Purpose of accounting standards
(protecting external users)
1.) provide a common framework and set of rules for preparing financial statements, which ensures that financial information is accurate, comparable and reliable.
2.) External users, such as creditors, Investors and regulatory authorities rely on financial statements to make informed decisions.
Purpose of accounting standards
(assist directors in discharging their obligations)
1.) provide a clear framework directors can follow when preparing financial statements.
2.) directors can fulfil their obligations to shareholders and other stakeholders by providing them with a fair and accurate representation of a companies financial position and performance.
Purpose of accounting standards
(providing confidence to Investors in Aus capital markets)
1.) promotes market efficiency as information is quickly and accurately reflected in the price of securities.
2.) Investors have greater confidence in financial information, which reduced the perceived risk and lowers the cost of capital so Aus entities can compete effectively in global markets.
The purpose of the conceptual framework
-A set of principles and standards that guides the preparation and presentation of financial statements for entities. It’s primary purpose is to ensure that financial reporting is consistent, transparent and provides relative information for stakeholders. including Investors, creditors and the public.
The nature of the reporting entity
- A reporting entity is an entity, such as a company, organization, or gov agency that prepares financial reports for external users.
The objective of general purpose financial reports (GPFR)
-General purpose financial reports (GPFR) also aim to facilitate accountability and transparency of the reporting entity to stakeholders. Ensure that the entity’s financial activities are accurately and faithfully represented, promoting trust and integrity in the reporting process.
Function of External audits
(protecting external users)
-an external audit confirms that financial reports show a true and fair view of the financial performance and position of a company which helps external users make informed decisions about investing capital. Ensure accounting standards have been applied
Function of External audits
(providing confidence to stakeholders in Aus capital markets)
-the external auditor provides an independant and objective assessment of the accuracy of the financial reports before they are provided to the public. this promotes market confidence amongst shareholders as the application of the accounting standards has ben applied by a person outside of the organisation
The role of the external auditor appointed by the shareholders and re-appointed at the annual general meeting
-the external auditor provides an independant and objective assessment of the accuracy of financial reports before they are provided the the public. They report on there findings and provide recommendation for review or correction.
Framework definitions (WORD FOR WORD)
-Asset
-Liability
- Income
-expense
-Equity
Asset
- A present economic resource controlled by the entity as a result of past events.
Liability
- A present obligation of the entity to transfer an economic resource as a result of past events
Equity
- The residual intrest in the assets of the entity after deducting all it’s liabilities
Income
- Increase in assets or decrease in liabilities that results in an increase in equity other then those relating to contributions from holders of equity claims
Expense
- Decrease in assets or increase in liabilities that results in a decrease in equity other then those relating to distribution to holders of equity claims.
Recognition criteria (Fundamental)
-Relevance
- capable of making a difference in the decisions made by users. It is effected by materiality- omitting, misstating or obscuring info could influence decisions made by users.
Recognition criteria (Fundamental)
-Faithful representation
An entities financial information should be complete, neutral and free from error to the extend possible. it must be able to be measured and quantified in monetary terms
Recognition criteria (Enhancing)
-comparability
-verifiability
-timeliness
-understandability
1.) Allows users to identify similarities and differences between entities and time period
2.) Ability to confirm the accuracy of financial Info through independant verification
3.) Info is available to decision makers in a timely manner to be capable of influencing their decisions
4.) users of financial statements should be able to comprehend the meaning of the info contained in these statements
