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Company Accounting > 3. Disclosures > Flashcards

3. Disclosures Flashcards

1
Q

What are GPFS?

A

General-purpose financial statements are prepared for users who depend on those reports for information to enable them to make decisions about the allocation of scarce resources.

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2
Q

What does the statement of financial position show?

A

It provides users with information about economic resources controlled by an entity, and the entity’s financial structure, liquidity and solvency and capacity to adapt to change.

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3
Q

What does the statement of profit or loss show?

A

This statement and other comprehensive income reports information relating to the profitability of an entity and its ability to generate cash flows from its existing resource base. An entity’s financial performance can be assessed from income and expenses information reported by this statement.

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4
Q

What is the statement of cash flows?

A

It provides information about sources of cash and how that cash was used during the accounting period.

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5
Q

Does the Corporations Act require all disclosing entities, public and large proprietary companies, to prepare a financial report and a directors’ report for each financial year?

A

Yes

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6
Q

What does a financial report have to include?

A

It must contain financial statements and notes prepared in accordance with accounting standards which disclose a true and fair view of the financial position and performance of the company.

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7
Q

What does a directors’ declaration with the financial report have to state?

A

That the company is solvent and the financial statements have been prepared in accordance with the Corporations Act.

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8
Q

Can a company provide something other than a full set of statement and notes to shareholders?

A

Yes, a company may provide shareholders with a concise financial report prepared in accordance with AASB 1039

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9
Q

What must the auditors report contain?

A

It contains his or her opinion as to whether the financial report is in accordance with the Corporations Act and accounting standards, and gives a true and fair view, and also whether the auditor was provided with all information necessary to form that opinion.

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10
Q

What does the annual directors’ report contain?

A

It contains general information about operations and activities of the company and other specific information required by s. 300 of the Corporations Act.

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11
Q

Do disclosing entities have to provide anything half yearly?

A

Yes, they must prepare a half-year report containing a financial report, directors’
declaration, directors’ report and an auditor’s report.

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12
Q

Where is the guide for half yearly reports?

A

Guidance for the preparation of half-yearly reports can be found in AASB 134.

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13
Q

Why are accounting policies necessary?

A

They are necessary to provide guidance in accounting for specific transactions and events.

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14
Q

If accounting policy changes is it applied retrospectively?

A

Yes, unless it is impracticable to do so.

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15
Q

What can accounting policies be changed?

A

They may be changed only when required by an accounting standard or if such a change will improve the reliability or relevance of reported information

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16
Q

Do accounting policies used in the preparation of financial statements need to be disclosed in the notes?

A

Yes

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17
Q

How are accounting policies prescribed?

A

Normally prescribed by accounting standards.

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18
Q

Do material changes in accounting estimates have to be recognised?

A

Yes, prospectively by applying the change to the current and future (if applicable) accounting periods.

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19
Q

If there are difficulties in distinguishing between a change in an accounting policy or a change in an accounting estimate, what should the change be treated as?

A

The change should be treated as a change in an accounting estimate.

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20
Q

Does the nature and amount of a change in accounting estimates have to be disclosed?

A

Yes, disclosed for both the current period and for all future periods unless it is impracticable to determine future effects.

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21
Q

What is a change in an accounting estimate?

A

An adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or a new development and, accordingly, are not corrections of errors

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22
Q

What is retrospective application?

A

The application of a new accounting policy to transactions, other events and conditions as if that policy had always been applied

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23
Q

What are prior period errors?

A

Omissions from, and misstatement in, the entity’s financial report for one or more previous reporting periods that are discovered in the current period

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24
Q

Why do errors occur in financial statements?

A

Errors may occur in financial statements because of fraud, oversight, misinterpretation or misapplication of policies.

25
Q

What do material errors have to be corrected?

A

Material prior period errors must be corrected retrospectively in the first financial statements issued after their discovery.

26
Q

Does there need to be an explanation for the errors?

A

Comprehensive disclosures of the error(s) and its effect on the results and balances of previous year must be made in the notes to the financial statements.

27
Q

If it is impracticable to retrospectively restate the figures for the previous years due to changes in an accounting policy or correction of an error how are they stated?

A

They must be restated prospectively.

28
Q

How does the notion of materiality help accountants?

A

It assists in making judgements about the level of acceptable error, the degree of precision required and the extent of disclosure required in financial statements.

29
Q

Are quantitative errors and omissions considered material?

A

They are normally considered material if they are more than 10% of an appropriate base amount.

30
Q

What factors are there to consider if an item is material?

A

Consideration must be given to both its nature and size.

31
Q

What to do with material events occurred after the end of reporting?

A

Material events occurring after the end of the reporting period providing additional information about conditions existing at the end of the reporting period require adjusting journal entries to be prepared

32
Q

Do material events providing information about conditions occurring after the end of the reporting period require disclosure?

A

They may require disclosure if they are likely to affect users’ economic decisions.

33
Q

What makes up a complete set of financial statements?

A

A complete set of financial statements includes the following financial statements: statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows. also includes notes comprising a summary of significant accounting policies and other explanatory material.

34
Q

What does AASB 101 outline as the 8 points of a complete set of financial statements?

A
  1. fair presentation and compliance with International Financial Reporting Standards
  2. going concern
  3. accrual basis of accounting
  4. materiality and aggregation
  5. offsetting
  6. frequency of reporting
  7. comparative information
  8. consistency of presentation.
35
Q

What else can a complete set of financial statements include?

A

May also include a statement of financial position as at the beginning of the earliest comparative period when certain retrospective adjustments and reclassifications are made.

36
Q

Is the offsetting of assets and liabilities, and income and expenses appropriate?

A

Yes, in certain situations.

37
Q

What language do the financial statements have to be in?

A

Must be presented in English and clearly identify each financial statement and the notes.

38
Q

What must be displayed on the financial statements prominently?

A

– the name of the entity
– whether an individual entity or a group of entities is covered
– the date of the end of the reporting period
– the presentation currency used
– the level of rounding.

39
Q

What information is to be presented in the statement of financial position?

A

It includes, as a minimum, prescribed asset, liability and equity items.

40
Q

Does the statement of financial position have a prescribed format?

A

No, but guidance is provided in AASB 101.

41
Q

What are the two classifications for assets and liabilities?

A

Usually classified as either current or non-current. Note that an entity’s operating cycle, which is the key to classification as current or non-current, may be longer than 12 months.

42
Q

What information is may be presented in either the statement of financial position or in the notes?

A 
Property, plant and equipment 
Receivables 
Inventories 
Provisions
Share capital and reserves.
43
Q

How are preference shares and convertible notes classified?

A

Preference shares may be classified, in part, as liabilities. Convertible notes may be classified, in part, as equity.

44
Q

Does AASB 101 take an all inclusive approach to determining profit and loss?

A

Yes, all-inclusive approach to the determination of profit or loss.

45
Q

What information is to be disclosed in a statement of profit or loss and other comprehensive income?

A

–includes ‘profit or loss’ and ‘other comprehensive income’

–does not have to follow any prescribed order or format –must not include disclosure of extraordinary items.

46
Q

What information to be presented either in the statement of profit or loss and other comprehensive income or in the notes include?

A

–each material income and expense item
– an analysis of expenses using a classification based on either the nature of expenses method
or the function of expenses (or ‘cost of sales’) method–items of other comprehensive income, including reclassification adjustments.

47
Q

Are entities to present the analysis of expenses?

A

Entities are encouraged to present the analysis of expenses in the statement of profit or loss and other comprehensive income

48
Q

What does the statement of changes in equity provide?

A

It provides details of the entity’s changes in equity items for the period — that is, total comprehensive income, each component of equity including details of movements during the period resulting from profit or loss, other comprehensive income, share capital, dividends and transfers between equity accounts.

49
Q

Why are notes provided?

A

Notes are provided to help users understand information in the financial statements.

50
Q

Are notes required?

A

Notes are required by a number of standards in addition to AASB 101

51
Q

Does an entity have to disclose notes information about assumptions?

A

Yes, concerning the future and other key sources of estimation uncertainty at the end of the reporting period.

52
Q

What information is an entity required to disclose?

A

Information to enable users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital.

53
Q

What information is required by AASB to disclose?

A

Dividends,
Company details,
Auditor remuneration
Commitments for expenditure.

54
Q

An entity must disclose in the summary of significant accounting policies, what includes this?

A

–the measurement basis used in preparing the financial statements
–any other relevant policies.

55
Q

Do notes provide information not presented in financial statements?

A

Yes

56
Q

What order are notes normally presented in?

A

–statement of compliance with Australian accounting standards
–summary of significant accounting policies
–information relating to items in the financial statements –other disclosures.

57
Q

What are future developments in financial reporting likely to include?

A

The use of extensible business reporting language (XBRL) and corporate social responsibility (CSR) reporting.

58
Q

What is extraordinary items?

A

Items of revenue and expense that are attributable to transactions or other events of a type that are outside the ordinary activities of the entity and are not of a recurring nature

Company Accounting (11 decks)

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