The Regulatory Framework for Financial Reporting

Regulatory framework is the specific environmental features of the financial reporting.

Regulatory frameworks can be vary between countries, but they have common elements. The
elements are :
a. Statutory Requirements
Statutory Requirements has a role as an incentives to produce financial statements and
have them audited. In the some countries company law mandates directors provide
audited accounts. The company need to fulfill the statutory reporting requirement
based on law. It has the same role like specific accounting standard and tax law
regulation for every country
b. Corporate Governance
Corporate Governance are the structures, processes and institutions within and around
organizations that allocate power and resource control among participants. Some
corporate governance practices are derived from laws which require directors to carry
out specific actions or derived from guidance from other institution like Code of IFAC
about corporate governances.
c. Auditors and oversight
Auditors perform a vitally important function in providing assurance about the quality of
information provided by the company in their financial statements. Auditors have some
regulation that they must comply. Independency regulations, the sanctions, or ethical
codes. In the world wide, auditors have voluntarily adopted International Standards of
Auditing (ISA) as an indication of their commitment to providing a high quality service
and demonstrating behavior appropriate to members of a profession.
d. Independent enforcement bodies
Role of this body is to promote compliance with the regulations governing the
production of financial statements, which are contained in law, and accounting
standards. A securities market regulator is the most commonly observed form for an
independent enforcement body. The example in Indonesia is OJK that ensure each listed
companies have complied with the regulation.

The Institutional Structure for Setting Accounting and Auditing Standards

Background
The development began in 1973 with the formation of the International Accounting Standards
of Committee (IASC) that consist of nine countries. The purpose is to develop an accounting
standard for the private sector throughout the entire world. Until 2015, IAS has adopted by few
countries without national standards.
The members of the IASC hailed from countries with a range of accounting practices and
different approaches to setting accounting standards. Although the use of IAS throughout the
world was increasing, there is a perspective that said IASC was not independent. So, in 2001 it
was restructured then create an International Accounting Standards Board (IASB), an
independent board based on the structure of the Financial Accounting Standards Board (FASB)
in the US. Initially, it comprised of fourteen countries and increasing time by time. Another big
step and impact for development IASB was an adoption from EU countries for consolidated
accounts based on IASB Standards.
The IASB and FASB Convergence Program
The IASB and FASB Convergence Program were called the Norwalk Agreement in 2002. The
FASB was formed in 1973 and highly regarded throughout the world as leading standard setter.
The FASB has power delegated by the SEC to develop standards for financial reporting for listed
companies. But it comes to different side between using IFRS and US GAAP. Each has their
support countries. In 2005, it comes to complicated procedure to make stable platform for both
standard. The Convergence Program identify the difference between the two sets of standards.
US GAAP have been described as rule-based standards and IAS aim to be principle-based.
Accounting Standards for the Public Sector
Other side of private sector that using IASB standard, there is a public sector. Public sectors may
have different goals and objectives then private sectors. Individual countries must decide the
extent to which IASB Standards will be followed by public Sector entities. Institution called
International Public Sector Accounting Standards Boards, under IFAC in 2019, developing a
conceptual framework for public sector accounting.
International Auditing Standards
For the first time, auditing have its own regulation. Early auditing theory development
documented the process of auditing and the duties expected of auditors. Then slowly it showed
up the profession, association of the profession and the institutional like American Institute’s of
CPA (AICPA). In the first 2000s, passed by Sarbanes-Oxley Act (2002), review of audit firms in US
have been conducted by government body, the PCAOB. International Auditing Standards are
developed by International Auditing & Assurance Standards Board (IAASB). The IAASB operates
under the auspices of the IFAC. Governments believe that accounting & auditing standards
matter, and they have some support from research of their view.