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Topics: Balance sheet, Asset, Income statement Pages: 5 (889 words) Published: August 20, 2013
Accounting Regulation in Australia
Today we discover: 1. Why accounting regulation is becoming a bigger issue for business and society. 2. What are ‘Accounting Standards’? 3. What is the ‘conceptual framework’ and what is its purpose? 4. Which entities need to produce GPFRs? 5. What criteria must be met before an item is included on a GPFR?

Regulation and the Development of Accounting Standards
Accounting practice has evolved to meet society’s need to record and report financial transactions. The rules of accounting that have developed are called the ‘Generally Accepted Accounting Principles’ or GAAP. Users of GPFRs rely on the information to make and evaluate investment decisions. These users need to be confident that the information in published financial statements is ‘true and fair’. Since the 1960s, there has been an increasing recognition that the rules of accounting need to be more than ‘generally accepted’; they need to have the force of law.

Why is accounting regulation important?
An economy relies on business investment to grow and prosper. Investors will only provide funds for this investment if they are confident of ‘true and fair’ financial statements, since they are separate from management, and cannot command their own reports. The increasing complexity of business, and the separation of ownership from control are key drivers of accounting regulation

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Some facts about accounting regulation
Australia adopted the ‘International Accounting Standards’ on 1 January 2005. The IAS are re-issued as Australian Accounting Standards (AASB). Examples include: AASB 102 – Inventories AASB 107 – Cash Flow Statements AASB 116 – Property Plant and Equipment

The Corporations Act (2001) Cwth gives these standards the force of law. The Australian Securities and Investment Commission (ASIC) enforces compliance.

In Australia….
The Financial Reporting Council (FRC) identifies the priority issues requiring regulation. The Australian Accounting Standards Board is controlled by the FRC. It researches issues, and adapts IAS for implementation within Australia. The Australian Stock Exchange adds an additional layer of regulation for publicly listed companies. The most significant of these is the requirement for ‘continuous disclosure’. In the U.S. the powerful Financial Accounting Standards Board (FASB) is working more and more closely with the IASB.

The Conceptual Framework
The first accounting standards were developed to address a specific issue, for example the valuation of inventory. There was no mechanism to ensure that the standards were consistent, or to guide accountants if there was no standard. The Answer: A Conceptual framework to help: Develop logical, consistent standards Provide guidance where no standard exists Enhance understanding of users

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SAC1: The Reporting Entity
There are four ‘Statements of Accounting Concept’ (SAC). They were developed by the AASB. SAC1 identifies which entities need to produce GPFRs Indicators Separation of management from ownership Economic or political importance/influence There are users dependent on GPFRs (ie they cannot command their own reports)

SAC2: Objectives of GeneralPurpose Financial Reporting
Provide information useful to users, eg
Will I invest Will I provide credit

Discharge of accountability by preparers. This is called ‘stewardship’. Disclosure must include information on: Performance (ie income statement) Financial position (ie balance sheet) Compliance (notes to accounts)

SAC3: Qualitative Characteristics of Financial Information
Standard setters and report preparers should ensure information is: Understandable Relevant Reliable Comparable

There can be a tension between providing relevant and reliable information: The most up-to-date information is most relevant, however it may not be less reliable than older information.

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SAC4: Definition of Elements in Financial Statements
What is an asset? Liabilities Owners...
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