ATAR Accounting Unit 4 Concepts

Flashcards covering key vocabulary and concepts from the lecture notes on ATAR Accounting Unit 4, focusing on concepts and regulations for companies, qualitative characteristics of financial information, and elements of financial statements.

Company

A complex business structure governed by a framework of regulations enforced by government and industry bodies.

Public Companies

Companies raise money by selling shares to the public.

Conceptual Framework in Australia

Build a common understanding of financial reporting for all people in business and builds consistency with international accounting standards and concepts.

Role of AASB

Ensures that the Australian Accounting Standards (Standards) they develop are based on concepts which are consistent across all Standards; brings transparency, accountability and efficiency to Australian financial markets.

Qualitative Characteristics of Financial Information

Describes qualitative characteristics that financial reports should have in order to be considered true and fair reports that are as useful as possible; followed, the quality of the information in reports will be high, and reports will be easier to use.

Relevance

Financial information is capable of making a difference in the decisions made by users.

Materiality

Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity.

Faithful Representation

Financial reports represent economic phenomena in words and numbers and must faithfully represent the phenomena that it purports to represent. Must be complete, neutral, and free from error.

Comparability

Information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date.

Verifiability

Different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

Timeliness

Having information available to decision-makers in time to be capable of influencing their decisions.

Understandability

Classifying, characterising and presenting information clearly and concisely makes it understandable.

Control

An entity controls an economic resource if it has the present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it.

Obligation

A present duty or responsibility that an entity has no practical ability to avoid; always owed to another party.

Disclosure in Financial Reports

Requirement to include notes with financial reports to explain changes in accounting policies. It helps users understand changes in the Statement of Financial Position and the Comprehensive Income Statement.

Stakeholder Engagement

Using social disclosure as a marketing tool to create a good public image, including information about social and environmental initiatives in annual reports.

Reporting Entity

An entity that is required, or chooses, to prepare financial statements; not necessarily a legal entity.

Public Accountability

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

Characteristics of a Reporting Entity

Separation of Management from Economic Interest, Economic & Political Importance, and Financial Characteristics.

Objective of GPFRs (General Purpose Financial Reporting)

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Statement of Financial Position

Information about the entity's economic resources (assets) and the claims against (liabilities and equity) the reporting entity. Financial reports also provide information about the effects of transactions and other events that change a reporting entity's economic resources and claims.

Statement of Comprehensive Income

Helps users to understand the return that the entity has produced on its economic resources, indicating how well management has discharged its responsibilities.

Auditors responsibility

Verifies if financial reports are correct.

Asset

A present economic resource controlled by the entity as a result of past events; a right that has the potential to produce economic benefits.

Liability

A present obligation of the entity to transfer an economic resource as a result of past events.

Equity

The residual interest in the assets of the entity after deducting all its liabilities.

Income

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Expenses

Decreases in assets or increases in liabilities, that result in decreases in equity other than those relating to distributions to holders of equity claims.

De-recognition

The removal of all or part of a recognised asset or liability from an entity's statement of financial position.

Accounting Standards

Guide accounting practice and ensure that it is consistent across Australia; apply to all reporting entities.

Facilitate Australian Capital Markets with Accounting Standards

Creating consistent reporting across reporting entities and sectors of the economy; maintaining investor confidence in the Australian economy.

Corporate Social Disclosure

The impact of the company on the welfare of society and how it managed that impact along with ethical business decisions; scope has grown to include sustainability and the environmental impact of business activities.