Business and Law M300 Lecture Notes - Lecture 1: Net Profit, Cheque, Corporations Act 2001
1 Jun 2018
School
Department
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Professor
Accounting is an information system that identifies, records and communicates the economic events of an organisation to
interested users
Helping "people" make better decisions by providing useful information
The accounting process
Identification --> Recording --> Communication
Identification - Select economic events (transactions)
Recording - Record, classify and summarise
Communication - Prepare accounting reports, analyse and interpret for users
Accounting involves the entire process of 'identifying, recording and communicating' of economic events + it involves
the use of considerable judgement
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Bookkeeping usually involves only the recording of economic events (transactions) which is only one part of the
accounting process
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Difference between bookkeeping and accounting
The role of Accounting
Provides the financial information required for making decisions with regards to money and business issues
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Is a means of communicating business activity
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Is a means of measuring business activity
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Accounting:
Who uses accounting data?
Internal Users
Managers who plan, organise and run the business eg. marketing managers, production supervisors, chief financial officers
(CFO), other employees
Investors to make decisions to buy, hold or sell shares
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Creditors to evaluate risks of giving credit and lending money eg. suppliers, bankers
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Government and regulatory bodies E.g. Australian Tax Office (ATO), Australian Securities and Investments Commissions
(ASIC)
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External Users
Accounting
Management Accounting Financial Accounting
Internal users
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Future focus
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Unregulated
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Eg. CUP analysis budgeting
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Management accounting
External users
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Historical
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Regulated
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Financial statements ratio analysis
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Financial Accounting
Week 1 - Concept 1: Accounting and its role in society
Thursday, 1 March 2018
7:25 PM
Accounting for decision making Page 1
Accounting Regulation
Aim is to protect the users of accounting information
*The accounting profession is mostly self-regulated
Accounting Regulation includes:
Generally accepted Accounting Principles (GAAP)
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International Accounting standards board (IASB)
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Australian Accounting standards board (AASB) (guided by International Accounting Standards and follow Corporations Act 2001)
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Accounting Standards
Corporations Act 2001
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Australian Securities and Investments Commission (ASIC)
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Corporate regulation
Financial Reporting Council (FRC)
Prescirbe Conceptual Framework
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Give guidance to AASB
Conceptual Framework
This framework is not an Australian Accounting Standard and hence does not define standards for any particular measurement or disclosure
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Provide information about the formulation of Australian Accounting Standards
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The Framework assists the AASB in the development of future Australian Accounting Standards
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Assist the AASB in promoting harmonisation of regulations, accounting standards and procedures
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The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users
Ethics in Accounting
What is right or wrong?
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What is honest or dishonest?
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What is fair or unfair?
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Ethics is an important and fundamental business concept. When considering actions and behaviour the following need to be asked:
These questions form the essence of ethics and ethical behaviour
Corporate Social Responsibility (CSR)
Corporate Social Responsibility is often concerned with issues relating to a company's social, environmental and governance
Triple bottom line:
Integrated Reporting (IR)
An integrated report is a concise communication about how an organisation's strategy, governance, performance and prospects, in the context of its
external environment lead to the creation of value in the short, medium and long term
Why have Integrated Reporting?
In the wake of the Global Financial Crisis, the desire to promote financial stability and sustainable development by better linking investment decisions,
corporate behaviour and reporting has become a global need
The Global Reporting Initiative (GRI)
Direct economic impacts
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Environmental impacts
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Labour practices and decent work
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Society
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Product responsibility
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To be in accordance with GRI, an entity's must report against the following indicators:
Concept 2: Sources of Accounting
Regulation
Sunday, 11 March 2018
11:44 PM
Accounting for decision making Page 2
What is a business?
A business is an enterprise that provides products or services desired by customers
Some accounting assumptions:
Monetary unit assumption
Only data that can be expressed in terms of money is included in the accounting records
Economic entity assumption
Activities of the entity must be 'kept separate' and distinct from activities of the owner and all other economic entities
The Reporting Entity Concept
A reporting entity is defines as reasonable to expect that there are users who depend on General Purpose Financial Statements for information to enable them to
make economic decisions
Reporting Entity must produce "General Purpose Financial Statements" which are regulated by Generally Accepted Accounting Principles (GAAP)
*Not every business is a reporting entity, SMEs for example often are not reporting entities
Business Enterprises
Public enterprise
Businesses are owned and operated by government or local authorities
Eg. The Police Force, universities and water authorities
Private enterprise
Businesses are owned and operated by individuals, rather than government
Business structures
The equity accounts & profit distributions
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Who can 'legally act'
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The liability of the business owners
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Who pays tax and at what rate
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The legal type affects:
Sole proprietor (proprietors)
Business is owned and operated by one person
Contributes 'capital' to the business, withdrawals are known as "drawings"
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Entitled to receive all profits
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Profits are taxed as personal income (even if profits are not drawn out)
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Owner is personally liable for all business debts (unlimited liability)
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The owner:
IMPORTANT TO NOTE:
The owner is legally responsible for all debts incurred by the business (unlimited liability)
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The owners' personal transactions must be kept separate from the business
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Although there is no legal distinction between the owner and the business
Partnership (partners)
A business jointly owned and operated by 2 or more legal persons
Partnership Agreement
Legal agreement between partners covering rights and responsibilities of partners, including capital contributions, salaries and sharing profit
Partnership Act (1958) applies to all partnerships in Victoria
Partnership profit is distributed to partners as directed by Partnership Agreement each partner's share of profit is taxed as personal income
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A partnership is a legal relationship not a separate legal entity
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Partners are joint and severally liable for debts incurred by the business (unlimited liability)
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Company (shareholders/stockholders)
*Propriety limited
An "Artificial person"
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Established by a "constitution" and "incorporated"
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Controlled by directors
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Corporations Act (2001) applies to all companies in Australia
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Must be registered and are regulated by ASIC (Australian Securities and Investments Commission)
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A legal entity separate of the owners
Company owners are "shareholders"
Concept 3 - Concept of Business and Business 'Entity'
Sunday, 11 March 2018
11:44 PM
Accounting for decision making Page 3
Document Summary
Week 1 - concept 1: accounting and its role in society. Accounting is an information system that identifies, records and communicates the economic events of an organisation to interested users. Helping people make better decisions by providing useful information. Communication - prepare accounting reports, analyse and interpret for users. Accounting involves the entire process of "identifying, recording and communicating" of economic events + it involves the use of considerable judgement. Bookkeeping usually involves only the recording of economic events (transactions) which is only one part of the accounting process. Provides the financial information required for making decisions with regards to money and business issues. Managers who plan, organise and run the business eg. marketing managers, production supervisors, chief financial officers (cfo), other employees. Investors to make decisions to buy, hold or sell shares. Creditors to evaluate risks of giving credit and lending money eg. suppliers, bankers. Australian tax office (ato), australian securities and investments commissions (asic)
