Week 7- ACCT1101

• Accounting regulation in Australia

  Development resulting in the issue of accounting standards
• Conceptual Framework for Financial Reporting

  Nature and history of development
• Reporting entity


  Nature under the Conceptual Framework
• Qualitative characteristics for selection and presentation of financial information

  • Relevance
  • Faithful representation
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
• Assets, liabilities, equity, income and expenses

  Definitions established under the Conceptual Framework
• Recognition criteria


  Established in the Conceptual Framework for assets, liabilities, income and expenses
• Measurement


  Importance in the preparation of financial statements
• As new types of transactions evolved in business, accountants developed rules and practices for recording them
• Generally accepted accounting principles (GAAP)


  Rules, practices and procedures, the authority of which stems from their general acceptance and use by the accounting profession and the business community
• The Institute of Chartered Accountants in Australia (ICAA) (now Chartered Accountants Australia and New Zealand (CAANZ)) adopted a series of recommendations developed in the United Kingdom by the equivalent professional body in England and Wales
• Accounting standards in Australia are issued for all types of entities — business, public sector entities and not‐for‐profit entities
• Financial Reporting Council (FRC)


  Role is to act as an overseer and advisory body to the accounting standard setter, the AASB, and to the auditing standard setter, the Auditing and Assurance Standards Board (AUASB)
• Australian Accounting Standards Board (AASB)


  Role is to issue accounting standards applicable to companies in the private sector, with legislative backing given to these standards
• Meetings of the AASB are held in public, so that the process of standard setting is open for all to see
• Australian Securities and Investments Commission (ASIC)


  Responsibilities include maintaining, facilitating and improving the performance of the financial system, promoting confident and informed participation by investors and consumers, administering the law effectively, enforcing and giving effect to the law, receiving, processing and storing information efficiently, and making information about companies and other bodies available to the public
• ASIC has developed a set of Market Integrity Rules (MIR) that apply to market operators, market participants, other prescribed entities and financial products traded on the relevant markets
• Australian Securities Exchange (ASX)


  Influences accounting through its concern with improving disclosure in financial reports of companies listed on the various exchanges throughout Australia
• The ASX's push towards the use of international standards was given strong support from companies in Australia, particularly large multinational companies, and the Group of 100 (G100)
• International Accounting Standards Board (IASB)

  Replaced the IASC in 2001, with the main reason being that the IASC's standards allowed too many alternatives and it was felt that international accounting standards should be of a higher quality if they were to be accepted and used for the purpose of listing a company's shares on securities exchanges around the world
• IFRS Interpretations Committee


  Mandate is to review on a timely basis widespread accounting issues that have arisen within the context of current IFRS and to provide authoritative guidance on those issues
• Australia's AASB adopted the interpretations issued by the IFRS Interpretations Committee for use by companies in this country as from 1 January 2005
• Financial Accounting Standards Board (FASB)


  Aim is to agree on high‐quality solutions to existing and future accounting issues and to converge their existing standards with the IASB as soon as was practicable
• The FASB and IASB had reaffirmed in June 2010 their commitment to improving and converging their respective accounting standards
• Background to the development of the Conceptual Framework

  1. Define the boundaries of financial reporting

  2. Define the reporting entity

  3. Establish the objectives of general purpose financial reporting

  4. Develop the qualitative characteristics of financial information, the elements of the reporting processes and recognition and measurement of those elements
• Sustainability Accounting Standards Board (SASB)


  A nonprofit organisation founded in 2011 that sets out the basic concepts, principles, definitions and objectives to be used when developing standards to guide organisations with regard to sustainability accounting
• Reporting entity


  Purpose of SAC 1 Definition of the Reporting Entity is to define and explain the concept of a reporting entity, and to establish a benchmark for the minimum required quality for financial reporting by such an entity
• Indicators to assess when an entity is a reporting entity


  • Separation of management from economic interest
  • Economic or political importance/influence
  • Financial characteristics
• Relevance


  Financial information must have a quality that makes a difference in a decision of an economic nature made by users
• Faithful representation


  For a complete faithful representation, information must be complete, neutral and free from material error
• Qualitative characteristics of financial information

  • Relevance
  • Faithful representation
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
• Fundamental qualitative characteristics


  • Relevance: Financial information must have a quality that makes a difference in a decision of an economic nature made by users
  • Faithful representation: For a complete faithful representation, information must be complete, neutral and free from material error
• Enhancing qualitative characteristics


  • Comparability: Enables users to identify and understand similarities in, and differences among, items
  • Verifiability: Different knowledgeable and independent observers could reach consensus that a particular piece of information is a faithful representation
  • Timeliness: Having information available to decision makers in time to be capable of influencing their decisions
  • Understandability: Does not necessarily imply simplicity
• Elements underlying general purpose financial reports

  • Assets
  • Liabilities
  • Equity
  • Income
  • Expenses
• Asset


  A present economic resource controlled by the entity as a result of past events
• Economic resource


  A right that has the potential to produce economic benefits
• Liability


  A present obligation of the entity to transfer an economic resource as a result of past events
• Equity


  The residual interest in the assets of the entity after deducting all its liabilities
• Income


  Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
• Expenses


  Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims
• Asset and liability recognition criteria


  • Relevant information about the asset or the liability and about any income, expenses or changes in equity
  • Faithful representation of the asset or the liability and of any income, expenses or changes in equity
  • Benefits exceeding the cost of providing that information