We often hear that accounting is essential for businesses for various reasons, and that as a profession, accountants are looked upon too for protecting financial interests of stakeholders. But before we get to know how exactly these highly regarded roles of professional accountants are performed, have we ever wondered what gives accountants the credibility in their work and brings the professionalism that they command? To answer the question, one should know the institutional and regulatory frameworks of the accounting profession. By institutional framework, we refer to congregations of accounting professionals and other concerned parties such as the government, who set up sets of guidelines for accountants to follow when performing their duties. By regulatory framework, we refer to such guidelines that prescribe the accountant's professional duties and obligations in forms of accounting standards, laws, codes, rules, or regulations. Breaches of these guidelines may lead to different levels of sanctions. The institutional and regulatory frameworks usually co-exist and complement each other in maintaining integrity of a profession. Let us now see how they are operated in the accounting profession. In each country, accountants practice within an institutional framework where they are usually but not limited to three key players. The key players are namely, the recognized accounting body, the government, and regulatory unit. Outside of the country, these parties are connected with their international counterparts by way of exchanging information and sharing expertise, such that they can discuss and work together in resolving common accounting issues. At the international level, the two most influential accounting bodies are the International Accounting Standards Board, IASB and the Financial Accounting Standards Board, FASB. Both the IASB and FASB issue practice guidelines generally called accounting standards, which stipulate how various aspects of the accounting process should be properly done. To illustrate, let us first recall what are the four basic processes of accounting. They are namely, identifying, recording, summarizing, and reporting economic transactions of businesses. There are specific accounting standards stipulating when and how business income can or cannot be identified and recorded as revenue, when and how interest payments should be summarized as expenses or assets, or how details of assets, liabilities, or equity should be reported in financial statements. In each country, accountants must be qualified with the accounting body that is empowered by national or state laws to administer the quantification schemes for training accountants with the necessary knowledge and skills. As members of the recognized accounting body, accountants are allowed to practice in that country with a recognized professional designation. Accounting bodies in different countries issue accounting standards, codes, rules, and regulations for their members to follow. In doing so, they mostly look up to IASB or FASB. Amongst accounting bodies of different countries, there may be also reciprocal arrangements, whereby accountants qualified in one country may be allowed to practice as qualified accountants in another country after passing the necessary practice exams. At this point, you may conduct an Internet search to identify the professional body that administers qualification schemes for accountants in your country. Apart from accounting bodies, governments and their designated regulatory units also play important roles in shaping development of accounting professionals in their countries. Governments typically do this by legislations and regulatory units by issuing codes, rules, and regulations. Why do they do that? Governments are responsible for providing the economic and legal infrastructures for businesses. To this end. government has to maintain order and fairness in the markets by enforcing compliance with company laws by businesses. Regulatory units are usually non-government bodies that are set up by governments and charged with a specific task. One of the common tasks is to oversee daily operations of financial markets when listed company shares are traded and price sensitive information are exchanged. Regulatory units must ensure that quality information are properly provided by businesses to financial markets. Whether for laws enforced by governments or rules and regulations issued by regulatory units, the target businesses are mainly limited liability companies. Accountants play a key conformance role in these companies, and must therefore work on the front line complying with these requirements. Example of government influence are typically the law enforcement departments in different countries. Examples of regulatory units overseeing financial markets include the Securities and Exchange Commission, SEC in the US, and the Financial Conduct Authority, FCA in the UK. By now, you should know that accountants work within both an institutional and a regulatory framework. Institutional framework is typically comprised of three key players, including accounting body, government, and regulatory unit. These organisations issue guidelines for accountants that comprise a regulatory framework, including accounting standards, laws, and codes, rules, and regulations. If you would like to know more about institutional framework of accounting, you can do the following, conduct an Internet search to identify the regulatory unit overseeing financial markets in your country.
