Statement of financial position Flashcards
what is statement of financial position?
- info about entity’s FP
- historical statement
- basis for: * evaluating business such as structure; and * computing rates of return
How are assets and liabilities classified?
according to their function in operations of entity concerned and their liquidity
The criteria for classifying liabilities as current or non-current ?
are based solely on the conditions existing at the end of the reporting period.
The current/non-current classification is ordinarily considered to be more relevant when an entity
has identifiable operating cycle.
Paragraph 78 of AASB 101/IAS 1 explains that subclassifications of line items in the statement of financial position are also dependent on
the size, nature and function of the amounts involved.
Limitations of the statement of financial position
- the optional measurement of certain assets at historical costs rather than current value (fair value)
- mandatory omission of intangible self-generated assets from statement
- aggregation of amounts measure inconsistently
what are the main minimum line items?
Cash and cash equivalents Property, plant and equipment Financial assets Investments accounted for using the equity method Inventories Trade and other receivables Trade and other payables Provisions Financial liabilities Liabilities and assets for current tax Deferred tax assets and deferred tax liabilities
example of further sub-classification?
Inventories must be broken down into sub-classifications, ie raw material, work in progress (WIP) and finished goods;
PPE must be disaggregated into classes, ie land, building, plant & equipment.
Further sub-classifications may be required due to size, nature and function of the amounts involved – e.g. provisions
Purpose of Notes?
enhance the understandability of all statements through further disclosures.
As far as practicable, each item in these statements is cross-referenced to any related information in the notes (AASB 101 para 113).
The following information must be disclosed in the notes (AASB 101 para 112):
- basis of preparation of financial statement and specific accounting policies
- info required by Australian Accounting Standards
- other info not presented elsewhere but relevant
Director’s declaration which act and section?
Corporations Act (2001) s295 (4)
The Corporations Act (2001) s295 (4) requires a directors’ declaration to be disclosed in the notes stating whether, in the directors’ opinion:
- whether company is solvent
- whether statement/note are in accordance with Corporations Act
- statement of compliance with IFRSs
what is accounting policy?
: specific principles, rules etc. used in preparing the financial statements: e.g. policy on revaluation of property, plant and equipment.
What is accting estimate?
judgement applied in determining the carrying amount of the asset such as estimate of the useful life of an asset.
what is error?
Omission or misstatement in the financial statements through mathematical mistakes, mistake in applying accounting policy, oversight or fraud
how are changes and errors handled?
Retrospectively = changes in accounting policy and errors
Prospectively = changes in accounting estimates
What is included in accounting policies summary?
the measurement bases used in preparing the financial statements; and
the other accounting policies used that are relevant to an understanding of the financial statements.
what must be disclosed in accounting policy?
Any judgements made by management when applying the entity’s accounting policies that have the most significant effects on amounts recognised in the financial statements must also be disclosed
how to choose accounting policy?
There is criteria set out - cases management must use their judgement to develop and apply a policy that results in information that is both relevant and reliable for users.
AASB 108: Selecting and applying accounting policies : Hierarchy?
sets out a “hierarchy” of information sources to be used by management when selecting/applying policies as follows:
1/ Requirements and guidance in standards and interpretations that deal with similar or related issues.
2/ Definitions, recognition and measurement criteria in the Framework.
3/ Recent compatible pronouncements of other standard-setting bodies that use a similar conceptual framework.
when can policies be changed?
- change required by standard/interpretation
- the change provide reliable and more relevant info
detailed disclosure required
: Changing accounting estimates
Accounting estimates are regularly changed as new information arises.
Changes in accounting estimates require prospective application.
EXAMPLE
The useful life assessment of non-current assets change due to technological advancements – ie the actual useful life is shorter than the original estimate of useful life.
Sources of estimation uncertainty
An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty that havea significant risk of resulting in a material adjustmenttothe carrying amountsof assets and liabilities within the nextfinancial year (AASB 101 para.125).
where source of estimation uncertainty, notes include:
- nature
- CA at reporting date
e. g. future interest rate
