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2. Conceptual Framework

2. Conceptual Framework. The Reporting Entity. The big print giveth and the fine print taketh away. J. Fulton Sheen. Statement of principles. The Conceptual framework. The magic of double entry. Used for 500 years - Luca Pacioli Copied by other systems Time to go home?.

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2. Conceptual Framework

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  1. 2. Conceptual Framework The Reporting Entity

  2. The big print giveth and the fine print taketh away. J. Fulton Sheen

  3. Statement of principles The Conceptual framework

  4. The magic of double entry • Used for 500 years - Luca Pacioli • Copied by other systems • Time to go home?

  5. The magic of double entry • Requires • The fiction of separate accounting entities • Double classifications of each transaction Classification

  6. Reporting perspectives • Proprietary Theory Owner --- Firm • Entity Theory Owner --- Firm • Fund Theory Resources available

  7. Reporting perspectives • Commander Theory • Enterprise Theory Shareholders Suppliers Managers Customers Banks Regulators Debtholders Tax Office Local Council Workers Unions

  8. REPORTING ENTITY • What is it? • Identity (Cohesive economic unit) • Accounting fiction - the Firm is separate from the owner • Essential for double entry accounting method • Entity theory • Limits to the identity (its boundaries)? • Individual companies - Where there is direct control of assets • Group accounts - when there is direct and indirect control of assets • Individual departments of government • Whole of government

  9. REPORTING ENTITY When to report? • When there exists a legitimate demand - reasonable to assume there are users who need GPFS to make their economic decisions. • information is useful • benefits exceed costs

  10. Reporting Entity Boundary limits defined by: • Single reporting entity - direct control • Consolidated report - direct and indirect control Direct Control • Ability to use economic resources • Able to benefit

  11. Control • Group - indirect control if able to direct the operating / financial policies of other entity to gain benefit • Variety of evidence • Exposure to risk • Can restrict or deny access to economic benefits • Not the same as managing - no risk from operations

  12. Reporting Entity . . .

  13. Reporting Entity . . . Group • direct Control Controls in own right the future economic benefits • In a group • Controlling entity F1 F2 • Controlled entity • indirect Has control of another entity P S In a group • Controlling and controlled entities as one group

  14. Group Accounts - Consolidations • Group - Financial Report as if one entity (no accounting or legal entity equivalent) All intercompany transactions are eliminated A B

  15. Consolidation accounts • To prevent some frauds • To enable users to make assessments • the alternative would be to . . . .

  16. The end • If you have found the lecture useful, interesting or educational then do come again next week.

  17. Everywhere I go I'm asked if I think the university stifles writers. My opinion is that they don't stifle enough of them. - Flannery O'Connor (1925-1964)

  18. A committee is a cul-de-sac down which ideas are lured and then quietly strangled.Barnett Cocks

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