09. Financial Reporting Flashcards
Explain the nature of general purpose financial reports
- General Purpose Financial Reports (GPFR) are comprehensive and standardized financial statements prepared by reporting entities to provide relevant and reliable information to external users such as shareholders, creditors, and potential investors
- encompass key financial statements, including the balance sheet, income statement, statement of changes in equity, and cash flow statement, along with accompanying notes and disclosures
- these reports adhere to recognised accounting standards and principles, ensuring consistency, comparability, and transparency in financial reporting
- the nature of GPFR is to present a fair and objective view of the reporting entity’s financial position, performance, and cash flows, enabling users to make informed decisions and assess the entity’s viability and profitability
Explain the nature of a reporting entity
- a reporting entity is an entity, such as a company, organization, or government agency, that prepares financial reports for external users, including investors, creditors, and other stakeholders
- a reporting entity is expected to provide financial information that is relevant, reliable, and comparable
- it must comply with the Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB)
- these standards are developed to ensure consistency and transparency in financial reporting practices across Australia
- in Australia, reporting entities are subject to regulatory requirements, such as the Corporations Act 2001, which mandates the preparation and disclosure of financial reports such as financial statements like the balance sheet or statement of financial position, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity
What are the fundamental qualitative characteristics of financial information in financial reporting?
- relevance
- faithful representation
Outline the fundamental qualitative characteristic “Relevance”
Relevant financial information is capable of making a difference to the decisions made by users. The relevance of information is affected by materiality. Information is material if omitting or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity.
Outline the fundamental qualitative characteristic “Faithful Representation”
The information in a financial statement fairly and accurately presents the events that have occurred in a business for a period of time. The information in a financial statement should be complete, neutral, free from error and in monetary terms.
What are the enhancing qualitative characteristics of financial information in financial reporting?
- comparability
- understandability
- verifiability
- timeliness
Outline the enhancing qualitative characteristic “comparability”
The quality that enables users to identify and understand similarities in, and differences between, items contained in financial statements
Outline the enhancing qualitative characteristic “understandability”
Users of financial statements should be able to comprehend the meaning of the information contained in statements
Outline the enhancing qualitative characteristic “verifiability”
Different, knowledgeable users of a financial statement can agree that the way that information is presented in this statement is a faithful representation of that information
Outline the enhancing qualitative characteristic “timeliness”
Information is available to decision makers in time to influence their decisions. Generally, the older the information, the less useful the information is.
Explain the nature and importance of The Financial Reporting Council (FRC)
- developing and maintaining the accounting standards and provided guidance and oversight to the AASB
- ensures that financial reporting standards are in line with international best practices to maintain investor confidence in Australian capital markets
- promote reliability, comparability, and relevance of financial information
Explain the nature and importance of the Australian Securities and Investments Commission (ASIC)
- responsible for enforcing and administering laws e.g. financial reporting requirements, Corporations Act 2001, ASIC Act 2001, AAS
- make orders to require compliance or impose penalties on companies who do not comply with Corporations Law.
- regulator for corporate markets and financial services to maintain confident and informed participation
- authority to take legal actions against companies that fail to comply with financial reporting obligations.
Explain the nature and importance of the International Accounting Standards Board (IASB)
- The International Accounting Standards Board (IASB) is an independent standard-setting board, appointed and overseen by a geographically and professionally diverse group of Trustees of the International Accounting Standards Committee Foundation (IASCF).
- The goal of the IASB is to provide markets with a common language for financial reporting.
- Produce International Financial Reporting Standards (IFRS) which are globally accepted accounting standards
- Cooperate with national accounting standard-setters to achieve convergence in accounting standards around the world
Explain the nature and importance of the Australian Accounting Standards Board (AASB)
- develop and maintain Australian Accounting Standards (AAS) and ensuring their alignment with international standards
- develop high quality, understandable accounting standards, with international comparability
- AASB does not have an enforcement role but requires public companies, under Corporations Law, to apply the accounting standards when producing financial reports
- regulated under the ASIC Act 2001: under that Act, the statutory functions of the AASB are to make accounting standards under the corporation act 2001, develop a conceptual framework to evaluate proposed standards and contribute to the development of a single set of accounting standards for worldwide use (therefore works with IASB)
Explain the nature and importance of the Australian Securities Exchange (ASX)
- stock exchange and regulator for listed companies.
- market place for the buying and selling of shares in public companies
- it regulates companies through established listing rules which listed companies must comply in order to maintain their listing on the ASX
- ensures that companies listed on the exchange provide transparent and reliable financial information to investors and regulators
- the Listing Rules specify the form, content and frequency of published financial statements for public companies
- this involves companies having to disclose any information likely to affect the price of securities in order to maintain an informed market to the extent possible.
