CHAPTER 2 Flashcards
Identify the sources of company regulation in Australia and their roles?
The Australian Securities and Investment Commission (ASIC) - enforces the Corporations Act 2001
The role of company regulation is to protect different stakeholders (investors, consumers and lenders) and help promote a strong and vibrant economy.
What ACC standards does Australia follow?
Standards set by the Aus Acc Standards Board (AASB) prior to 1 Jan 2005 - now Aus entities comply with International Financial Reporting Standards (IFRS)
Fundamental Qualitative characteristics of financial statements
Relevance: relevant to buys and investors - Materiality: info is material as it can influence a decision - can be viewed from both a nature and magnitude persp
Faithful representation: faithfully represent economic phenomena - true and fair - Neutral and without bias - No omissions and reasonable estimates are made - free from error
Enhancing Qualitative characteristics of financial statements
Comparability: ability to measure trends Timeliness: having info available in time but still have quality - newer the info the more useful. Verifiability and understandability: presenting clear and precise info .
What is the reporting period under the CA 2001?
The CA 2001 require reports to be prepared (at least) annually (also half‐yearly for publicly listed companies) - June 30 end of financial year.
What are the reporting requirements under the CA?
Financial statements are accompanied by notes and a directors declaration -offers an opinion as to whether the FS and notes comply with corporations law and accounting standards - provide a true and fair view.
Public and large proprietary companies must prepare a full financial statement (audited)
What is an asset and what are its rights?
A present economic resource controlled by the entity as a result of previous events. Resources are rights which have the potential to generate some economic benefits.
Rights: receive cash g or s from another entity, physical, intellectual property
A right on its own is not an asset. Something is an asset if it has rights.
The present right is the asset not the potential future economic benefit.
What is a liability? give an example
A present obligation (something unavoidable) of the entity to transfer an economic resource (cash) as a result of past events.
Arise out of contracts - only a liability with rights
EXAMPLE: employee services - received labour but not yet paid employees.
A present obligation may accumulate over time (interest on a loan)
What equity? give examples
The residual interest in the assets of the entity after deducting all its liabilities.
Equity = Assets less Liabilities
e.x
Contributed by investors or entity profits (performance)
Capital - shareholders
Retained earnings - profits accumulated
What is 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.
You have income if assets go up liabilities go down and equity goes up unless equity has come from shareholders
Therefore income is earned
What are 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
You have expenses if asset go down or liabilities go up and equity decreases, except equity distributions (dividend) which are not counted as an expense
Expenses are what you’ve consumed- inventory disappearing, labour is used
