ACCG308 Study Guide - Final Guide: Financial Reporting Council, Corporations Act 2001, Legal Personality
19 Jun 2018
School
Department
Course
Professor
ACCG308: Corporate Accounting
Weekly Revision Notes
Week 1- Overview of Regulations
Characteristics of a company- (a) separate legal entity (b) unlimited life (c) no mutual
agency (d) limited liability (e) broad source of capital (f) professional management
Types of companies
Structures: public, large proprietary and small proprietary
Mode of participation: share or guarantee company (amount of liability limited to the
amount of capital)
Extend of liability- limited, no (mining companies) or unlimited liability
<insert history of company here>
Corporations Act 2001- main company statutory legislation
-important areas: formation, administration and winding up of companies | requirement to
lodge financial statements | the Act gives AASB the force of law
Australian Stock Exchange-has an important role in Australian financial reporting
standards | provides disclosure requirements for listed entities
Financial Reporting Council- Oversees AASB
-Sets strategic direction for AASB
-appoints AASB Board
Australian Accounting Standards Board-develops accounting standards
-conceptual framework
-responsible for Urgent Issue Group- provides timely guidance on urgent accounting
issues/dilemma not covered by accounting standards (has been disbanded→now
Interpretations Agenda Committee (IAC)- provides submission and evaluates
decisions from IFRIC (an international equivalent of UIG)
-adapted IFRS and IAS into Australian accounting
-makes a little provision/adjustment of international accounting standards to fit in the
Australian accounting environment.
Why adopt IFRS?
-to attract foreign capital
-to enhance the comparability of financial reports
-enhance quality of financial information
-reduce cost of preparing worldwide group financial statements
Obstacles in adopting IFRS
-overcomplexity of standards (users don’t generally understand the technicalities)
-attract foreign capital→ lack of evidence to support this
-improve the quality of information? (no consensus on the definition of quality?)
-reduce the preparation cost? (savings in preparation of financial statements only
available to multinational companies, SMEs would argue the opposite)
Reasons for mandatory corporate disclosure
Public interest
Protection of members- GFC, corporate lapses, etc
Stewardship-
Predicting investment returns- for investment analysis
Information useful for decision-making
Against mandatory corporate disclosure
Too little or too much information?
Agency theory- voluntary reporting is sufficient (how???)
-misleading published financial reports
Most AASB standards have been replyaced by new international accounting standards
(IFRS)-some totally adopted some slightly modified
IAS 27→AASB127 IFRS 3→AASB
-major changes that occurred to AASs are share based payments, financial
instruments, intangible assets, impairment of assets, presentation of FS, shift to FV
accounting
Conceptual Framework- a coherent system of interrelated objectives and
fundamentals that is expected to lead to consistent standards
-outlines concepts/ideas administering financial statements reporting
Scope of conceptual framework
-objectives of financial reporting
-general-purpose financial statements
-definition and recognition of elements of financials statements
-qualitative characteristics of financial statements
-principles of measurement
Why? Consistency, comparability, transparency, etc.
Criticisms of the Conceptual Framework-economic over social, costly for small
business to comply, no social performance indicators, doesn’t take into account
market transactions, too vague, loose, open to many interpretations
Four Statements of Accounting Concepts (SAC’s)
SAC 1- Definition of Reporting Entity- a reporting entity is an entity in which it is
reasonable to expect the existence of users who depend largely on general purpose
financial reports for information to enable them to make economic decisions.
-SAC1 also sets the benchmark of the minimum required quality of information of
financial reports
Criteria of a reporting entity:
1. Separation of management from economic interest- the greater the spread of
ownership and the greater the extend of the separation between management
and owners, the more likely there exist dependent users of financial reports
2. Economic or political importance- the greater the economic influence and
political importance or influence of an entity, the more like…
3. Financial characteristics- the larger the size of an entity and the greater
indebtedness of or resources allocated to an entity, the more likely…
Criteria of SAC1 often is a grey area as they are more qualitative in nature.
-An entity has a public accountability if (1) it has issued debt or equity
information in public market (2) holds assets in a fiduciary capacity for a broad
group of outsiders such as bank, insurance company, etc…
SAC2 Objectives of general-purpose external financial reporting
-main objective of general-purpose of external financial reporting is to provide
information useful to users for making economic decisions on the allocation of scarce
resources.
-2nd objective is that reports should be presented by management and governing
bodies to discharge their accountability for the resources entrusted to them.
-SAC2 identified categories of main users: resource providers- employees, lenders,
creditors, suppliers; recipients or consumer of goods and services- customers,
beneficiaries and taxpayers; parties performing a review or oversight function-
government, parliaments, unions, media, etc.
SAC3 Qualitative characteristics of financial information
Relevance, Faithful Representation, Verifiability, Timeliness, Understandability,
Comparability
Substance over form”
→
finance leases (not owned yet but capitalized as an asset)
shares with fixed dividend rate- may be viewed as interest payments (future dividend
payment recorded as liability although shares are an equity type)
Prudence- degree of caution in making estimates, so as to not overstate or
underestimate assets/expenses
ACCG308 lecture notes say 6 qualitative characteristics are: understandability,
relevance, materiality, reliability, substance over form and prudence
SAC4-Definition and Recognition of the Elements of Financial Statements
Asset- resource controlled by the entity as a result of past events and from which
future economic benefits are expected to flow
Liability- a present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow from the entity of resources embodying
economic benefits.
Equity- residual interest in the assets of the entity after deducting its liabilities
Income- increases in economic benefits during the accouting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other that those relating to contributions from equity participants.
Revenue-gross inflow of economic benefits during the period arising in the course of
the ordinary activities of an entity when those inflows results in creases in equity,
other than those relating to contributions from equity participants
Expense- decreases in economic benefits during the accounting period in the form of
Document Summary
Characteristics of a company- (a) separate legal entity (b) unlimited life (c) no mutual agency (d) limited liability (e) broad source of capital (f) professional management. Mode of participation: share or guarantee company (amount of liability limited to the amount of capital) Extend of liability- limited, no (mining companies) or unlimited liability. Important areas: formation, administration and winding up of companies | requirement to lodge financial statements | the act gives aasb the force of law. Australian stock exchange-has an important role in australian financial reporting standards | provides disclosure requirements for listed entities. Responsible for urgent issue group- provides timely guidance on urgent accounting issues/dilemma not covered by accounting standards (has been disbanded now. Interpretations agenda committee (iac)- provides submission and evaluates decisions from ifric (an international equivalent of uig) Makes a little provision/adjustment of international accounting standards to fit in the. Reduce cost of preparing worldwide group financial statements. Overcomplexity of standards (cid:523)users don(cid:495)t generally understand the technicalities(cid:524)
