week 2 - reporting

• financial reporting

  • involves external users
  • Includes the preparation of the 4 general purpose financial statements
  • these must be prepared by all businesses
• why must some entities prepare and release their financial statements each accounting period?

  • to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in MAKING DECISIONS relating to providing resources to the entity
  • ie. certain users need information to make decisions
• General purpose financial statements

  • Income statement (performance)
  • Statement of changes in equity
  • Balance sheet (position)
  • Statement of cash flows
• why are there general purpose financial statements?

  • financial statements cannot be designed for each group requiring it
  • if revealed to public, it cannot reveal confidential information, but rather, contain enough detail to cover the needs of most users
• reporting entity

  • an entity that is required, or chooses, to prepare financial statements (too vague)
  • consolidated financial statements = parent + subsidiary companies merged together (eg. walt disney is parent, and pixar is subsidiary)
• annual reports

  • Publicly listed companies must provide their shareholders with an Annual Report each year
  • It includes ‘notes’ to the financial statements, along with a Director’s Report, Corporate Governance Statement and Independent Auditors’ Report
• annual report consists of

  • Financial Snapshot – selected key data such as profit and debt
  • Five-Year History – to provide users with perspective
  • Chairman’s Message – a qualitative overview of the year
  • Board of Directors – members’ professional details and roles
  • Review of Operations – a written review supplemented by data
  • Condensed Corporate Governance Statement – outlines Board alignment with ASX corporate governance recommendations
• annual report consists of (continued)

  • Directors’ Report – further disclosures (both qualitative and quantitative), including wages/salary, that may assist users.

  
  

  • Financial Report – the four main financial statements, including notes & auditor’s report.

  
  

  • Shareholder Information – largest shareholders and other bands of shareholdings.

  
  

  • Financial Calendar – key dates such as year-end, results announcements, dividend payment dates, AGM.
• why do we need the corporations act?

  • Regulation, Investor Protection & accountability

  1. since firms operate globally, standardised accounting practices are needed. How can we combine financial statements of Maccas when there's one in every country? How can we merge the info. unless there's a common language?
  2. how are massive companies with power controlled/regulated? they are massive due to the amount of shareholders, including tiny to big investors. Our rights need to be protected, thus firms must act in both parties' best interest
• corporations act

  • applies to Australian registered companies
  • ASIC (Australian Securities and Investments Commission) - ensures companies comply with the act & reporting standards & protect users (its users who need info. to make decisions)
  • AASB (Australian Accounting Standards Board) - maintains accounting standards consistent with IASB (Issues Acc. Stndrds), issued conceptual framework
  • ASX (Australian Securities Exchange) - regulates stock exchange, ensures public companies comply with rules
• corporations act diagram

  A) standards

  B) consistency

  C) shareholders

  D) insider

  E) publicly

  F) corporations act

  
• how do we do accounting

  1. accounting assumptions, concepts & principles
  2. the conceptual framework
  3. accounting standards

  
• qualitative characteristics diagram

  • materiality (relevance) -if something is material, it is worth mentioning
  • neutral (F.R) - free from bias

  
• qualitative characteristics diagram

  • materiality (relevance) -if something is material, it is worth mentioning
  • neutral (F.R) - free from bias\

  A) fundamental

  B) enhancing

  C) materiality