Topic 2 - Regulatory Context Flashcards
Explain the role of the ‘true and fair’ requirement.
ultimate test of the quality of financial reporting
What are the fundamental qualitative characteristics of useful financial information in accordance with the AASB Framework?
relevance and faithful representation.
On what aspect does the CORPORATIONS ACT 2001 require a true and fair view?
the financial position and performance of the of an entity or consolidated entity, without affecting the obligation to comply with accounting standards.
What if complying with accounting standards
does NOT result in a true and fair view?
both the Corp Act and Accounting Standards require an entity to comply with accounting standards when preparing the financial statements, if they do not provide a true and fair view additional disclosures are required.
What process is presumed to result in fair presentation?
Application of Australian Accounting Standards, with additional disclosures where necessary.
Fair presentation also requires? (3)
-Choose accounting policies in accordance with
AASB 108
-Present information to provide relevant, reliable,
comparable and understandable information
-Provide additional disclosure
Does AASB provide a definition for true and fair view?
no
Can you depart from the accounting standards?
where management believes compliance would be so misleading as to conflict with the objectives of the
Framework (IFRS), HOWEVER, Corp Act does not allow for departure from standards
What are the five characteristics that imply true and fair view?
–“Compliance with Accounting Standards” –“Economic Reality” –“Substance Over Form” –“Representational Faithfulness” –“Accurate”
What’s ‘True and Fair’? how do courts treat true and fair view?
why is this sometimes a problem?
A legal concept but not defined in the Corporations legislation. The courts are the ultimate arbiter on
what constitutes a true and fair view, courts do NOT define the phrase and prefer to treat each case on its merits
courts don’t always understand accounting rules
What are rule based standards?
Rules-based standards attempt to provide a rule to
cover all the various circumstances that might arise.
What are Principles-Based Standards?
Based on a set of principles, ie
-Essential characteristics (from definition) of elements of financial statements (e.g., assets, liabilities)–Recognition criteria
Which type of standard requires more professional judgement?
Rule-based standards do not require prepares to exercise much, if any, judgement.
Accounting policy decisions should be
guided by….?
–Principle of true and fair
–Accounting Standards
–The principles in the Framework
what are the fundamental qualitative characteristics?
relevance and faithful representation
