Company Regulation Theory Flashcards
COMPANY CHARACTERISTICS
- Separate Legal Entity
- Separation of Ownership/Control
- Transfer of Ownership
- Taxation
- Limited Liability
- Continuity of Existence
KEY DIFFERENCES between Public and large pty companies
Public company
1+
Min of 3 and 1 secretary. 2 of directors must reside in Aus
Unrestricted transfer of shares via listing on ASX. Can be offered to public
Once a year within 5 months of financial year ending. Shareholders need 28 days notice
KEY DIFFERENCES between public and Large pty companies
Large Proprietary company
1-50 shareholders
Min of 1. No secretary needed
Transfer of shares can be restricted on constitution. Can’t offer shares or debentures to public
No AGM needed
Definition of accounting standards
legal guidelines that must be followed by accountants of reporting entities in the preparation and presentation of financial information. They ensure the GPFS are consistent among all companies and provide a sound FP and FP.
Purpose of accounting standards
- protecting external users
External users can rely on financial reports to make informed decisions. - assisting directors in meeting their reporting obligations
Directors comply to provide fair and transparent reports to shareholders who they are accountable to. - providing confidence to investors in the Australian capital markets
Investors can be confident as there are clear, consistent processes and standards.
The purpose of the conceptual framework
to describe the objectives of, and concepts for, GPFR. This assists:
- The AASB in developing Australian Accounting Standards (AAS) that promote international accountability and are based on consistent concepts.
- Reporters in developing accounting policies that are consistent when no Accounting Standard exists.
- Individuals in understanding and interpreting the Standards.
What is a reporting entity
A reporting entity is an entity that is required to or chooses to prepare financial statements. An entity is required to prepare financial statements if it has public accountability meaning it has external/primary users (investors, lenders, creditors) reliant on their reports to make economic decisions. Public companies therefore are reporting entities, but may include proprietary companies as well if shareholders aren’t part of management but need financial information.
The objectives of general purpose financial reporting (long sentence)
to provide financial information about the reporting entity that is useful to potential and existing investors, lenders and other creditors in making decisions relating to providing resources to the entity and evaluating returns.
Fundamental characteristics of financial information
- Relevance: Capable of making a difference in business decisions, meaning it is material and its omission or misstatement will influence decision making. Means it must have predictive or confirmatory value (future/past events).
- Faithful representation: Information must be complete (all info necessary), neutral (no bias) and free from error.
Enhancing characteristics of financial information
- Verifiability: Different people independently agree the economic events info is correct. Direct means verifying through direct observation like counting money and indirect means verifying through a recalculation eg depreciation.
- Comparability: Information should allow users to see similarities and differences over time. Done through consistency in policies and methods over time.
- Understandability: Users with reasonable knowledge can comprehend and interpret the information.
- Timeliness: Info is available in time for it to influence decision making. Older means less useful.
Asset definition and recognition criteria
A present economic resource controlled by the entity as a result of past events.
An economic resource is a right that has potential to produce economic benefit.
Relevant- information must be useful to users of the financial statements and make a difference in their decision making.
Faithful Representation- Item must be honestly measured in monetary terms ie Historical cost, current value or an estimate. Transaction must be complete, free from bias and free from error. If it can be measured with a high degree of accuracy, it is faithful representation.
Liability definition and recognition criteria
A present obligation of the entity to transfer an economic resource as a result of past events.
Relevant- information must be useful to users of the financial statements and make a difference in their decision making.
Faithful Representation- Item must be honestly measured in monetary terms ie Historical cost, current value or an estimate. Transaction must be complete, free from bias and free from error. If it can be measured with a high degree of accuracy, it is faithful representation
Assets minus liabilities
Equity
Income and expense definitions and recognition criteria
Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
The recognition of income occurs at the same time as:
The initial recognition of an asset, or an increase in the carrying amount of an asset or
The derecognition of a liability, or a decrease in the carrying amount of liability
Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
The recognition of expenses occurs at the same time as:
The initial recognition of a liability, or an increase in the carrying amount of a liability or
The derecognition of an asset, or a decrease in the carrying amount of an asset
Nature of Corp Act 2001
All companies are formed operated and wound up according to Corporations Act 2001. Administered by ASIC. Companies are required to prepare audited financial reports to be lodged with ASIC. Reporting entities must comply with accounting standards under Corp Act 2001.
