Accounting Topic 1 - Concepts for Unit 3

theory

If an accountant was enrolled by professional accounting firms, what tasks are their roles?

• Taxation

• Audit and assurance services

• Financial Planning and Advice

• Preparation and maintenance

• Insolvency and administration services

If an accountant was enrolled in commercial business, what are their roles?

• The selection of appropriate financial system

• Recording of financial transactions

• Producing financial reports for both management and external users

• Analysing reports, interpreting data they contain and advising management.

• Implementing strategies for the control of the firm’s assets and for the internal review and control of the firm’s financial systems

• Cost accounting

List internal reports

• Income statements

• Budgets

• Performance Reports

List external reports

• Statement of Comprehensive Income

• Statement of Financial Position

• Statement of Changes in Equity

• Statement of Cash Flows

What is management accounting?

The process of producing reports and providing financial information useful for decision-making purposes, used by the management team. Reports are often detailed and frequent, and compare actual performance with budget predictions.

What is financial accounting?

The process of producing GPFRs used by parties external to the entity, such as shareholders, investors, lenders, suppliers, customers, employees and government.

What is external reporting?

It is the purpose of financial accounting. It enables users to assess the performance, position and liquidity of an entity. It allows management to be accountable for the decisions they have made, and helps to show how they have invested the resources at their disposal. It is controlled by the ASIC and ASX

What is internal reporting?

It supports the managerial decision-making process. Assisting the managements of the business assets, liabilities, income and expenses. It is important in enabling the business to reach its goals and improve performance.

What is responsibility accounting?

It’s a concept about setting standards against which to measure the performance of a business division.

Describe the Conceptual Framework

The purpose is to describe the objectives of, and the concepts for, GPFRs. This assists

• The AASB to ensure that Australian Accounting Standards they develop are based on concepts which are consistent across all standards. Such consistency brings with it transparency, accountability and efficiency to Australian financial markets.

• Preparers to develop accounting policies that are consistent when no Standard exists for a particular item, or when there is a choice of accounting policies within a standard

• All individuals to understand and interpret Standards

What is a reporting entity?

A reporting entity is an entity that is required, or chooses, to prepare financial statements, and is not necessarily a legal entity. They are required to prepare financial statements is required to prepare financial statements if it has public accountability

What is public accountability?

Accountability to those existing and potential resource providers and others external to the entity who make economic decisions, but are not in position to demand reports tailored to meet their particular needs.

What is internal control?

Systems in place that ensure the assets are safeguarded and used as effectively as possible.
It’s main purposes include:

• assets need to be protected against loss or damage

• assets must be employed as efficiently as possible

• information must be available to management that is accurate, to enable compliance with the requirement of the first two purposes, and to ensure adherence to the policies they established. Such information must meet statutory requirements

List the principles of internal control

• separation of duties

• established lines of responsibility

• appropriate security of assets and records

• installation of mechanical and electronic devices for security purposes

• adequate recording and documentation systems

• installation of verification and checking processes

• the existence of authorisation processes

• employment of competent and reliable staff

What is an internal audit

The continual review of procedures, systems and policies the business uses to ensure that they are being adhered to and working efficiently and effectively

How is cash control used?

• systematic and separation authorisation of payments

• proper documentation of receipts and payments

• regular bank reconciliation

• having an audit trial

• regular cash budgeting

How is stock safeguarded against loss or damage?

• use perpetual inventory system

• closed-circuit cameras and electronic marking of stock

• careful documentation

• appropriate training of sales staff

What credit facilities allow for more sales?

• checking credit history of credit customers

• identifying those who are not paying

• promptly and regularly reminding slow players of their debt

• setting a level of debt allowed

Which systems can protect non-current assets?

• complete up-to-date and accessible records of all assets employed

• prepare operating policies

• train staff appropriately

• provide regular maintenance

• implement a reporting system

What should be considered when financing a business?

• cost of finance

• purpose of finance

• repayment of finance

• taxation effects

• level of gearing