorities

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Authorities
Regulatory Bodies :
§ These are bodies who regulate (supervise) the Organization.
§ An Organization can have multiple regulatory body.
§ Company Registrar can be regulator of Companies, Company Registrar & Central Banks can be
regulator of Banks.
§ In countries, there is a government department which has been set up to oversee the regulation and
accounts of companies. In the UK, this is known as Companies House, but it goes by various names in
other countries (such as Companies Commission in Malaysia).
§ Organization should submit financial statements (audit report) & other key documents to the
regulatory bodies on timely basis. Audit Report should be submitted at least annually.

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Authorities
Tax Authority :
§ Every person and organization (commercial & non-commercial) is accountable to tax authority
each year.
§ They have to prepare tax returns each year, showing the amount of taxable profits they have earned in
the period. (Self –Assessment tax)
§ They also need to pay the sales tax each period.
§ The tax authority needs the actual status of the taxes and can check if they doubt the self calculation.

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Authorities
Other Regulators :
Like in the UK there are :
§ Most businesses in the financial services industry handle client money. The FCA (Financial
Conduct Authority) and the PRA (Prudential Regulation Authority) are public bodies that monitor
and control the activities of organizations to protect clients against failure or poor advice.
§ Charities have access to public money, so the Charity Commission is a public body that registers all
charities and monitors their activities.
§ Utilities, such as gas and electricity providers need to offer a reliable, fair and safe service across the
country. OFGEM is a public body in the UK that regulates the activities of these organizations.

Financial Statements retention :

§ In order to satisfy the relevant authorities, most organizations have to retain their accounting records
and information for a minimum period (usually seven years), in case the authorities wish to verify
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information at a future date.
Legislation for Financial Statements
Companies Regulation :
§ These legislation covers not only the need to prepare financial statements, but also how they should
be prepared
§ This legislation varies between countries, but in the UK it is known as the Companies Act 2006 (or
CA2006).
§ It ensures that interested parties are able to access the financial statements of a company, as well as
making sure that they have been prepared in an understandable way and Financial statements are
produced that give a true and fair view of the position and performance of the company.
§ It mandates to :
- Follow all appropriate accounting standards
- Contain information of sufficient quantity to satisfy the reasonable expectations of the users
- Follow generally-accepted practice
- Should not contain any material misstatement.
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Who is accountable?
§ Under company legislation, directors are responsible for financial statements that give a true and fair
view.
§ This is delegated within the company to the Finance Director (FD) or the Chief Financial Officer
(CFO) who is assisted by the finance & accounting department employees.

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What if there is a Compliance failure?
- Failure to keep proper accounting records or to prepare regular financial statements that give a
true and fair view are both criminal offences.
- The responsibility is of the directors, who can be fined for failure to comply.
- If the company is listed in Stock Exchange, its shares may be suspended by the stock exchange,
meaning that they cannot be traded.
- Tax authorities can launch an investigation and if they discover that too little tax has been paid, then
the company may be guilty of tax evasion, which is illegal.
- If the financial statements do not show a true and fair view, the company's auditors may give a
qualified audit report damaging the reputation and creating obstacles.
- Failure to keep adequate accounting records could mean that the company has insufficient
information relating to areas such as receivables and payables.

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International Regulations
- In order to harmonize the Accounting Regulation same all across the world, there is a standard of
recording the accounting entries called the International Financial Reporting Standards (IFRS).
- Previously, there were a wide range of different accounting standards being applied in different
countries across the world and it became increasingly difficult for international investors to compare the
financial statements of companies in different countries.
- International Accounting Standards Board (IASB) is the independent standard setting body of the
IFRS Foundation. Its members are responsible for the development and publication of IFRSs and
interpretations. IFRS collectively includes the Standards set by IASB.
- IFRS Interpretations Committee (IFRS IC or IFRIC) reviews widespread accounting issues (in the
context of IFRS) on a timely basis and provides authoritative guidance on these issues
- IFRS Advisory Council (IFRS AC) is the formal advisory body to the IASB and the IFRS
Foundation.
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International Regulation
Principle objectives of the IFRS Foundation formed under IASB :
§ Develop a set of high quality, understandable, enforceable and globally accepted financial reporting
standards
§ Promote the use and application of these standards
§ To take account of the financial reporting needs of emerging economies and small and medium sized
entities
§ Bring about the convergence of national and international financial reporting standards.

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Other Regulations
Regulation in the UK :
§ Accounting standards in the UK are written by the Audit, Reporting and Governance Authority
(ARGA).
§ ARGA acts as a regulator in the oversight and development of corporate governance standards in
the UK like the UK Corporate Governance Code and standards for the accounting industry

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END OF CHAPTER

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