accounting - topic 8

impact on company formation and operations

powers and duties of directors, replaceable rules, prospectus, constitution and rights of shareholders

prospectus

a document issued to the public to invite them to buy shares in a company which contains the information potential investors need to make a decision eg. past/future financial reports and expert opinions

nature of the corporations act 2001

a commonwealth act which sets out laws dealing with the business entities in australia at federal and state level, it deals primarily with companies and administered by the ASIC

purpose of the corporations act 2001

sets out the external audit requirements, deals and gives a legal existence to a company and requires financial reports for a financial year for public and large proprietary companies which must comply with AASB accounting standards

powers and duties of directors

control of a company ultimately lies with shareholders however, administration of a company is run by a board of directors on a daily basis + reviews internal controls, ensure no trading if a company is insolvent and authorising long-term borrowing and share issue

written constitution

regulates the internal affairs of a company which can be used to displace, modify or add to replaceable rules provided under the corporations act and the constitution can be adopted on registration or after registration

replaceable rules

sections of the corporations act that can be amended by the use of the constitution which can be used by large proprietary companies but mandatory for public companies eg. remuneration of directors

rights of shareholders

participate in the profits of a company as decided by the directors, receive notice of meetings of shareholders, attend general meetings, participate in discussions and vote on resolutions, receive annual report, directors report and auditors opinion, possible return of capital on liquidation and dispose of their shares however they want to whoever they want

groups which regulate the general purpose financial reporting of companies in australia

financial reporting council, australian securities investment commission, international accounting standard board, australian accounting standard board, australian securities exchange and lobby groups

lobby groups

attempt to influence the deliberations of the AASB particularly with reference to standards that are relevant to their industry or interest in particular areas eg. environmental sustainability

Australian accounting standards board (AASB): importance

develop the conceptual framework, develop and issue accounting standards, formulate accounting standards, participate and contribute to the development of international standards, develop and amend accounting standards for the purpose of the corporations act and had the force of the law and applied to entities who comply with the corporations act

financial reporting council (FRC): nature

australian statutory body: oversees appointments and budgeting for the AASB which has legal, government and other interests and current memberships include representatives from the business council australia, the g100 along with many other government and non-government bodies

financial reporting council (FRC): importance

appoints AASB board members, guides the AASB to adopt international best practises, provide strategic direction and advice to manage processes for setting accounting standards and ensure accounting standards stay relevant and effective to achieve its objectives

australian securities investment commission (ASIC): nature

independent government body: oversees company and financial service laws which protect customers, investors, creditors and regulates and informs the public, strong enforcement relating to financial reporting and auditing under the corporation act and various state crime acts and enforce compliance, take legal action, issue penalties and investigate breeches

australian securities investment commission (ASIC): importance

enhances financial system performance and efficiency, enforces laws effectively with minimal complexity, encourage informed and confident participation by investors and consumers and takes necessary actions to uphold and enforce laws

difficulties faced by accountants in producing social and environmental information

CSD (corporate social disclosure), lack of standards, audit, lack of expertise, comparability and difficulty measuring impact of activities

difficulties faced by accountants in producing social and environmental information - CSD

not a typical disclosure therefore requires training and assistance to produce these, inputs and outcomes arent directly measurable but expected to be reported, accountants arent experts on environment or community relations but are expected to communicate adequate information to stakeholders and descriptive nature results in changes in information

difficulties faced by accountants in producing social and environmental information - lack of standards

to inform how to disclose information

difficulties faced by accountants in producing social and environmental information - audit

verifying information and impacts of some activities is difficult and time consuming

difficulties faced by accountants in producing social and environmental information - comparability

voluntary disclosures and differing reporting frameworks make it difficult for accountants to compare

difficulties faced by accountants in producing social and environmental information - lack of expertise

many measures are non-financial and outside the professional expertise of accountants

difficulties faced by accountants in producing social and environmental information - difficulty measuring impact of activities

either may not be appropriate or unable to be quantified into financial terms

uses made of corporate social disclosure by the company and other users

directors responsibilities, external stakeholders and internal stakeholders

uses made of corporate social disclosure by the company and other users - directors responsibilities

under the corporation act they must include CSR details in the annual report, must act in shareholders best interests including disclosing CSR activities that may affect share prices and CSD help evaluate company image, identify areas for improvement and align their objectives

uses made of corporate social disclosure by the company and other users - external stakeholders

potential investors: use reports to compare companies on environmental practices and may choose ethical investments + financial advisors: rely on third party ethical funds to assess companies standings and uses CSD

uses made of corporate social disclosure by the company and other users - internal stakeholders

employees: use CSD to assess gender imbalance, safety and ethics and prefer employees to align with their values + community: local government and businesses use CSD to shape their policies and ethical practices + government, lenders and customers

critical evaluation of corporate social disclosure as made by australian companies - 1

ensure the company is managing the costs of complying with social and environmental regulations, mitigating the risk of the government intervention and financial impacts in the future and assist with monitoring their companies performance and quality of management decision making

critical evaluation of corporate social disclosure as made by australian companies - 2

provide company sourced information about information reported in the companys own financial statements to respond to reports in the media about performance and affirm the quality of the relationships the company has with trading parties, lenders and employees

purpose of accounting standards - defintion

accounting standards regulate the form and content of general purpose financial reports, assure existing and potential investors/lenders that the financial information is both relevant and faithful representation of financial performance and position of the reporting entity

purpose of accounting standards

protecting external users, assisting directors in discharging their obligations and providing confidence to investors in australian capital markets

purpose of accounting standards - protecting external users

a company will fairly present its financial position, financial performance and cashflows which is useful to existing and potential external parties in making and evaluating decisions about allocation of scarce economic resources

purpose of accounting standards - assisting directors in discharging their obligations

GPFR’s are one of the many ways for the management and board of directors to be accountable to those who provide resources to a company, comply with accounting standards to ensure high levels of accountability and promotes accurate reporting

purpose of accounting standards - providing confidence to investors in australian capital markets

companies produce reports that can be relied upon by investors therefore cause confidence in the information available to them and the processes used to produce the report

CSD

a process whereby a company reports on its own social and environmental impacts and the extent to which it may have meet the standards of these areas

is the reporting of actions taken by a company to act in a fair and ethical manner in its dealing with all whom it interacts or having regard to its social and environmental impacts

voluntary reporting and not legally required