There are numerous reasons why do regulators develop new rules when it comes on financial reporting standards. One of the motivations is that the stringent approach to accounting policies and standards is a tool for the government to measure the legitimacy of an entity with regards to its relationship with the public and environment. Actually, financial reporting, let’s say IFRS or IFRS2 is one of the factors that needs consideration not only by the UK business organisations but also by the global community to regulate accounting practices. Regulators develop new rules because of conformity. The values reported by a certain company should conform to the standards given by AASB, IFRS or GAAP. Fair values given to companies should also comply with their status in the market. Meaning, fair values should reflect to the factors in business like its earnings, growth and market. The discussed case in Accounting Headline 7.8 stated that the arrival of IFRS2 will make the means of bonuses largely neutral in profit and loss account terms between cash and shares or share options. The objective of this IFRS is to stipulate the financial reporting by an entity when it undertakes a share-based payment transaction. Particularly, it obliges an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, as well as expenses combined with transactions in which share options are arranged to employees.
For regulators, the new rules are needed to serve as guidance on how entities should decide fair value assessments for financial reporting purposes. The new rules are created because of the issue of consistency. A situation case where some financial statement items are accessible at fair value, while others are offered at cost may confuse financial statement readers.
The motivation of regulators with regard to the development of new rules is to illustrate the economic value of each class of assets and liabilities as if they were independent from each other and other entity resources; these values were linearly additive and as far as potential purged of super profits and managerial purpose. This outlook relies on neither a strong theory nor on empirical evidence. It is really based on an economy with all relevant markets being well organised and in perfect equilibrium, which results in markets consistent with the standard-setters' scenario and in market prices that reflect economic values. As shown, Accounting Headline 7.8 has examined the issues pertaining to IFRS 2 which is most likely to require an entity to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. The regulators major argument for the creation of new rules should, ideally, recognise the amount of asset cash flows and their timing and expectations of changes therein, the time value of money, the price of the risk inherent in assets, and other factors.
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