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Accounting in Business > Week One > Flashcards

Week One Flashcards

1
Q

IDENTIFYING SOURCES OF COMPANY REGULATION

A

Corporate regulation in Australia is under closer scrutiny than ever before due to many recent large-scale corporate collapses and employee fraud. The main source of company regulation is the Corporations Act, administered by the Australian Securities and Investments Commission (ASIC). The other important sources of regulation are the Listing Rules of the Australian Securities Exchange (ASX); and the accounting principles, standards, ethics and disciplinary procedures of the professional accounting associations. THE ROLE OF COMPANY REGULATION IS TO PROTECT DIFFERENT STAKEHOLDERS (SUCH AS INVESTORS, CONSUMERS AND LENDERS) AND HELP PROMOTE A STRONG AND VIBRANT ECONOMY. REGULATION ASSISTS IN MONITORING THE PREPARATION, PRESENTATION AND distribution of finicancial statements. help liquidators to obtain records from bankrupt companies to carry out legal proceedings against directors and to ensure that appropriate information is provided to the different stakeholders of listed companies.

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2
Q

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISION

A

government body responsible for regulating companies, company borrowings and investment advisers and dealers.

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3
Q

CORPORATIONS ACT 2001

A

national scheme of legislation, admisinistered by asic, dealing with the regulation of companies and the securities and futures industries in australia

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4
Q

AUSTRALIAN SECURITIES EXCHANGE (ASX)

A

Australian marketplace for trading equities, government bonds and other fixed-interest securities

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5
Q

MARKET RULES

A

rules governing the operations and behaviour of participating entities of the ASX and affiliates

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6
Q

LISTING RULES

A

rules governing the procedures and behaviour of all ASX listed companies

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7
Q

RESERVE BANK OF AUSTRALIA

A

the reserve bank of Australia is responsible for the stability of the Australian financial system and for setting monetary policy

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8
Q

AUSTALIAN PRUDENTIAL REGULATION AUTHORITY

A

the APRA oversees finanicial institutions and is responsible for ensuring that finianciial institutions can honour their commitments,

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9
Q

REGULATIONS IN COMPANIES

A
  • asic acts as the company watchdog, and enforces company and financial services laws such as corperations act 2010
  • asx regulates companies through its market and listing rules
  • the asx market rules govern the operations and behaviour of participating organisations of the ASX and affiliates
  • the ASX lisiting rules govern the procedures and behaviour of all ASX-listed companies.
  • APRA is responsible for ensuring that financial insititutions honour their commitments to their stakeholders
  • the ACCC administeres the competitions and consumer act 2010 which covers antic competitive beavior and unfair market practices, mergers and acquisitions of companies and product safety and liability.
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10
Q

EXPLAIN THE CURRENT STANDARD-SETTING FRAMEWORK AND THE ROLE OF THE PROFESSIONAL ACCOUNTING ASSOCIATIONS IN THE STANDARD-SETTING PROCESS.

A

The professional associations are, in Australia, CPA Australia, the Institute of Chartered Accountants in Australia, the Institute of Public Accountants and, in New Zealand, the New Zealand Institute of Chartered Accountants.

These associations provide a range of services for their respective members — including training, products and services, and the right to use the designation after their names (i.e. CPA, CA and MIPA) — and employment opportunities.

The professional associations provide feedback on exposure drafts and forward any comments to the AASB. They also inform their members of any developments in accounting standards, through newsletters and by conducting continuing professional education (CPE) sessions.

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11
Q

CPA AUSTRALIA

A

cpa Australia provides education, guidance and support to students, accountants and businesses in australia

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12
Q

INSTITUTE OF CHATERED ACCOUNTANTS IN AUSTRALIA (ICCA)

A

PROVIDES EDUCATION TO ITS EMMBERS AND INPUT TO DEBATES AFFECTING THE ACCOUNTING PROFESSION AND INFLUENENCING REGULATORS

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13
Q

THE INSTITUTE OF PUBLIC ACCOUNTANTS

A

(IPA) is a professional organisation for accountants, whose members are known the their practical hands on skills and a broad understanding of the total business environment.

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14
Q

EVALUATE THE ROLE OF THE CONCEPTUAL FRAMEWORK AND ILLUSTRATE THE QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS

A

The Conceptual Framework is designed to assist in the preparation and presentation of financial statements, to guide the standard setters in developing future accounting standards, and to help users interpret information in the financial statements.

It specifies the objective of financial statements, their desirable qualitative characteristics, and the definition and recognition of elements in the financial statements.

The two fundamental qualitative characteristics of financial statements are relevance (including materiality) and faithful representation.

The enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability. Cost is a constraint on financial report

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15
Q

GENERAL PURPOSE FINANCIAL STATEMENTS

A

financial statements prepared to meet the information needs common to external users.

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16
Q

SPECIAL PURPOSE FINANCIAL STATEMENTS

A

financial statements prepared to suit a specific purpose

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17
Q

THE OBJECTIVE OF FINANCIAL REPORTING

A

the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investor, lenders and other creditors in making decisions about providing resources to the entity

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18
Q

FUNDAMENTAL QUALITATIVE CHARACTERITICS

A
  • relevance: characteristics of relevance implies that
    the info should have predictive and confirmatory value for users in making and evaluation economic decisions
  • faithful representations: characteristic of FR implies that financial information presents the phenomena it purports to represent. this decision implies that the financial information will be complete, and free from error
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19
Q

FOUR ENHANCING QUALITATIVE CHARACTERISTICS

A
  • comparability implies that users of financial statements must be able to compare aspects of an entity at one time and over time, and between at one time and over time. display of transactions and events should be carried out in a consistent manner throughout an entity or fully explained if they are measured or displayed differently
  • verifiability: provides assurance that the information faithfully represents what it suggest that it is representing
  • timeliness: means that accounting info is available to all stakeholders in time for decision-making purposes.
  • understandability: should present information in the most understandable manner to users without sacrificing relevance or reliability.
20
Q

COST CONSTRAINT ON FINANCIAL INFO

A

improved effectiveness and efficiency of decision making by users, should outweigh the costs of providing it. cost is the major constraint on the provision of financial information. the costs of providing financial information include those associated with the collecting, processing, verifying, disseminating and storing of financial info.

21
Q

GIVE EXAMPLES OF THE LIMITATIONS OF ACCOUNTING INFOORMATION

A

Users of accounting information need to consider carefully, the limitations of the information provided, especially in the financial statements.
The limitations of accounting information include the time lag between production of the report and distribution to the users, and the historical nature of financial statements. Costs associated with releasing accounting information include the costs of preparing and disseminating the information, and any losses from the potential release of proprietary information to competitors.

There are also some potential costs of providing accounting information to various users. These include costs in preparing and disseminating information and the cost of releasing proprietary information to competitors.

22
Q

TIME LAG

A

there is a significant time delay from the end of the financial year until the information reaches users in the form of a financial report. the problem with the time delay is that a low can happen to business entities within a few months:

  • increase in market competition can dramatically change future demand for an entities product
  • unsettled legal dispute can be resolved in the months subsequent to the end of the financial year
  • fire and flood can damage an entity’s stockholdings
23
Q

PROVIDE EXAMPLES OF NEW AND EXCITING OPPERTUNITIES IN THE ACCOUNTING DISCIPLINE

A

Accountants are employed in public accounting roles, private and public sector accounting roles, and government and not-for-profit sector accounting roles. New opportunities for accountants exist in forensic accounting, environmental accounting, e-commerce, insolvency, and international accounting.

24
Q

HISTORICAL INFORMATION

A

Despite one of the major roles of accounting info being an assessment of the future performance of the entity, the information in financial statements is based on past transactions and therefore does not provide forecast information

25
Q

DESCRIBE BUSNINESS SUSTAINABILITY, OUTLINE ITS KEY DRIVERS AND PRINCIPLES AND COMPARE KEY THEORIES IN THE AREA

A

Business sustainability considers the use of the world’s resources in a way that does not compromise the ability of future generations to meet their needs. Key drivers include the competition for resources, climate change, economic globalisation and connectivity and communication.

Principles include ethics, governance, transparency, business relationships, financial return, community involvement/economic development, value of products and services, employment practices and protection of the environment.

By necessity, decision making in business incorporates a certain level of ethical contemplation. This includes a consideration of corporate social responsibilities, such as a consideration of employees, the lifecycle of a product or service, the impact of the entity generally on society and the environment, and the need to report such effects, both positive and negative.

Shareholder value is concerned with the increase in the shareholders’ wealth (owners of the corporation). Stakeholder theory suggests that many groups other than shareholders have a stake in the activities and performance of an entity and that corporate governance needs to reflect the wider duty of care that society is placing on the decision makers of entities.

Stewardship theory suggests that directors are a steward of some cause or group.

26
Q

AGENCY THEORY

A

theory which describes the relationship where one part (the principal) employs another (the agent) to perform some activity on their behalf

27
Q

KEY DRIVERS OF SUSTAINABILITY

A
  • competition for resources
  • climate change
  • economic globalisation: integration of national economies into the global economy brings opportunities for business, but often with significant risks.
  • connectivity and communication
28
Q

LEGITIMACY THEORY

A

theory that entities must conduct operations in accordance with societal expectations

29
Q

PRINCIPLES OF BUSINESS SUSTAINABILITY PERFORMANCE

A
  1. ethics: the company establishes, promotes, monitors and maintains ethical standards and practices in dealings with all company stakeholders
  2. governance: company manages al of its resources conscientiously and effectively, recognising the fiduciary duty of corporate boards and managers to focus on the interest of all company stakeholders
  3. transparency: the company provides timely disclosure of info about its products and services, activities and this permitting stakeholders to make informed decisions
  4. business relationships: the company engages in fair trading practices with suppliers distributors, and partners
  5. financial return: the company compensates providers of capital with a competitive return on investment and the protection of company assets
  6. community involvement/economic development: company fosters a mutually beneficial relationship between the corporation and the community in which it is sensitive to the culture, context and needs of the community
  7. value of products and services: company respects the needs, desires and rights of its customers and strives to provide the highest levels of product and service values
  8. employment practices: the company engages in human resource management practices that promote personal and professional employee development, diversity and empowerment
  9. protection of the environment: company strives to protect and promote sustainable development with products, processes, services and activities.
30
Q

Appraise CSR reporting frameworks and the accountant’s role in CSR.

A

Throughout this corporate governance discussion, the idea is that entities must be responsible. The question is ‘to whom should the entity be responsible?’ Should the entity be responsible to only one of its stakeholders/shareholders or should it consider all stakeholders equally. Is the entity acting responsibility by following the minimum guidelines simply to keep the government off its back or does it really have the employees’ interests at heart.

The triple bottom line approach and the GRI reporting framework are two common methods used for reporting CSR.

The three dimensions of the triple bottom line approach espouse the need to report on economic, social and environmental dimensions.

The GRI reporting framework supports this view and outlines principles and standard disclosures required, technical protocols and information relevant to different sectors. The standard sustainability report should contain the strategy and profile of the entity, the management approach and the entity’s economic, social and environmental performance indicators.

Accountants can help organisations in applying the reporting framework by using their expertise in gathering, collating and reporting information, including sustainable-relevant information in their analysis for business decisions and through the provision of audit and assurance services.

31
Q

GRI REPORTING FRAMEWORK

.

A

a sustainability framework that provides uidance on how organisations can disclose their sustainability performance

32
Q

GRI 2 FRAMEWORK PARTS

A
  • reporting principles and standard disclosures ( reporting principles relate to both content and quality. the standard disclosures are separated into general and specific disclosures)
33
Q

GENERAL STANDARD DISCLOSURES COVER

A
  • strategy and analysis
  • organisational profile
  • identified material aspects and boundaries
  • stakeholder engagement
  • report profile
  • government
  • ethics and integrity
34
Q

SPECSIFIC STAND DISCLOSURES INCLUDES

A
  • management approach

- indicators - economic, environmental and social

35
Q

TRIPLE BOTTOM LINE

A

considers the economic, social and environmental performance of an entity
environmental: entities activities relating to natural capital and whether its activities are environmentally sustainable.
social performance: both human capital and societys wealth creation potention, the abilty of people to work together for common purposes in groups or in organisations

36
Q

REPORTING

A

accountants are well versed in the applications of standards for reporting, their skills in this area can be applied to the reporting of an entity sustainability performance.

37
Q

COST ANALYSIS

A

comparison of two competing investment projects would require an analysis of economic profits in order to make decisions relating to social and environmental initiative.

38
Q

AUDIT AND ASSURANCE SERVICES

A

integrity of info is collected and can help to provide audit and assurance on the corporate social responsibility reports that are issued by entities.

39
Q

Explain the concept of corporate governance.

A

The term ‘corporate governance’ is generally used in relation to large business entities. However, the majority of issues surrounding the discussion of corporate governance equally apply to small and medium-sized businesses. The management of all entities needs to be aware of its responsibilities with respect to the law and to society generally. Large entities tend to have additional issues to consider due to the separation of ownership and control. That is, the people who own the business are not always the ones making the decisions. For example, the shareholders of a large entity such as Nokia Corporation cannot all decide on the direction the company should take.

Generally, a management structure is put in place to deal with operational decisions, and the board of directors (elected by the shareholders) deals with strategic issues. A number of elements must be considered in business decision making. Although it can be fun and rewarding to be in charge, making decisions is a difficult task regardless of whether the entity is small or large.

The quality of those decisions determines the success or otherwise of an entity in meeting its objectives and can influence the lives of many. People who make such decisions have power, but they also have responsibilities and are accountable for their actions. This unit is about using accounting information as an input to the decision-making process. It is useful therefore to understand the responsibilities of the people who govern business entities.

Corporate governance deals with the rights and responsibilities of a company’s management, its board, shareholders and various stakeholders. How well companies are run affects market confidence as well as company performance. Good corporate governance is therefore essential for companies that want access to capital and for countries that want to stimulate private sector investment. If companies are well run, they will prosper. This in turn will enable them to attract investors whose support can help to finance faster growth. Poor corporate governance on the other hand weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud.

Corporate governance refers to the direction, control and management of an entity. The board of directors is given the authority through a company constitution and the Corporations Act 2001 to act on behalf of shareholders. Recent corporate collapses have focused a spotlight on the governance of business entities. Society is looking for transparency and accountability of management, in particular directors

40
Q

Outline corporate governance guidelines and practices.

A

The current climate has triggered an increase in the discussion of and debate on corporate governance principles. Guidelines cover such items as the functions and structure of the board of directors, the role of shareholders, the compensation of senior officers and directors, the role of the company accountants and auditors, audit committees and customer and supplier relations.

Corporate governance guidelines help to foster improved corporate governance practices. An example is that put forward by the ASX Corporate Governance Council. The guidelines foster awareness of a director’s responsibilities, and help communicate society’s expectations to the wider business community.

41
Q

Outline the role of ethics in business.

A

Because our world is becoming a global village, and people are becoming better educated, business ethics is receiving increasing attention. Humankind has considered the philosophy of ethics for centuries.

Business decision makers influence the use of the world’s resources and can affect the lives of many people. Ethics is central to the study of humankind, and so should be explored in a business context. Two key approaches are teleological and deontological theories.

The teleological approach is concerned with the consequences of decisions, while the deontological approach is concerned with the action or decision itself.

42
Q

TELEOLOGICAL THEORIES

A

theories concerned with the consequences of decisions

43
Q

DEONTOLOGICAL THEORIES

A

theories concerned with duty

44
Q

UTILITARIANISM

A

all individuals maximising their utility will lead to society’s utility being maximised also

45
Q

Explain the use of codes of ethical conduct and apply ethical decision-making methods to business situations.

A

Codes of ethical conduct prescribe minimum ethical standards and are widely used in business to communicate a respect for the public good. The fundamental principles are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. The methods proposed by Langenderfer and Rockness and the St James Ethics Centre were presented. The application of ethical decision-making methods helps to identify the issues and clarify thought when making a business decision.

46
Q

5 FUNDAMENTAL PRINCIPLES

A
  1. integrity: being straightforward, honest and sincere in your approach to professional work
  2. objectivity: do not compromise your professional or business judgement because of bias, conflict of interest or the undue influence of others
  3. professional competence and due care: perform professional services with due care, competence and diligence. carry out your professional work in accordance with the technical and professional standards relevant to that work
  4. confidentiality: respect the confidentiality of info acquired in the course of tour work and do not disclose any such info to a third part without specific authority or unless there is a legal or professional duty to disclose it. refrain from using confidential info acquired as a result of the professional engagement to your advantage of third parties
  5. professional behaviour: conduct yourself in a manner consistent with the good reputation of the profession and refrain from any conduct that might bring discredit to the profession.
47
Q

RELATIONSHIP BETWEEN ETHICAL THEORIES AND ECONOMIC THEORIES

A

theories -> personal -> corporate
consequentialism (teleology) -> agency theory -> shareholder value
ethical idealism (deontology) -> stewardship theory -> stakeholder theory

Accounting in Business (10 decks)

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