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

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