Week 7- ACCT1101

• Accounting regulation in Australia

  Has evolved over time to enhance transparency, comparability, and reliability of financial reporting
• Australian Accounting Standards Board (AASB)

  • Responsible for developing and issuing accounting standards in Australia
  • Adopts a principles-based approach, aligning with international accounting standards to promote consistency and comparability
• Conceptual Framework for Financial Reporting

  • Provides a foundation for developing accounting standards by setting out the concepts that underlie financial reporting
  • Assists standard-setters in formulating new standards and helps users of financial statements in understanding and interpreting the information presented
  • Evolves over time to reflect changes in the business environment and financial reporting practices
• Reporting Entity


  • An economic entity whose financial information is being reported on in financial statements
  • Can be a single entity, a group of entities, or a portion of an entity, depending on the significance of its economic activities and the needs of users
• Objectives of General Purpose Financial Reporting

  • To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors
  • Assists users in making decisions by providing information about the entity's financial position, performance, and cash flows
• Qualitative Characteristics of Financial Information


  • Relevance
  • Faithful representation
  • Comparability
  • Verifiability
  • Understandability
• Assets


  Economic resources controlled by the entity as a result of past events, from which future economic benefits are expected to flow
• Liabilities


  Present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits
• Equity


  Residual interest in the assets of the entity after deducting liabilities
• Income


  Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants
• Expenses


  Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants
• Recognition Criteria for Assets, Liabilities, Income, and Expenses

  1. Assets: Recognized when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably

  2. Liabilities: Recognized when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation

  3. Income: Recognized when an increase in future economic benefits related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably

  4. Expenses: Recognized when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has occurred that can be measured reliably
• Measurement in Financial Statements

  • Involves assigning monetary amounts to the elements recognized in financial statements
  • Provides a basis for assessing the financial position, performance, and cash flows of an entity
  • Different measurement bases (e.g., historical cost, fair value) are used depending on the nature of the assets, liabilities, income, and expenses being measured, and their relevance and reliability