Topic 1 - Overview & Conceptual Framework

Question 1

Sources of external financial reporting regulations.

Answer 1

1. Australian Securities and Investment Commission (ASIC).
   - The Corporations Act.
2. Australian Accounting Standards Board (AASB).
   - Accounting Standards.
3. Financial Reporting Council (FRC).
   - AASB.
4. Australian Stock Exchange (ASX).
   - Listing Rules and CG Principles and Recommendations.

Question 2

Who enforces “The Corporations Act”?

Answer 2

Australian Securities and Investment Comission (ASIC)

Question 3

Uses of The Corporations Act.

Answer 3

Outlines responsibilities of company directors.

Requires preparations of “true and fair” FS.

Question 4

s. 297 of Corporations Act.

Answer 4

FS and notes must give a T&F view of:

1. FP and Performance of the company.
2. If consolidated financial statements required, FP and Performance of the consolidated entity.

Question 5

Directors’ responsibilities in Corporations Act.

Answer 5

1. Directors’ declarations.
2. Directors’ report.
3. Operating and financial review.

Question 6

Scope of Australian Securities and Investment Comission (ASIC).

Answer 6

Only for ASX listed companies.

Question 7

s. 227 of ASIC Act.

Answer 7

Functions of AASB:

1. Develop CF.
2. Make AS that is enforceable under s. 334 of Corporations Act (CA).
3. Create accounting standards for entities not governed by CA.
4. Participate and contribute to IFRS (single global set of AS).

Question 8

s. 334 of CA.

Answer 8

Give powers to ASs created by AASB.

Question 9

AASB 1053.

Answer 9

2 tier systems for GPFS preparations:
Tier 1 - GPFS with full compliance.
TIer 2 - Recognition, measurement and presentation full compliance but less disclosure requirements.

Question 10

2002 FRC Decision.

Answer 10

1. Adopt IASB accounting standards.
2. AASB no longer control Aussie ASs.
3. Unless there is no IFRS standard related to domestic issues.

Question 11

AASB 1048.

Answer 11

Interpretations by “Interpretation Advisory Panels” in AASB has to be followed.

Question 12

ASX Listing Rules.

Answer 12

1. 20 chapters.
2. Important chapters are
   a. Chapter 3 (continuous reporting).
   b. Chapter 4 (periodic reporting).

Question 13

Listing Rule 3.1.

Answer 13

Once entity finds info that is material to share price or value of entity, they must inform ASX immediately.

Question 14

ASX Corporate Governance Council.

Answer 14

Releases “Corporate Governance Principles and Recommendations”.

If companies did not follow:

1. Outline the recommendation not followed.
2. Give reasons for not following.

Question 15

Tier 2 reporting entities.

Answer 15

Any 2:

1. Turnover <25M.
2. Gross assets <12.5M.
3. Employees <50.

Question 16

General Purpose Financial Statements (GPFSs).

Answer 16

SAC 1 - Definition of Reporting Entity (Part of Aus CF):

Financial Statements intended to meet information needs of common users who are unable to command the preparation of tailored reports.

Question 17

Reporting Entities.

Answer 17

SAC 1 - Definition of Reporting Entity (Part of Aus CF):

Reporting entities who are entities that have stakeholders who cannot command preparations of specific reports.

If entity is not REs, do not need to prepare GPFS and comply with all accounting standards.

Question 18

Conceptual Framework (CFs).

Answer 18

Prescribe nature, function and limits of financial accounting and reporting.

Question 19

Central goal of CFs.

Answer 19

General consensus on:

1. Scope and objectives of FR.
2. Qualitative characteristics that FI should possess.
3. Elements of FR (definition and recognition).
4. Measure of elements of FR (3).
5. Disclosure and presentation principles.

Question 20

Main users of GPFS.

Answer 20

1. Investors.

2. Lenders.

Question 21

Qualitative characteristics of FI.

Answer 21

1. Relevance.

2. Faithful representation.

Question 22

QC6 of CF.

Answer 22

Definition of Relevance:
Capable in making a difference in the decisions made by users.

To be relevant, have to contain PREDICTIVE and CONFIRMATORY/FEEDBACK values to the extent they were material.

The latter help confirming or correcting previous expectations.

Question 23

QC12 of CF.

Answer 23

Characteristics of Faithful Representation:

1. Complete.
2. Neutral.
3. Free from error.

IASB’s objective is to maximise these qualities.

Question 24

Elements of FS.

Answer 24

AASB Framework defines following elements:

1. Assets.
2. Liability.
3. Equity.
4. Expense.
5. Income.

Question 25

Guidances on measure of elements of FS.

Answer 25

Guidances on: 1. How to define. 2. When to recognise. 3. How to measure. 4. How to present and disclose.

Question 26

Liability.

Answer 26

Normally legally enforceable. Can also due to deemed to be equitable and constructive - social and moral sanction conditions.

Question 27

Contingent Liabilities.

Answer 27

Potential liabilities - law cases mainly.

Question 28

Revenue vs Gains.

Answer 28

Revenue: Sales, fees, interests, dividends. Gains: Disposals of NCAs.

Question 29

Equity.

Answer 29

"Residual interests in the assets of the entity after deducting liabilities." Directly rely on definitions of assets and liability, no recognition criteria.

Question 30

Role of ASIC.

Answer 30

Responsible for administering corporation legislation.

Question 31

Role of ASX.

Answer 31

1. Only national stock exchange in Australia. 2. Facilitates exchange of listed shares in Australia. 3. Help ensure information is disseminated in an efficient and timely manner.