MOI UNIVERSITY

SCHOOL OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

REG NO: BBM/1697/22

NAME: ALEXANDER MURIITH
COURSE CODE BBM 304
COURSE TITLE ADVANCED ACCOUNTING
TASK ASSIGNMENT
LECTURER RODGERS KIMUTAI
DATE DUE 9TH March 8, 2024
Question 1
State 3 different regulatory influence of preparation of published financial
account of a quoted company and briefly comment on each of them.
Comment on effectiveness of this regulatory system.

1. International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of accounting principles and
guidelines that dictate how financial statements should be prepared and presented.
These standards ensure consistency and comparability of financial information across
different companies, making it easier for investors and stakeholders to analyze and make
informed decisions. FRS provides specific rules for recognition, measurement,
presentation, and disclosure of various financial items such as revenue, expenses, assets,
and liabilities.
The role of FRS is to promote transparency, accuracy, and reliability in financial
reporting, thereby enhancing the credibility and trustworthiness of published accounts.

2. Securities and Exchange Commission (SEC) It regulates the financial reporting of

quoted companies.
The SEC requires companies to file periodic reports, such as quarterly and annual
reports, which provide detailed financial information to investors and the public. These
reports must adhere to specific disclosure requirements, including information about
the company's financial condition, business operations, and management.
The SEC plays a crucial role in ensuring that companies comply with accounting and
reporting standards, and it has the authority to investigate and take enforcement actions
against those that fail to meet the regulatory requirements.

3. Auditing and Assurance Standards: Auditing and Assurance Standards establish the
guidelines and procedures that independent auditors must follow when examining a
company's financial statements.
These standards ensure that auditors perform their work objectively, independently, and
in accordance with professional ethics. Auditors assess the fairness and reliability of the
financial statements, verify compliance with accounting standards, and express an
opinion on whether the accounts provide a true and fair view of the company's financial
position and performance.
The role of auditing standards is to enhance the credibility of published accounts by
providing an independent assessment of their accuracy and adherence to regulatory
requirements.

Regulatory system is essential for maintaining confidence in financial markets and

protecting the interests of investors and stakeholders. It helps prevent fraudulent
practices, promotes transparency, and ensures consistency in financial reporting.
However, the effectiveness of the system can be challenged by the complexity of
financial transactions, creative accounting practices, and the constant evolution of
business models. Regulators need to stay vigilant, continuously update regulations to
address emerging risks, and have sufficient enforcement powers to deter non-
compliance. Additionally, global coordination and harmonization of accounting
standards and regulatory practices can further strengthen the effectiveness of the
regulatory system in a globalized economy.

QUESTION TWO 2.

There are those who suggest that any standard setting body is redundant because
accounting standards are unnecessary. Other people feel that such standards should
be produced, but by the government, so that they are a legal requirement.

(a) Discussing the statement that accounting standards are unnecessary for the
purpose of regulating financial statements.

The argument that accounting standards are unnecessary for regulating financial
statements is based on the belief that market forces and competition alone can ensure
reliable financial reporting. Proponents of this view suggest that companies, in their
pursuit of attracting investors and maintaining a positive reputation, will naturally
provide accurate and transparent financial information.

However, there are several reasons why accounting standards are essential for the
regulation of financial statements

1. Ensuring comparability Accounting standards provide a common framework that

enables the consistent measurement, presentation, and disclosure of financial
information.
This comparability is crucial for investors, creditors, and other stakeholders to make
informed decisions. Without accounting standards, financial statements would lack
consistency, making it challenging to compare the financial performance and position of
different companies accurately.
2. Enhancing transparency: Accounting standards require companies to disclose
essential information about their financial transactions and operations. By mandating
specific disclosures, accounting standards help improve transparency and allow
stakeholders to understand the underlying economic reality of a company. This
transparency is particularly important for protecting the interests of investors and
creditors who rely on financial statements to assess the risk and return associated with
their investments.
3. Facilitating accountability: Accounting standards provide a framework for assessing
the compliance of companies with reporting requirements. This promotes
accountability, as companies are expected to adhere to established rules and principles
when preparing their financial statements. Accounting standards also help auditors in
evaluating the accuracy and reliability of financial information, enhancing the overall
quality of financial reporting.
4. Addressing information asymmetry: Financial statements are often prepared by the
management of a company, creating an inherent information imbalance between the
company and its stakeholders. Accounting standards help mitigate this asymmetry by
providing a standardized set of rules and principles that guide the preparation of
financial statements. These standards serve as a safeguard against potential
manipulation or bias in financial reporting, reducing information asymmetry and
promoting trust in financial markets.

(b) Discussing whether or not the financial statements of not-for-profit entities should
be subject to regulation:

The regulation of financial statements for not-for-profit entities is a subject of debate.

Non-profit making organizations differ from for-profit entities in their objectives and
stakeholders, which raises questions about the need for regulation specific to this
sector. However, there are arguments both in favor of and against regulating the
financial statements of not-for-profit entities.
Arguments for regulation:
1. Accountability and transparency. Not-for-profit organizations often rely on public
trust and donations to fulfill their missions. Regulating their financial statements can
enhance accountability and transparency, ensuring that donated funds are used for
their intended purposes. Regulation can help prevent financial mismanagement, fraud,
and the misuse of resources.
2. Stakeholder protection: non profit making organizations have various stakeholders,
including donors, beneficiaries, and the general public. Regulating their financial
statements provides stakeholders with reliable information to assess the organization's
financial health, effectiveness, and efficiency. It can also protect stakeholders by
requiring proper disclosure of financial activities and ensuring compliance with legal and
ethical standards.
3. Standardization: Regulation can promote standardization in financial reporting
practices among not-for-profit entities. This can facilitate comparisons between
organizations, enable benchmarking, and support the evaluation of their impact and
effectiveness.

Arguments against regulation:

1. Cost and burden. Regulatory compliance can impose financial and administrative
burdens on not-for-profit organizations, diverting resources from their core missions.
Smaller organizations with limited resources may find it particularly challenging to
comply with complex accounting and reporting requirements.
2. Diverse nature of non profit making organization. Not-for-profit entities encompass
a wide range of activities and structures, including charitable organizations,
foundations, educational institutions, healthcare providers, and more. The diversity in
their missions and operations makes it challenging to develop a one-size-fits-all
regulatory framework that adequately addresses the unique characteristics of each
organization.
3. Self-regulation and governance. Some argue that not-for-profit entities can
effectively regulate themselves through good governance practices, such as
independent audits, board oversight, and transparency initiatives. Advocates for self-
regulation contend that excessive external regulation may stifle innovation and
flexibility in achieving the organization's mission