regulation + conceptual fraework Flashcards
who are involved in regulating accounting?
• Financial Reporting Council (FRC)
• Australian Accounting Standards Board (AASB)
• Australian Securities & Investment Commission (ASIC)
• Australian Securities Exchange (ASX)
• International Accounting Standards Board (IASB)
• International Financial Reporting Standards Interpretations
Committee (IFRSIC)
• Professional bodies
Roles of the FRC include:
- Overseeing and advising AASB and the Auditing and Assurance Standards Board (AUASB)
- Monitoring audit independence in Australia
- Monitoring development of international accounting standards
The AASB is responsible for:
- Development of a conceptual framework
- Formulating accounting standards in accordance with the Corporations Act
- Formulating accounting standards for other purposes (e.g., Public and not- for-profit sectors)
Australian Securities and Investments Commission (ASIC) role:
• AdministersCorporationsAct
• Monitors implementation of the Act and investigates and prosecutes
companies for breaches of the Act
• Promotes confidence in the financial system
Australian Securities Exchange (ASX) role
• Administers Listing Rules
• Played a major role in influencing the move towards the AASB’s adoption
of IASB standards
International Accounting Standards Board (IASB) role?
- Independent, privately funded accounting standard setter
- Overseen by the IFRS Foundation
- Established in 2001, replacing the International Accounting Standards Committee (IASC)
- Committed to the development of a single set of high quality, enforceable global accounting standards
IFRS Interpretations Committee (IFRSIC) role?
• Sub-committee of the IASB
• Considers issues of widespread importance not covered
in IFRS standards
• IFRS Interpretations are adapted by the AASB to suit the Australian environment
POLITICAL LOBBYING ON ACCOUNTING STANDARDS:
Lobbying include
writing letters or giving oral testimony at a hearing arranged by a standard-setter to expose its tentative views to public comment
POLITICAL LOBBYING ON ACCOUNTING STANDARDS
political lobbying inlude
overt or covert threats to seek intervention to overturn a proposed standard or to compromise the standard-setter’s reputation, independence, or powers
POLITICAL LOBBYING ON ACCOUNTING STANDARDS
what might pressure constitute?
threats to withdraw funding or appeals to public opinion
ROLE OF THE CONCEPTUAL FRAMEWORK:
- Develop logical and consistent standards
- Provide guidance where no standard exists
- Enhance the understanding of users
What is the Conceptual Framework of Financial Reporting?
- ‘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.
Purpose and Status of conceptual framework:
- Establishes concepts/ideas that underlie the preparation and presentation of financial reports;
- Assists standard setters, preparers & auditors, users and those interested in the work of standard setters.
definition of reporting entity?
It is an entity in which it is reasonable to expect the existence of users who depend on general purpose financial reports for information to enable them to make and evaluate economic decisions.
reporting entity must provide:
financial reports for users that comply with accounting standards issued and adopted by the AASB.
What are the indicators that would determine whether an entity should be classified as a reporting entity
- Separation of management from economic interest.
- Economic or political influence.
- FinancialCharacteristics.
OBJECTIVES OF GENERAL PURPOSE FINANCIAL REPORTING
those intended to meet the information needs common to a range of users who are unable to command the preparation of reports tailored to meet their own particular needs.
The Conceptual Framework primary users are resource providers.
equity investors: shareholders
lenders: banks
other creditors: employees, suppliers
Decision-usefulness objective:
The objective of general-purpose is to provide information to users that is useful for making and evaluating decisions about allocation of scarce resources (perspective of Australian CF SAC 2).
Stewardship and accountability objectives:
- For entities where there is a separation of ownership from control, general- purpose financial reports can support stewardship/accountability function.
- Managers use reports to show owners they are fulfilling their stewardship function and managing resources effectively.
- Shareholders use reports to check on managers and make them accountable.
QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
Fundamental:
relevance
financial representation
QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
relevance?
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.
QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
faithful rep?
Information must be complete, neutral and free from material error.
QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
enhancing:
comparability
verifiability
timeliness
understandability
