The Arrangement, Function, and Position of the FRC

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Introduction

Based on the continued developments in the accounting field, accounting rules have been formulated in a manner that suits the needs of the ever-changing business environment. The reason behind this alignment is that most publicly listed companies operate in different countries. Hence, they usually have their shares listed on several intercontinental stock bazaars. Therefore, this situation has prompted the need for regulation to protect prospective investors while at the same time encouraging development. Since the business environment is becoming more complex following the witnessed globalization of the capital markets, many changes have been witnessed in the accounting principles (Chand and Patel 56). For this reason, the accounting profession has recognized the need for standardized guidelines for accounting practices and procedures. In Australia, the accepted accounting body, namely the GAAP, offers a blend of constitutional rules and explanations of the business principles and concepts that have been developed over time. Based on these developments, business stakeholders realized the need to create a body, namely the Financial Reporting Council (FRC), which could assess the internal records of companies and report on compliance. This paper evaluates the arrangement, function, and position of the FRC. Besides, the paper presents the benefits of FRC as part of the regulatory structure.

Structure of the Financial Reporting Council

The Financial Reporting Council constitutes a board of directors that determines the main concerns and strategic directions of the body. The business escritoire is authorized to appoint the board officials. To have a grip on the massive financial market, the board is assisted to carry out its mandate by two commissions namely, Conduct Team and the Codes and Standards Team. Furthermore, three councils help the board in matters to do with bookkeeping, declarations, and actuarial and inventory review (Tomasic, Bottomley, and McQueen 113). Each of the FRC committees has its set of functions. The Codes and Standards Team is tasked with coming up with a comprehensive plan for determining the codes and standards that will guide the activities of FRC. The committee is mandated to make impact appraisals in instances where FRC is called upon to take risk-prone, practical, or impartial procedures. The committee is required to set prescriptive standards to the extent that such standards are in tandem with the principles of FRC. The committee is the consultative arm of FRC. It engages all the interested parties that are involved in the process of financial reporting without it having to compromise the autonomy and discretion of FRC.

The Conduct Committee prepares a plan that details the conduct of FRC while at the same time ensuring that FRC’s work is of high quality and that it meets the criterion that is set in the plan. Since the activities of FRC are bound to expose the body to risks, the committee is obliged to determine the activities that attract risks such as court cases. The committee may at times be required to determine the course of action on the main issues by deciding on the type of sanctions that FRC should apply. The commission is regarded as FRC’s earpiece since it not only reports on the performance levels of FRC based on the views of all the interested parties, but also advises the board on any necessary changes (Alexander, Britton, and Jorissen 218). In addition, the conduct committee is tasked with appointing members of a panel. The panel officials are expected to examine any acknowledged or suspected material departures from accounting standards that might involve an issue or a principle whose violation may result in the accounts in question not giving a true and fair view. The role of the panel is only confined to the accounts of large companies. Concisely, the board receives and examines complaints regarding the reports of companies that have gone against the doctrines of accounting requirements as stipulated in the Companies Act.

Work and Role of the Financial Reporting Council

The Financial Reporting Council is an oversight body that is responsible for the accounting standard-setting process for private and public sectors. Its membership comprises key stakeholders from the business community, governments, professional accounting bodies, and regulatory agencies. In Australia, the Financial Reporting Council oversees the Australian Accounting Standards Board, which is the organization that has the authority to issue accounting standards. In addition, the Auditing Assurance Standards Board falls under the authority of FRC. The AASB is charged with issuing auditing and assurance standards for auditors and providers of other assurance services to use. The Financial Reporting Council is tasked with ensuring that sanity prevails in the financial markets. This task comes with a plethora of roles. To begin with, FRC supervises developments in international accounting values. It also determines the strategic course of the Accounting Standards panel. Therefore, FRC may give the Accounting Standards Board instructions, counsel, and opinions on matters of general policy. The body is responsible for approving its business arrangement, priorities, finances, and staffing measures. Nonetheless, it is not within the mandate of FRC to influence the technical deliberations and accounting standards that have been set by the Accounting Standards Board. The FRC helps to ensure that the financial information that businesses release is relevant and that it faithfully represents the financial position and performance of a company. Accomplishing this role enables the relevant stakeholders and/or investors to make quality decisions based on the financial position of a company. The Financial Reporting Council ensures that the characteristics of the financial information are exhibited in a manner that enhances the quality of financial reporting. The most notable characteristics include suitability, authenticity, understandability, and equivalence (Fearnley, Beattie, and Hines 85). By ensuring that the financial reporting that is recorded by companies is of high quality and truthful, FRC helps to show the accountability or stewardship of management. The management department of the organization where investors need to make decisions and/or assess stewardship provides the financial statements (American Institute of Public Accountants 2).

Due to the need for FRC to have a grip on all the accounting activities of various companies, there was a need to set up the Accounting Standards Committee. This committee was formed to define accounting concepts, narrow the disparity in monetary accounting and reporting behavior, and codify generally acknowledged practices that concern the public. The commission carried out its mandate on behalf of or at the command of the Financial Reporting Council. The Accounting Standards Committee was tasked with issuing new accounting standards. The accounting standards, which were often referred to as Financial Reporting Standards, have had a significant impact on the accounts of today’s companies. The FRC helps to determine whether companies are sustainable based on their financial reports. In financial circles, the sustainability of a company is often considered writ small and writ large. When FRC estimates profit in income statements and values in balance sheets, it usually determines whether a company can generate profits. Therefore, sustainability is normally assumed in financial reports that contain accounting data, whether in large or small firms.

Benefits of the Financial Reporting Council as a Regulatory Body

As a regulatory organization, the positive impact of the Financial Reporting Council on accounting practices has been felt around the world. The Financial Reporting Council is often praised for the quality of its actuarial and auditing work. In addition, the regulatory organization has managed to address significant issues that touch on professional oversight and corporate governance. The financial reporting commission has put a lot of emphasis on issues that influence investors and stakeholders of the financial markets. The body has managed to remain impartial and independent of other entities that it is required to control. The business trend that the Financial Reporting Council has set has seen the regulatory body live up to the standards that are expected of it by investors. Due to the globalization of capital markets, high-quality information has ensured that investors and lenders have trust in the FRC. Today’s stakeholders have the confidence to make sound investment decisions, thanks to the FRC that has enhanced the efficiency and liquidity of the capital markets. Capital markets are often considered efficient in terms of providing a suitable environment for companies to reduce the costs of capital. Thus, the FRC has led to the improvement of returns while at the same time contributing to wealth creation for the economic good. However, non-listed companies and small and medium-sized enterprises constitute approximately 95% of businesses around the world. The provision for these companies to provide high-quality information is just as important as for publicly traded companies. The investors who may be venture capitalists often use the financial statements that emanate from these companies (American Institute of Public Accountants 3). Moreover, such financial statements are useful to lenders such as banks, suppliers, employees, government departments, and other parties outside the company. In the event that the financial information that these companies provide is not of the expected quality, the users of such information may lose their confidence in dealing with the affected companies. The need for businesses to remain operational and productive has seen the emergence of the Financial Reporting Council whose key role is to bring sanity to the financial market by virtue of it being a regulatory body (Bazley and Hancock 126).

Analysis and Evaluation

Companies that fall under the regulatory framework of the Financial Reporting Council are the beneficiaries, especially when they adhere to the principles of proportionality, accountability, transparency, and consistency. These principles are a hallmark of proper regulation. However, it is clear that businesses that violate the accounting standards have their share of penalties. The US Securities and Exchange Commission presents a case of the CVS Caremark Corp that was fined USD20 million for producing financial records that were deceptive to shareholders (par.1). The Financial Reporting Council is often aware of many, if not all market developments, which may have an impact on the entities that it regulates. Furthermore, the Financial Reporting Council deems it necessary to offer advice on matters it considers within its confines. For instance, the commission works in close partnership with the management of the businesses and other bodies that it oversees. Hence, FRC has significantly helped these companies to raise their standards of financial reporting. Virtually all guided companies that have adhered to the FRC counsel have enjoyed a smooth running of their accounting operations. This observation is contrary to companies that have had to go through court cases after violating the accounting standards such as the aforementioned CVS Caremark Corp. Adhering to this trend helps the companies to cement their membership and/or avoid issues that may lead to de-registration and/or having the various key official penalized or fired. For instance, CVS Caremark Company’s accountant had to pay USD75000 in addition to facing a 12-month forced to leave where he was unauthorized to handle any company’s financial records (The US Securities and Exchange Commission par.4). The Financial Reporting Council has enlisted the services of individuals who are highly qualified and whose experience in matters to do with capital markets is the best. These individuals often help the Financial Reporting Council to understand the changing patterns of the capital markets. With the help of such persons, it makes it easier for individuals who have been tasked with making decisions on governance and reporting to make informed choices.

Conclusion

Accounting principles have been established to oversee the application of the required measurement and reporting conventions that guide financial records management. The approach to standard-setting regarding accounting regulation has had elements of both private and public sector involvement. Both sectors have agreed to have a regulatory framework or body in the form of the Financial Reporting Council. The regulatory agent has gone a long way in ensuring parity in the capital markets for the benefit of investors and other users of financial information. As revealed in the paper, the Financial Reporting Council has the duty to identify companies that fail to state their actual financial position. FRC has the authority to state the corresponding penalty for such companies that avail information that mislead investors and other relevant stakeholders. FRC has helped the business sector to streamline their operations to the benefit of all stakeholders.

Works Cited

Alexander, David, Anne Britton, and Anne Jorissen. International Financial Reporting and Analysis. The United Kingdom: Cengage Learning EMEA, 2011. Print.

American Institute of Public Accountants. Financial Reporting Framework for Small and Medium-Sized Entities. New York, NY: AICPA, 2013. Print.

Bazley, Mike, and Phil Hancock. Contemporary Accounting. Melbourne: Cengage Learning Australia, 2014. Print.

Chand, Parmod, and Chris Patel. Achieving Global Convergence of Financial Reporting Standards: Implications from the South Pacific Region. Bingley: Emerald Group Publishing, 2011. Print.

Fearnley, Stella, Vivien Beattie, and Tony Hines. Reaching Key Financial Reporting Decisions: How Directors and Auditors Interact. West Sussex, England: John Wiley & Sons, 2011. Print.

The US Securities and Exchange Commission. SEC Charges CVS With Misleading Investors and Committing Accounting Violations, 2014. Web.

Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations Law in Australia. Annandale: Federation Press, 2002. Print.

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BusinessEssay. 2022. "The Arrangement, Function, and Position of the FRC." April 6, 2022. https://business-essay.com/the-arrangement-function-and-position-of-the-frc/.

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BusinessEssay. "The Arrangement, Function, and Position of the FRC." April 6, 2022. https://business-essay.com/the-arrangement-function-and-position-of-the-frc/.