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Chapter 3 Criteria for the Regulation of Financial Reporting and the Conceptual Framework

Chapter 3 Criteria for the Regulation of Financial Reporting and the Conceptual Framework. Lecture Topics. Company disclosures Objectives of financial reporting The conceptual framework Applying the conceptual framework to financial reporting issues. Lecture References.

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Chapter 3 Criteria for the Regulation of Financial Reporting and the Conceptual Framework

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  1. Chapter 3 Criteria for the Regulation of Financial Reporting and the Conceptual Framework

  2. Lecture Topics • Company disclosures • Objectives of financial reporting • The conceptual framework • Applying the conceptual framework to financial reporting issues

  3. Lecture References • Text - Chapter 3 • SACs - 1, 2, 3 and 4

  4. Key Concepts • Stewardship • Accountability • Conceptual framework • Reporting entity • General purpose financial reports (GPFRs) • Qualitative characteristics

  5. The Nature of Company Disclosure • Rationale for mandatory corporate disclosure • Public interest • Protection of members • Predicting investment returns • Stewardship

  6. The Nature of Company Disclosure • Regulated by: • Corporations Act • ASX listing rules • Accounting Standards • SACs • UIG Abstracts

  7. The Nature of Company Disclosure • Compulsory reporting • Decision usefulness • Self-interest of profession • Accountability  Information overload !??

  8. Objectives of Financial Reporting and the Corporations Act • Quality of information • Corporations Act • True and fair view • Financial position • Financial performance

  9. The Conceptual Framework • The reporting entity and GPFRs • Information needs of users • Accountability relationship • separation of ownership and control • economic and political importance • financial characteristics • Role of SACs

  10. evaluations assists Reports on decision- making Financial Performance and the Accountability Relationship performance financial position GPFR’s investing financing compliance

  11. The Conceptual Framework • The role of SACs • Requirements for GPFRs • non-mandatory • Special purpose financial reports • do not specifically address

  12. The Conceptual Framework • Classification of entities • Reporting entity - SAC 2 • listed corporation • borrowing corporation • some foreign owned/controlled entities • other entities where users need GPFRs • Other entities

  13. The Conceptual Framework • Relationship between qualitative standard and qualitative characteristics • Qualitative Characteristics - SAC 3 • Relevance • Reliability • Materiality • Comparability • Understandability

  14. The Conceptual Framework • Qualitative characteristics and development of accounting standards • Elements of financial reporting • Recognition • Defining the elements

  15. The Conceptual Framework • Elements of Financial Reporting SAC 4 • Assets • Liabilities • Owner’s Equity • Revenues • Expenses • Contributions • Distributions

  16. The Conceptual Framework • Assets • Future economic benefits • Controlled by the entity • Resulting form past transactions or other past events

  17. The Conceptual Framework • Liabilities • Future sacrifices • Of economic benefits • The entity is presently obliged • To make to other entities • Resulting from past transactions or events

  18. The Conceptual Framework • Owner’s Equity • The residual interest • In the assets of the entity • After deduction of its liabilities

  19. The Conceptual Framework • Revenues • Inflows or other enhancements • Or savings in outflows • Of future economic benefits • That increase assets or reduce liabilities • Other than contributions by owners • That increase equity

  20. The Conceptual Framework • Expenses • Consumption or losses • Of future economic benefits • That decrease assets or increase liabilities • Other than distributions to owners • That decrease equity

  21. The Conceptual Framework • Contributions • Future economic benefits • Contributed by external parties • That do not result in a liability • That give rise to a financial interest in the net assets • That conveys entitlement and/or • Can be sold/transferred/redeemed

  22. The Conceptual Framework • Distributions • Future economic benefits • Distributed by the entity • To all or some of its owners • As a return on investment, or • As a return of investment

  23. The Conceptual Framework • SAC 4 and capital maintenance • The nature of capital maintenance • relevance to ‘profit’ • capital maintenance adjustment • purchasing power • capital maintenance models • SAC 4

  24. The Conceptual Framework • Use in accounting standards • Measurement • Balance sheet and income statement emphasis and matching • International comparability

  25. Conceptual Framework • Applying the conceptual framework to financial reporting issues • Provides a context • Normative theory base • Identifies inconsistencies • Resolves disputes about practice

  26. Conceptual Framework • Benchmarking Financial Reporting Practice • Between reporting practices • With reporting frameworks • Appropriate benchmark • Empirical • Normative

  27. Conceptual Framework • The Corporations Act and the Reporting Entity • Differential reporting and disclosing entities • Approach to the study of financial reporting • Continual questioning • Recognition and measurement of elements

  28. Where to get more information • Other courses • List books, articles, electronic sources

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