Accounting and Accountability Lecture Notes

Comprehensive vocabulary flashcards covering the key definitions, regulatory bodies, and theoretical perspectives discussed in the lecture transcript regarding financial accounting and accountability.

Accounting

The provision of information about aspects of the performance of an entity to a particular group of people with an interest, or stake, in the organisation (stakeholders).

Accountability

An obligation or duty to provide an account of the actions for which it is considered the organisation is responsible.

Financial accounting

A process involving the collection and processing of financial information to meet the decision-making needs of parties external to the organisation who have an interest in the financial performance of the organisation.

Management accounting

Focuses on providing information for decision making by parties within the organisation; it is largely unregulated.

General-purpose financial statements (GPFS)

Financial statements that comply with the Conceptual Framework and accounting standards, designed to meet the information needs common to users who are unable to command tailored reports.

Special-purpose financial statements (SPFS)

Financial statements designed to meet the needs of a specific group or to satisfy a specific purpose, such as a bank demand for a loan agreement.

ASIC

The Australian Securities and Investments Commission; one of the four main bodies that formulate and/or enforce accounting regulations in Australia.

AASB

The Australian Accounting Standards Board; a source of external financial reporting regulation in Australia.

FRC

The Financial Reporting Council; in 2002, this body committed Australia to adopting standards issued by the IASB.

ASX

The Australian Securities Exchange; one of the four main bodies regulating external financial reporting in Australia.

IASB

The International Accounting Standards Board, located in London, which issues International Financial Reporting Standards (IFRSs).

IFRSs

International Financial Reporting Standards; formerly known as International Accounting Standards (IASs).

Free-market perspective

The view that there is no need for regulation because demand and supply forces should generate an optimal supply of information through private economics-based incentives.

Pro-regulation perspective

The view that regulation is necessary because accounting information is a 'public good' and a free market would break down due to free-riders.

Free-riders

Parties using information without incurring costs; their presence causes true demand for public goods to be understated.

Conceptual Framework (CF)

Prescribes the nature, function, and limits of financial accounting and reporting, aiming for consensus on scope, objectives, and qualitative characteristics.

Reporting entities

Entities that have users or stakeholders who cannot command the preparation of specific information; they are required to produce General Purpose Financial Reports.

Relevance

A fundamental qualitative characteristic identifying information necessary to allow users to make and evaluate decisions about the allocation of scarce resources.

Faithful representation

A fundamental qualitative characteristic requiring that financial information accurately reflects the economic phenomena it purports to represent.

Assets

Rights that have the potential to produce economic benefits, such as the rights to use a particular machine obtained as a result of a past event.

Liability

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

Obligation

A duty or responsibility that the entity has no practical ability to avoid.

Equity

The residual interest in the assets of the entity after deducting all of its liabilities, calculated as $\text{Equity} = \text{Assets} - \text{Liabilities}$.

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.

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.

Existence uncertainty

Uncertainty about whether an asset or liability exists, which must be considered during the recognition process.

Measurement uncertainty

Uncertainty that arises when monetary amounts in financial reports cannot be observed directly and must instead be estimated.