Ch01 Ppt Birt4e With Questions (1)

7/25/2019 Ch01 Ppt Birt4e With Questions (1)

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Chapter 1

Prepared bySimon LenthenUniversity of WesternSydney


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In this presentation... explain the process of accounting outline the role of accounting in decision making

by various users explain the di erences between nancial

accounting and management accounting identify the sources of company regulation in

ustralia explain the current standard setting framework

and the role of the professional accountingassociations in the standard!setting process

evaluate the role of the Conceptual Frameworkand illustrate the qualitative characteristics ofnancial statements

give examples of the limitations of accountinginformation

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Accounting is a process

Accounting is the process ofidentifying, measuring andcommunicating economic informationabout an entity to a variety of usersfor decision making purposes

Identifying Measuring Communicating Decision making

Transactionsthat must beable to bereliablymeasured &recorded

Analysis,recording &classifyingtransactions

Via incomestatements,balance sheets &statements ofcash flows

Used for a rangeof decisions bye ternal &internal users

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Identifying transactions

Business transactions E terna! e change of something of va!ue

bet"een 2 or more entities A#ect assets, !iabi!ities and e$uity Can be re!iab!y measured and recorded

%e!evant information Information that makes a di#erence in

decision making

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In'C!ass Activity

(ith a partner, identify 2'3business transactions your

!oca! pho shop may have on

a dai!y basis.

)repared by *imon +enthenniversity of (estern *ydney -


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Accounting information and itsro!e in decision making

Accounting information is designedto meet the needs of both interna! users /management0 e terna! users /stakeho!ders0

E terna! users inc!ude Investors both current and prospective

*upp!iers and banks Emp!oyees overnment authorities /e.g., A 4, A*IC0

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In'C!ass Activity

(ith a partner, discuss ho"di#erent users of

accounting information may

use that information tomake decisions.

)repared by *imon +enthenniversity of (estern *ydney 6


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7inancia! Accounting 89anagement Accounting

7inancia! accounting is the preparationand presentation of :nancia!statements to a!!o" users to make

economic decisions about the entity 7inancia! statements consist of

*tatement of cash ;o"s

Ba!ance sheet Income statement *tatement of changes in e$uity

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Based on !egis!ative po"ers thatAustra!ian overnment has unders.-1 of the Austra!ian constitution

Contains various sections thatprovide guidance for corporations inAustra!ia

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*ources of %egu!ation /cont0Austra!ian *ecurities E change

/A*@0 he A*@ is the main Austra!ianmarket p!ace for trading e$uities,government bonds and other : edinterest securities

A*@ +isting %u!es he!p ensure thatcompanies are providing ade$uate disc!osures to various

shareho!ders behaving appropriate!y

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*ources of %egu!ation /cont0overnment 4rganisations

1. Australian Competition & Consumer Commission (ACCC) ACCC administers the rade )ractices Act and

the )rices *urvei!!ance Act ACCC s primary ro!e is consumer protection

2. Reserve Bank of Australia (RBA) the stabi!ity of the Austra!ian :nancia! system setting monetary po!icy

3. Australian Prudential Regulation Authorit (APRA) Ensuring :nancia! institutions honour their

commitments )romotes safety of !ife and genera! insurance

companies and !arge super funds

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*ources of %egu!ation /cont0overnment 4rganisations

!. Australian "a#ation $ffi%e A 4 co!!ects ta es and oversees a!! se!f'

managed superannuation funds

. $ther government agen%ies argeted to particu!ar areas of

commercia! operations

e.g. privacy, consumer advocacy,human rights

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*tandard *etting 7rame"orkAustra!ian and Internationa! *tandards

*ince 1 an 2>>-, Austra!ian entitieshave comp!ied "ith Internationa!7inancia! %eporting *tandards /I7%*s0

Austra!ian Accounting *tandardsBoard /AA*B0 is responsib!e for Issuing Austra!ian versions of

Internationa! Accounting *tandards *igni:cant!y in;uencing deve!opment of

I7%*s

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he Conceptua! 7rame"ork

4rigina! conceptua! frame"ork contained*tatements of Accounting Concepts/*ACs0 Assisted in preparation and presentation of

:nancia! statements Assisted standard setters in deve!oping

future accounting standards *ince 2>>- have adopted IA*B s

frame"ork App!ies to a!! disc!osing entities sers re!y on genera! purpose :nancia!

statements / )7*0

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Components of theConceptua! 7rame"ork

1. 4b?ective of :nancia! reports2. Dua!itative characteristics of

:nancia! statements %e!evance 7aithfu! %epresentation Comparabi!ity

eri:abi!ity ime!iness nderstandabi!ity

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Components of theConceptua! 7rame"ork /cont0

3. Fe:nition and recognition ofe!ements of :nancia! statements

Assets +iabi!ities E$uity Income

E penses

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+imitations ofAccounting Information

ime !ag in the distribution ofinformation to users, and thereforea#ecting its accuracy

Gistorica! information based on pastdata and is often outdated

*ub?ectivity of information refers tochoice invo!ved in inc!usion of items tobe reported and choice of accountingpo!icies to adopt

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+imitations ofAccounting Information /cont0

Costs of providing information Information costs Costs invo!ved in gathering, summarising

and producing info contained in :nancia!report

%e!ease of competitive information Info in :nancia! report may contain

proprietary information that cou!d be usedby competitors to strengthen their marketposition

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*ummary

)rocess of accounting concerns identifying,measuring and communicating economicinformation for decision making

sers of accounting information may bee terna! or interna!

9anagement accounting concerns needsof interna! users, "hi!e :nancia!accounting focuses on reports for e terna!

users Entities have become !arger, morediversi:ed and mu!tinationa!

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*ummary /Cont0

he main sources of companyregu!ation are the Corporations Act, theA*@ !isting ru!es and the in;uence of

the accounting profession IA*B s 7rame"ork is app!icab!e to a!!Austra!ian reporting entities

+imitations of accounting re!ate to thetime !ag, historica! nature ofinformation and costs associated "ithre!easing accounting information

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Prepared by Simon LenthenUniversity of Western Sydney 28

Ch01 Ppt Birt4e With Questions (1)

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