Achieving High Quality, Comparable Financial Reporting: A Comparison of Independent Enforcement Bodies in Australia and the United Kingdom

Abstract

The aim this study is to compare the activities of two significant examples of alternative enforcement models - the Financial Reporting Review Panel (FRRP) in the United Kingdom and the Australian Securities and Investment Commission (ASIC) in Australia over the period 1997-2004. The study was undertaken because of the important role enforcement bodies will have in promoting compliance with international accounting standards developed by the International Accounting Standards Board (IASB). There has been little evaluation of the effectiveness of alternative types of enforcement body, thus the results will be of interest to parties responsible for enforcement as well as for entities being regulated. We considered only ASIC's activities which were comparable to those of the FRRP and proposed that level of activity would represent the bodies' effectiveness. Using measures developed by Fearnley et al. (2000), we found ASIC reported more cases than the FRRP (41 compared to 31) and addressed significantly more cases related to recognition and measurement issues. The bodies were similar in the extent to which their decisions had a material impact on the financial results of companies investigated. The most commonly used remedial action was revision to accounts issued subsequently. However, ASIC was more likely to take matters to court. Press coverage of ASIC cases was 11.9 articles per case, compared to 2.2 for the FRRP. Our results show different types of enforcement body can achieve similar results. However, ASIC's proactive surveillance program allowed it to pursue more cases that addressed fundamental issues and to achieve more press coverage in the community.