Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

A24 > Introduction to the Regulatory Environment And the Conceptual FRAMEWORK > Flashcards

Introduction to the Regulatory Environment And the Conceptual FRAMEWORK Flashcards

1
Q

what are the major sources of financial reporting regulation in Aus?

A

The Corporations Act 2001

Australian Accounting Standards

The Conceptual Framework

ASX Listing Rules

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

as accountant what two qs need to be answered?

A
  1. is entity required to prepare a financial report? - Corporations Act 2001
  2. if so, does it need to comply with Aus Accounting Standards? - It is a Reporting entity?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The Corporations Act requires the preparation of financial reports for all:

A

Disclosing entities - With few exceptions, entities whose securities are listed on a securities exchange are disclosing entities.

Large proprietary companies – more details on the next few slides

Public companies – any company other than a proprietary company

Registered schemes – managed investment scheme that is registered
under s. 601EB of the Corporation’s Act

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The Corporations Act: Proprietary Company are limited by?

A

shares - where shareholders are afforded more protection when it comes to the level of liability they face for company debts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The Corporations Act: Proprietary Company are unlimited….

A

company with share capital - where members’ or shareholders’ liability is not limited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The Corporations Act: Proprietary Company have no more than

A

50 non-employee shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The Corporations Act: Proprietary Company does not offer…

A

securities for which disclosure to investors is requried

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The Corporations Act: Proprietary Company classified into

A

small or large

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The Corporations Act: Proprietary Company all non-proprietary companies are…

A

public companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The Corporations Act: Proprietary Company - small ones satisfies at least two following criteria?

A
  • consolidated revenue for financial year and entities it controls less than $25 million
  • value of gross assets at end of financial year and entities it controls is less than $12.5 million
  • less than 50 employees at end of financial year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The Corporations Act: Proprietary Company large one…

A

does not satisfy criteria of small company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Reporting Entity: defined in?

A

Statement of Accounting Concepts (SAC) 1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Reporting Entity: is an entity in which it is reasonable to expect existence of users who depend on…

A
  • general purpose financial reports
  • indicators of users’ existence (dependent on financial reports for decision making)
  • separation of management from economic interest
  • economic or political importance/influence (impact on external parties)
  • financial characteristics (size/indebtedness of entity)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Reporting Entity: the concept used to determine whether entities require?

A

GPFR - requires professional judgement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Reporting Entity: critical factor in identifying whether reporting entity is ?

A

is the existence of users who depend on GPFSs to make resource allocation decisions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Reporting Entity: if yes…

A
  • prepare GPFS
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Reporting Entity: if no.

A

report under Corporations Act 2001

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Reporting requirements under the Corporation Act: disclosing entity?

A
  • comply with continuous disclosure requirements
  • annual and half year reports
  • financial statements required by Aus Accounting Standards
  • notes to financial statements
  • report audited
  • lodge report with ASIC
  • report to members within specific time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Reporting requirements under the Corporation Act: small proprietary company

A
  • not required to prepare annual financial reports (ch 2M Corporations Act), unless controlled by foreign companies or direct by ASIC or shareholders with at least 5% voting rights.
  • shareholder can request for financial reports through
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Reporting requirements under the Corporation Act: Large proprietary company

A
  • prepare annual financial reports
  • have reports audited
  • send annual report to members within 4 months of end of financial year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Reporting requirements under the Corporation Act: Public Companies

A
  • prepare annual reports
  • report audited
  • lodge report with ASIC
  • send reports to members
    (both within 4 months)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Reporting requirements under the Corporation Act: Registered Scheme?

A
  • prepare financial report, director’s report and auditors report/ financial year
  • lodge with ASIC
  • send report to members within 3 months end of financial year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q
  1. Australian Accounting Standards: what standards must all entities that are required to prepare financial statements apply?
A

AASB 101 - Presentation of Financial Statements
AASB 107 - Statement of Cash Flows
AASB 108 - Accounting Policies, Changes in Accounting Estimates and Errors
AASB 1048 - Interpretation of Standards.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q
  1. Australian Accounting Standards - what does tier 1 and 2 define?
A

what accounting standards reporting entities have to follow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q
  1. Australian Accounting Standards Tier 1 which entities?
A

reporting requirements:

  • for‐profit private sector entities that have public accountability
  • the Australian Government and State, Territory and Local Governments.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q
  1. Australian Accounting Standards tier 2 which entities??
A
  • for‐profit private sector entities that do not have public accountability
  • not‐for‐profit private sector entities
  • public sector entities (for‐profit or not‐for‐profit)
  • Territory and Local Governments.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q
  1. Australian Accounting Standards tier 1 -
A

full International Financial Reporting Standards (IFRS) as adopted in Australia (AASB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q
  1. Australian Accounting Standards tier 2 -
A

reduced disclosure requirements (RDR):

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q
  1. The Conceptual Framework issued by and purpose?
A

Issued by the AASB

The purpose is to provide a coherent set of principles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q
  1. The Conceptual Framework assists with?
A

Assists with standard consistency

Assists preparers deal with issues not addressed by a standard

Assists auditors in forming an opinion on compliance

Assists users to interpret statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q
  1. ASX Listing Rules include requirements for.. and primary focus…
A

for continuous disclosure and periodic reporting

Primary focus on disclosure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

one of key players in financial reporting regulation in Aus is… (FRC)

A

Financial Reporting Council - advises gov on standard setting, appoints members to AASB and monitors AASB and gives direction

33
Q

one of key players in financial reporting regulation in Aus is… (AASB)

A

Australian Accounting Standards Boards - develops conceptual framework, public consultation on draft standards and transforms International Accounting Standards and International Financial Reporting Standards in Australia standards

34
Q

one of key players in financial reporting regulation in Aus is… (ASIC)

A

Australian Securities and Investment Commission

  • regulate compliance with financial reporting and auditing requirements for reporting
  • investigate non-compliance of companies
35
Q

Rules-based vs. principles-based standards:

rule based?

A

are sets of detailed rules that must be followed when preparing financial statements.

36
Q

Rules-based vs. principles-based standards: Principle based?

A
  • generally accepted accounting principles (GAAP) used as conceptual basis for accountants
  • broad basis for accountants to follow
  • focus on economic substance of transaction
37
Q

Advantages of principles-based standards:

A
  • simpler
  • broad guidelines apply to many situation
  • improve representational faithfulness of financial statements
  • allow accountants use prof. judgement
  • managers less likely to attempt earning management
38
Q

Disadvantages of principles-based standards

A
  • select treatments that doesn’t reflect underlying economic substance
  • comparability among financial statements reduced
39
Q

Professional judgement in accounting: theories help us to…

A

predict accounting policy choice
understand the implications of alternative accounting policies
provide a source of guidance in accounting policy decisions.

40
Q

Advantages of regulation:

A
  • increased efficiency in allocating capital (without it may conceal/misrepresent info for decision-making)
  • cheaper production (reduce reduction production of info)
  • check on perquisites
  • public confidence
  • standardisation
  • public good (to correct market imperfection)
41
Q

Disadvantages of regulation

A

Difficult to achieve efficiency and equity.
Determining the optimal quantity of information is problematic.
Regulation is difficult to reverse.
Communication is restricted.
Reporting entities are different.
There is lobbying.
Monopolisation of accounting standards.

42
Q

What is the Conceptual Framework of Financial Reporting?

A

‘A coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards’;
Also, it is an attempt to provide a structured theory of accounting that prescribes practice.

43
Q

The Conceptual Framework – purpose

A

Establishes concepts/ideas that underlie the preparation and presentation of general purpose financial reports

  • users (prepared for who?)
  • elements (what info needed)
  • recognition (when should elements of fin. statements be included?)
  • measurement (at which amount?)
44
Q

The IASB’s conceptual framework for financial reporting comprises 4 chapters:

A

Chap 1: the objective of general purpose financial reporting.

Chap 2: the reporting entity.

Chap 3: the qualitative characteristics of useful financial reporting.

Chap 4: the framework.

45
Q

How does it differ from an accounting standard?

Conceptual Framework

A
  • is not an accounting standard – it is a set of principles to be followed when preparing and presenting financial statements.
  • General concepts or principles – designed to provide guidance in the preparation of financial statements.
46
Q

How does it differ from an conceptual framework?Accounting standards

A

– specific requirements for a particular area of financial reporting, may go beyond the framework, are mandatory and sometimes conflict with the framework.

Conceptual Framework – more broadly defines what is an asset/liability and when it should be included in financial statements.

47
Q

Why have a framework?

A

consistence/logical
international comparability
transparency
emphasis decision usefulness

48
Q

The framework – benefits technical…

A
  • improve practice of accting by guidance
  • help preparers, auditors, users
  • decision making
  • sets principles
49
Q

The framework – benefits political

A

guard against political interference (could have major economic and social consequence)

50
Q

The framework – benefits professional

A

protect accounting profession
maintain status of profession
establish unique body of knowledge

51
Q

The framework – criticisms

A
  • precedence of economic issue over social
  • economic decision making not only thing
  • no social performance indicators as guide to success
  • only codification of existing practice
  • barrier to enhance and develop accounting standards
  • ambiguous
  • self regulation to avoid stricter regulation and strike bargain with gov to not intervene
52
Q

Conceptual Framework - The objectives of financial reporting

A

The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit

53
Q

Conceptual Framework - underlying assumption of framework

A

accrual basis - recorded when event occurs not when paid for

going concern - continuing operations and solvency - statements prepared under assumption entity continue to operate in foreseeable future (support use of prepaid expense; systematic allocation of depreciation; use of historical cost)

54
Q

Conceptual Framework - underlying assumption (fair representation

A

achieved if financial statements are based on qualitative characteristics.

55
Q

Two main concepts of capital are discussed in the conceptual framework.

A

Financial Capital Concept – capital is synonymous with net assets or equity.

Physical Capital Concept – capital seen as the operating capability of the entity’s assets.

56
Q

So where is the link between conceptual framework and accounting regulation?

A

Regulation put in place to ensure the quality through requirements of qualitative characteristics (attributes to make the information useful for decision-making) as described in the Framework.

57
Q

The Conceptual Framework primary users are resource providers.

A

equity investors: shareholders
lenders: banks
other creditors: employees, suppliers

58
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

Fundamental:

A

relevance

financial representation

59
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

relevance?

A

Must have a quality that influences users’ decisions
of an economic nature.
• Must have predictive value and/or confirmatory value
• Example – revenue information for 2012 can be used to predict the company’s performance in 2013.

60
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

faithful rep?

A

Information must be complete, neutral and free from material error.

61
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

enhancing:

A

comparability
verifiability
timeliness
understandability

62
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

comparability/

A

Users can compare aspects of an entity over time and

between entities

63
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

verifiability?

A

Different knowledgeable and independent observers could reach consensus that a particular piece of information is a faithful representation of the economic phenomena.

64
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

timeliness:

A

Having information available to decision makers on time

65
Q

QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION

understandability:

A

Users should be able to comprehend the meaning of the reports.

66
Q

Constraint on financial reporting:

A

Costs versus benefits:

COSTS OF PREPARING FINANCIAL REPORTS SHOULD NOT EXCEED THE BENEFITS TO BE DERIVED FROM THE REPORTS.

67
Q

The elements of financial statements include:

A
  • assets
  • liabilities
  • equity
  • income
  • expenses
68
Q

Assets:

A

resources controlled by the entity; result of past events; with future economic benefits

69
Q

Liabilities:

A

present obligation; arising from past events; expected outflow of resources embodying economic benefits

70
Q

equity:

A

residual interest in the assets after deducting all liabilities

71
Q

income:

A

increases in economic benefits in the form of inflows of assets or decreases in liabilities that result in increases in equity

72
Q

expenses

A

decreases in economic benefits in the form of outflows of assets that result in decreases in equity

73
Q

RECOGNITION CRITERIA

Asset:

A

probable that the economic benefit will flow to the entity; cost or other value can be measured reliably

74
Q

RECOGNITION CRITERIA

liability:

A

probable that an outflow of resources embodying economic benefits will result from settling the present obligation; amount can be measured reliably

75
Q

RECOGNITION CRITERIA

income:

A

increase in future economic benefits is probable and can be measured reliably

76
Q

RECOGNITION CRITERIA

expense:

A

decrease in future economic benefits is probable and can be measured reliably

77
Q

measurement:

A
  • Historical cost
  • Current cost
  • Realisable value
  • Present value
  • Fair value
78
Q

THE ROLE OF PROFESSIONAL JUDGEMENT

REQUIRED

A
  • Framework requires professional judgment in relation to substance over form
  • Accounting treatment of some transactions is unregulated
79
Q

THE ROLE OF PROFESSIONAL JUDGEMENT

Issues:

A

• Difficult to accept that judgement is neutral and unbiased • Different judgments can lead to different disclosures

A24 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions