Financial Reporting Standard-setting Bodies and Regulatory Authorities

Standard-setting bodies and regulatory authorities play an integral role in capital market development and supervision.

Examples of standard-setting bodies are the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). The IASB is the standard-setting body that is responsible for issuing the international financial reporting standards. The FASB issues the US generally accepted accounting principles (GAAP).

An example of regulatory authority is the US Securities and Exchange Commission whose primary responsibility is the regulation of securities and capital markets in the United States.

Roles and Desirable Attributes of Financial Reporting Standard-setting Bodies and Regulatory Authorities

Standard-setting bodies establish financial reporting standards and are typically private sector, not-for-profit, self-regulated organizations that have boards comprised mostly of experienced accountants, auditors, academics, and users of financial statements.

Regulatory authorities, on the other hand, recognize and enforce standards. They possess the legal authority to enforce financial reporting requirements as well as to supervise capital market participants.

Several attributes are considered desirable for all standard setters. These include the following:

• the roles and responsibilities of all the parties that are involved in the standard-setting process, for example, trustees and foundations, should be clearly defined;
• professional standards, such as codes of ethics and confidentiality agreements, should be observed by all the parties that are involved in the standard-setting process;
• the standard-setter should have adequate authority, resources, and competencies to fulfill all of its responsibilities;
• the processes which guide the standard-setter and the formation of its standards should be consistent and clearly defined;
• a well-articulated framework with a clearly stated objective should guide the accounting standards board. Additionally, the accounting standards board should be able to act independently and make decisions that are consistent with this stated objective;
• the decision-setting process should not bow to pressure from external forces and should not be influenced by self or special interests; and
• the standards which are derived by standard-setters should be in the public interest and be of a high quality which will meet the quality threshold set by regulatory authorities.

Question

Which of the following is least likely a desirable attribute of a standard-setting body?

1. The decision setting process for the standard-setting body should not be influenced by self-interest.
2. The responsibilities of all the parties involved in the standards-setting process do not have to be clearly defined.
3. The accounting standards board should be guided by a well-articulated framework that has a clearly stated objective.

Solution

The correct answer is B.

The responsibilities of all the parties involved in the standards-setting process should be clearly defined. The other two statements are correct.