UNIT 1: FINANCIAL REPORTING

1.1 Overview of International Standard Setting

- International Accounting Standards Board (IASB) is the standard-setting body, overseen by the IFRS Foundation.

1.1.1. Convergence of national and international standards

- Converged reporting is less costly, improves an entity’s access to capital and ensures reports to the users are
comparable: i.e. bring transparency, accountability and efficiency.
- Full convergence is not alays possible - IASB does not require adoption of IFRS

1.1.2. International financial reporting and regualtory framework

- IASB, the IFRS Interpretations Committee and the IFRS Foundation, including the IASB’s Conceptual Framework.

1.2 CONCEPTUAL FRAMEWORK and the PURPOSE OF FINANCIAL REPORTING

- Conceptual Framework sets out:
- the objective of financial reporting,
- qualitative characteristics of useful information
- definitions and recognition criteria for the elements within the finstats
- concepts of capital and capital maintenance.

1.2.1. Objective of General Purpose Financial Reporting (GPFR) IASB 2018, The Conceptual Framework for Financial Rep
- Objective of GPFR: provide financial information about the reporting entity, that is useful to existing &
potential investors, lenders and other creditors in making decisions about providing resources to the entity.
- GPFR prepared under IFRS allows users who have different information needs and do not have the power to request
tailored financial information to form a view about an entity and its management.
1.2.2. Qualitative characeristics
- For financial information to be useful, it must be relevant and faithfully represent what it purports to represent.
- The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable.

1.2.3 Elements of finstat, recognition and measurement criteria

Asset: present economic resource controlled by the entity as a result of past events (para 4.3 of Conceptual Framework 2
To satisfy asset definition, must also satisfy 'economic resource' definition
- It provides a right
- There is potential to produce economic benefits
- The entity has control over the economic resource (i.e. can direct to obtain economic benefits)

Representational faithfulness: a high level of measurement uncertainty does not necessarily prevent the estimate
from providing useful information. These estimated future costs would be discounted in measuring the liability
(measurement uncertainty around discount rate too)
1.3 PRACTICAL ISSUES in USING ACCOUNTING STANDARDS

1.4 NATIONAL REPORTING REQUIREMENTS and the REGULATORY FRAMEWORK

 Note 1: A non-reporting entity may be required to prepare a financial report. may be a SPFR

1.4.1 Standards and legislation affecting Financial Reporting in Australia

The Corporations Act 2001
 - Section 292 of the Act requires these entities to prepare an annual financial report, which must be lodged with the ASIC:
- Disclosing entities.
- Public companies.
- Large proprietary companies.
- Registered schemes.
- Small proprietary companies (in limited circumstances only).

Large or small proprietary companies

- A large proprietary company is required to prepare and lodge a financial report with ASIC (i.e. within scope of Corps Act
2001), while a small proprietary company generally is not.

- If a proprietary company falls below the threshold in 2 or more of the tests, it is classified as a small proprietary company;
otherwise, it is classified as a large proprietary company.

Reporting by small proprietary companies

- Small proprietary companies are required to prepare a financial report when:
- Shareholders with at least 5% of votes direct the company to do so, in writing. Shareholders can also specify the
extent to which Accounting Standards are applied, and whether the financial report is to be audited (s. 293).

- ASIC directs the company to prepare a financial report (s. 294).

 - It is controlled by a foreign company and was not consolidated into financial statements lodged with ASIC

Financial statements vs. Financial Report

- Complete set of finstats: SOFP, SPLOCI, SOCE, SCFs, Comparative information, Notes.

Financial report
- Australian entities registered under Corps Act reppare a financial report, which includes:
- Financial Statmenets
Corporations Act.
-
Directors declaration: is a signed statement on behalf of the BoD that covers a number of assertions, including
- whether:
- Statement of solvency: There are reasonable grounds to believe that the entity will be able to pay its debts as and
when they become due and payable.

- Statement of compliance: The finstas and notes give a true and fair view of an entity’s financial position and
performance, and comply with Accounting Standards.

Rules governing how financial reports are prepared

- True and fair' view and additional disclosure is in s 295 (3)( c )
- Obligation to comply with Accounting standards

Relief from requirements to prepare financial reports

- ASIC class orders – exemptions from specified financial reporting requirements
1) controlled by a foreign Company

2) as per chapter 2M of Corporation Act when they enter into deeds of cross guaratnees with their parents entity
and meet certain conditions

3) small propritary companies that are controlled by the foreign company but are not part of a large group

4) Allows companies registered scheeme and disclosing entities that present consolidated financial statements to
include their own parent entity financial statament

- ASIC regulatory guides - provides guidance by explaining when and how ASIC wille exercise powers

The Australian Conceptual Framework (Australian Framework)

Statement of Accounting Concepts 1 (SAC 1): Definition of the Reporting entity

- Reporting entities are all entities (including economic entities) in respect of which it is reasonable to expect the existence
of users dependent on GPFRs for information which will be useful to them for making and evaluating decisions about the
allocation of scarce resources.

- Reporting entities in Australia must prepare GPFR to comply with all relevant Accounting Standards.
GPFR vs. SPFR
- GPFR: designed to meet the information needs of a wide group of users
- SPFR is tailored to meet the needs of a specific group of users.
- If an entity is classified as a reporting entity, it must prepare a GPFR, whereas non-reporting entities can prepare a SPFR.

To determine the annual reporting requirements of an entity, use this...

1.5 INTERRELATIONSHIP BETWEEN INTERNATIONAL AND NATIONAL REQUIREMENTS
1. The Reporting entity concept in Australia’s SAC 1 was needed, owing to the prior lack of a definition at international level.

2. ’Au’ requirements inserted into IFRS-equivalent standards (also known as jurisdiction-specific requirements, usually
related to Australia’s commitment to sector-neutral standards).

- Australia aims to issue sector-neutral standards, (i.e. the same transaction will be treated in the same way by different sectors).
- The IASB does not take this approach as IFRSs are designed to apply to the reporting of for-profit entities.

3. Australian standards with no international equivalent.

4. Differential reporting requirements from SAC 1 and the Corporations Act.
- Differential reporting is the different reporting and disclosure requirements for different tiers of entities.
- Australia uses AASB 1053 Application of Tiers of Australian Accounting Standards to apply two tiers of reporting,
whereby Tier 2 entities may reduce their disclosures via the RDR.

RDR is not a single document like IFRS fro SMEs. In each AASB standard, any disclosure paragraphs that are not
required for entities following the RDR are shaded in grey.
Entities following the RDR must comply with the recognition and measurement paragraphs in each Standard;
however, the disclosures are reduced.
In order to comply with IFRS, the full Standards need to be complied with (including full disclosure requirements), so
there is no explicit compliance with IFRS.

5. The non-adoption of IFRS for SMEs in Australia and the use of the RDR.
Public accountability as defined in AASB 1053
- Public accountability means accountability to those existing and potential resource providers and others
external to the entity that make economic decisions, but are not in a position to demand reports tailored to
meet their particular information needs.

1.6 ETHICAL REQUIREMENTS in PREPARING FINANCIAL REPORTS

 1. APES 110 Code of Ethics for Professional Accountants:
2. APES 205 Conformity with Accounting Standards.
3. APES 315 Compilation of Financial Information.

Non-compliance with laws and regulations (NOCLAR)

- NOCLAR is defined as any act of omission or commission (intentional or unintentional) committed by a client that is
contrary to the prevailing laws or regulations.

- NOCLAR is a new ethical Standard effective from July 2017 that sets the framework for auditors and other accountants on
how to act in the public interest when they become aware of non- compliance or suspected non-compliance with laws
and regulations.

1.7 CONTEMPORARY ISSUES in FINANCIAL REPORTING

An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the following in
prominently, and repeat it when necessary for the information presented to be understandable:
(a) the name of the reporting entity or other means of identification, and any change in that information from the end of th
reporting period;
financial statements are of an individual entity or a group of entities;
the end of the reporting period or the period covered by the set of financial statements or notes;
presentation currency, as defined in AASB 121; and
the level of rounding used in presenting amounts in the financial statements

An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depr
amortisation expense and employee benefits expense
An entity classifying expenses by function shall disclose additional information on the nature of expenses, including depr
amortisation expense and employee benefits expense

The other comprehensive income section shall present line items for the amounts for the period of:
(a) items of other comprehensive income (excluding amounts in paragraph
(b)), classified by nature and grouped into those that, in accordance with other Australian Accounting Standards:
(i) will not be reclassified subsequently to profit or loss; and
(ii) will be reclassified subsequently to profit or loss when specific conditions are met.

An entity shall disclose the amount of income tax relating to each item of other comprehensive income, including reclassifi
adjustments, either in the statement of profit or loss and other comprehensive income or in the notes.

An entity shall disclose reclassification adjustments relating to components of other comprehensive income.
verseen by the IFRS Foundation.

nd ensures reports to the users are

e IASB’s Conceptual Framework.

18, The Conceptual Framework for Financial Reporting

tity, that is useful to existing &
ut providing resources to the entity.
nd do not have the power to request
nt.
esent what it purports to represent. Conceptual Framework
para 2.4
e, timely and understandable.

Asset - Para 5.7 liability

para 5.14, 5.12, 5.19, 5.21
& 5.22

ast events (para 4.3 of Conceptual Framework 2018)

CF 2018 para 4.6

CF 2018 para 4.14
ain economic benefits) CF 2018 para 4.20

not necessarily prevent the estimate CF 2018 para 5.19

be discounted in measuring the liability
ay be a SPFR
eport, which must be lodged with the ASIC:

with ASIC (i.e. within scope of Corps Act Corps Act 2001

classified as a small proprietary company; s45(A) Corps Act

s292(2) Corps Act

ng. Shareholders can also specify the
al report is to be audited (s. 293).
s.293 Corps Act

S. 294 Corps Act

 l statements lodged with ASIC (s. 292(2)(b)).

AASB 101/IAS 1 para 10

s295 Corps Act

s a number of assertions, including

e entity will be able to pay its debts as and

ss 295 (4) and (5)
w of an entity’s financial position and

s295(3)(c)
s296(1)

2016/784 ASIC Corporation (Audit

relief Instruments)

cross guaratnees with their parents entity 2016/785 ASIC Corporations

(wholly owned companies)
instruments

ny but are not part of a large group 2017/204 Foreign Controlled

Companies Reports) instruments

CO 10/654
sent consolidated financial statements to

ille exercise powers

ch it is reasonable to expect the existence SAC 1 para 40

making and evaluating decisions about the

ccounting Standards.
on-reporting entities can prepare a SPFR.
or lack of a definition at international level.

diction-specific requirements, usually

be treated in the same way by different sectors).

rting of for-profit entities.
 different tiers of entities.
ndards to apply two tiers of reporting,

y disclosure paragraphs that are not

ment paragraphs in each Standard;

ding full disclosure requirements), so

al resource providers and others

ition to demand reports tailored to

Definition p1-38
tional) committed by a client that is

ork for auditors and other accountants on

or suspected non-compliance with laws

ddition, an entity shall display the following information Para 51 IAS 1

to be understandable:
y change in that information from the end of the preceding
(b) whether the
(c) the date of
statements or notes; (d) the
(e)
s

tion on the nature of expenses, including depreciation and Para 104

 tion on the nature of expenses, including depreciation and Para 104

mounts for the period of: 82A

ph
with other Australian Accounting Standards:

ns are met.

her comprehensive income, including reclassification IAS 90

ive income or in the notes.

of other comprehensive income. IAS 92