A Report on the Importance of Compliance in Financial Reporting

This report provides a comprehensive overview of the importance of financial compliance, focusing on regulatory frameworks and their impact on businesses. It details the four main regulatory bodies in accounting standards: the Companies Act, Stock Exchange, International Accounting Standards, and the Accounting Standards Board. The report explores the consequences of non-compliance, including potential penalties, reputational damage, and audit issues. It also emphasizes the significance of compliance in maintaining accurate accounting records, producing reliable financial information, and conducting effective audits. The report concludes with recommendations for improved financial reporting practices, emphasizing the need for adherence to accounting standards, ease of application of new standards, and guidance from security exchange boards. This report is designed to help students understand the critical role of compliance in financial reporting.

IMPORTANCE OF
COMPLIANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Four main bodies of regulatory framework in accounting standards..........................................3
Consequences of non compliance................................................................................................4
Significance of compliance..........................................................................................................5
CONCLUSION................................................................................................................................5
RECOMMENDATION...................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Compliance termed out as firm that is obeying all regulations and legal laws in aspect of
how they manage the business, staff and treatment towards their consumers (Murray, McVie and
Norris, 2020 ). This defines as that firm is meeting with all legal obligations that leads to protect
the health, safety and welfare to others.
The present report is based on explantation on regulatory framework and their key
requirements. Also, study will evaluate the consequence of non compliance to requirements from
four regulatory bodies for range of businesses. Lastly, evaluation will be conducted on the basis
of compliance to regulatory bodies.
MAIN BODY
Four main bodies of regulatory framework in accounting standards.
Regulatory framework for the financial reporting is designed in terms to sort out the
common language that firms and businesses accounts are clear and can be comparable within
international environments (Coban, 2020). In addition to this, accounting regulations mainly
consists of standards, legal framework, education and other sort of standards. Thus, four main
regulatory bodies are as-:
Companies act and key financial reporting requirements- Company law in the UK needs that
director of firms who are incorporated under UK must prepares the account for company for
each of its financial years. It must be made in manner that gives true and fair view. Henceforth,
such accounts as-:
 Companies act accounts- This must be made in terms with accounting and disclosure
needs of company law. Also, needs to prepared as financial reporting standards that
published with help of financial reporting council (Anarfo and Abor, 2020).
 IAS accounts- It needs to be prepared as per international financial reporting standards
that has been published with help of International Standard board. This is adopted by the
European union.
Thus, there are four different size of firm such as micro, small, large and medium sized.
Thus, specification has been given for the small and micro firms while preparing and filling
annual accounts and reports (Compliance with International Financial Reporting Standards,
2018). Part 15 set out the requirements as distribution, filling and preparation of reports and
accounts. Also, part 16 states that general details requirement must be given for account to be

audited and this is inclusive of exemption for some of firms, removal and resignation of auditors
etc.
Stock exchange and key financial reporting requirements- Each firms must have the
minimum of 125000 public traded shares upon listing. It is exclusive of those held by the
officers, beneficial owners and directors of more that 10% of entities. Henceforth, private firm
cannot be listed on stock exchange and not traded privately (Tsalavoutas, Tsoligkas and Evans,
2020 ). However, public firms are obliged to begin with initial registration statement that files
with SEC. These companies needs to keep their shareholder informed on daily basis by filling
periodic reports and other significant material with SEC. In addition to this, it has been identified
that private firms needs to file with financial reports with SEC at time when it has more than the
500 common shareholders and $10 million in assets that is set by the security and exchange act
of 1934.
International Accounting standards and key financial reporting requirements- The main
purpose of Internation accounting standard board is to issue globally applicable reporting
practices. It is standard that is designed to maintain the credibility and transparency (Maglio, Rey
and Lombardi, 2020). All limited liability firms needs to prepare financial statement in terms to
monitor the health of business and offers a true and fair view of financial position. Additionally,
listed firms needs to prepare the consolidated financial statement as per the single set of
international standard called IFRS. Therefore, this is need to notice that IFRC standards must be
use by the all domestic publicly accountable entities.
Accounting standard board and key financial reporting requirements- This is standard that
has also has been framed out for the private and non profit organisation whose main goal is to
establish and improve general accepted accounting principles (Pantielieieva, Khutorna and
Potapenko, 2020). Henceforth, the following three financial statements are as income, balance
sheet and cash flow statement etc. These all reporting must be filled up by the private and non
profit organisations. The main aim of this is to ensure that financial reporting is transparent and
consistent from one to another enterprise.
Consequences of non compliance
The consequences of the non compliance are not only limited with the statutory and legal
penalties. Therefore, the non-compliance may results into damage the company reputation, credit
rating and even possible loss of contracts. In addition to this, Non-compliance can cause the

issues with the audits of firm. In the era of enhanced regulatory changes, the financial service
organisation needs to comply with regulation of accounting standards (Madura, 2020). However,
non compliance may have serious consequences such as punitive fines, criminal proceedings,
damaged reputations and sanctioning.
Significance of compliance
Compliance defined as the reports that created by the entities in relation to abide with the
rules, standards, laws and legislation that is set by the government agencies and varied regulatory
bodies. Compliance with financial standards helps to keep up the accounting records, to produce
financial information and conducts the audit of entities in systematic manner. However,
compliance reports aids to identifies the areas within the enterprise in which compliance
initiatives needs to be effectively met and those areas needed to meet the standard of the
regulation and to undertake better internal control (Anarfo and Abor, 2020). In addition to this,
the main aim of the compliance program is to promote the enterprise adherence to applicable
federal, state and private rules and regulations. Thus, compliance must be taken in terms to
protect the practices against the fraud, abuse and other potential liability areas.
CONCLUSION
From the above report it can be summarized that compliance can be defined as vital tool
that ensure the integrity and fairness to companies. This means to conducting the business
practices with all national and international rules and regulations in order to meet the
professional standards.
The present report has covered the regulatory framework for different type of businesses.
Also, study has outlined the consequence of non-compliance. Lastly, recommendation has been
given in terms to undertake future improvements in financial reporting.
RECOMMENDATION
On the basis of it, the suggestive measures needs to be given and these are outlined as-:
 The all companies needs to abide with the rules and regulation that are set on behalf of
accounting standards.
 To simplify the reporting process, there is needs to have the ease of application should be
effective consideration at time when the new standards are established.
 Security exchange boards should taken initiative to add the guidance for all pubic
companies with respect to materiality related to previously issued financial statements.

REFERENCES
Books and journals
Murray, K., McVie, S. and Norris, P., 2020. Procedural justice, compliance with the law and
police stop-and-search: a study of young people in England and Scotland. Policing and
Society. pp.1-20.
Coban, M.K., 2020. Compliance forces, domestic policy process, and international regulatory
standards: Compliance with Basel III. Business and Politics. 22(1). pp.161-195.
Anarfo, E.B. and Abor, J.Y., 2020. Financial regulation and financial inclusion in Sub-Saharan
Africa: Does financial stability play a moderating role?. Research in International Business
and Finance. 51. p.101070.
Tsalavoutas, I., Tsoligkas, F. and Evans, L., 2020. Compliance with IFRS mandatory disclosure
requirements: a structured literature review.
Maglio, R., Rey, A. and Lombardi, R., 2020. Exploring sustainable governance: Compliance
with the Italian related party transactions regulation for the legal protection of minority
shareholders. Corporate Social Responsibility and Environmental Management. 27(1).
pp.272-282.
Pantielieieva, N., Khutorna, M. and Potapenko, L., 2020. FinTech, RegTech and Traditional
Financial Intermediation: Trends and Threats for Financial Stability. In Data-Centric
Business and Applications (pp. 1-21). Springer, Cham.
Madura, J., 2020. Financial Markets & Institutions. Cengage learning.
Anarfo, E.B. and Abor, J.Y., 2020. Financial regulation and financial inclusion in Sub-Saharan
Africa: Does financial stability play a moderating role?. Research in International Business
and Finance. 51. p.101070.
Online
Compliance with International Financial Reporting Standards. 2018. [Online]. Available
through: <https://www.iaasb.org/projects/compliance-international-financial-reporting-
standards-completed>
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