THE FRCE CAN NOT DIRECT THE AASB IN RELATION TO A PARTICULAR STANDARD NOR REJECT A STANDARD ONLY PARLIAMENT CAN DO THIS

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Clifford Kelly
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1 ACCG 101 Ntes Accunting Regulatin and Cnceptual Framewrk Wh is invlved in regulating accunting? ASIC Administratin f Cmpany Law ASX Public Cmpanies and Stck Listing Financial Reprting Cuncil (FRC) Accunting develpment in Australia Australian Accunting Standards Bard (AASB) Develping cnceptual framewrk Internatinal Accunting Standards Bard (IASB) Internatinal Accunting Prfessinal Bdies CA/CPA Financial Reprting Cuncil (FRC) Oversee and advisry bdy t AASB and AUASB Determining brad strategic directins, mnitrs pririties and appints members Mnitrs audit independence Mnitrs develpment f internatinal accunting standards Assesses relevant and effectiveness f current standards Ensuring AASB standards are in harmny with internatinal standards THE FRCE CAN NOT DIRECT THE AASB IN RELATION TO A PARTICULAR STANDARD NOR REJECT A STANDARD ONLY PARLIAMENT CAN DO THIS 1 January 2005 Australia jined IAS Australian Accunting Standards Bard (AASB) Develpment f cnceptual framewrk Frmulating standards in assciatin with the Crps Act Accunting standards fr public and NFP sectrs Assisting the IFRS fr internatinal standards ASIC and ASX Administers Crps Act 2001 Mnitrs implementatin f the Act and investigates and prsecutes breaches Prmtes cnfidence in financial system ASX Administers Listing Rules Played a majr rle in the AASBs adptin f IASB rules Internatinal Accunting Standards Bard (IASB) Independent, privately funded accunting settler Overseen by the IFRS fundatin Established in 2001 Cmmitted t a single set f high enfrceable standards Plitical Lbbying n Accunting Standards Includes writing letters r testimny at an arranged hearing t expse its views Overt r cvert threats t seek interventin Pressure may cnstitute threats t withdraw funding r appeals THE CONCEPTUAL FRAMEWORK A cherent system f interrelated bjectives and fundamentals that is expected t lead t cnsistent standards Als an attempt t prvide a structure thery f accunting that prescribes practice In 1990s, AASB develped 4 statements f accunting cncepts (SACs)

2 In 2005, adptin f IASB s Cnceptual Framewrk fr Financial Reprting SAC1 Definitin f the reprting entity and SAC2 bjective f the financial reprting Als includes Qualitative characteristics f useful financial infrmatin Definitin, recgnitin and measurement f the elements frm which financial statements are cnstructed SAC1: Definitin f a reprting entity It is an entity in which it is reasnable t expect the existence f users wh depend n general purpse financial reprt fr infrmatin t enable them t make and evaluate decisins Must prvide reprts that are adpted by the AASB Characteristics that determine whether an entity shuld be classified as a reprting entity Separatin f management frm ecnmic interest Ecnmic r plitical influence Financial characteristics SAC 2 Objectives f GPR Reprting General purpse reprts are thse intended t meet the infrmatin needs cmmn t a range f users wh are unable t cmmand the preparatin f reprts tailed t meet their wn particular needs Main Main bjective is t prvide infrmatin t all users A secnd bjective is that the reprts shuld be presented by management and gverning bdies in such a manner as t discharge their accuntability fr the resurces entrusted t them QUALITATIVE CHARACTERISTICS OF INFORMATION Relevance Must have a quality that influences users decisins f an ecnmic nature Must have predictive value Example revenue infrmatin fr 2012 can be used t predict perfrmance in 2013 and culd be used t cnfirm predictins frm 2011 Faithful Representatin Infrmatin must be cmplete neutral and free frm material errr Cmparability Users can cmpare aspects f an entity ver time and between entities Verifiability Different knwledgeable and independent bservers culd reach a cnsensus that a particular piece f infrmatin is a faithful representatin f the ecnmic phenmena Timeliness Having infrmatin available t decisin makers n time Understandability Users shuld be able t cmprehend the meaning f the reprts DEFINITION OF ELEMENTS Assets Resurces cntrlled by the entity; result f past events; with future ecnmic benefits Liabilities present bligatin; arising frm past events; expected utflw f resurces embdying ecnmic benefits Equity: residual interest in the assets after deducting all liabilities Incme: Increases in ecnmic benefits in the frm f inflws r decreases in liabilities that result in increase f equity

3 Expenses: Decreases in ecnmic benefits in the frm f utflws f assets that result in decreases in equity RECOGNITION CRITERIA Asset Prbable that the ecnmic benefit will flw t the entity; cst r ther value can be measured reliably Liability Prbable that an utflw f resurces embdying ecnmic benefits will result frm settling the present bligatin; amunt can be measured reliably Incme: Increase in future ecnmic benefits can be measured reliably Expense: Decrease in future ecnmic benefits can be measured reliably MEASUREMENT Histrical Cst An asset is recrded t the amunt f cash paid r the fair value f cnsideratin used t acquire it. Liabilities are recrded at the amunt f the prceeds received in exchange fr the bligatin Current Cst Represents the amunt f cash r cash equivalent that wuld be paid if the same r equivalent asset was acquired. A liability is paid in the amunt that it wuld cst t settle Realisable Fr an asset, the amunt cash that wuld be btained if it was dispsed f, a liability in the amunt it wuld take t satisfy Present value Discunted future net cash inflws r net cash savings that are expected t arise frm rdinary business. WEEK 3 NON CURRENT ASSETS REVALUATION OF NON-CURRENT ASSETS May be either upwards r dwnwards Must be revalued t fair value (market value) The price that wuld be received t sell and asset in an rderly transactin between market participants at the measurement date. Must revalue the entire class f assets ie All nn-current assets Carry amunt is the bk value INITIAL REVALUATION INCREASE Increase carrying amunt f assets Increase Gain n Revaluatin (Other cmprehensive incme = OCI) Increase Asset Revaluatin Reserve (Equity) Example 1 ABC Ltd has in its accunt land valued at $70000 and Mtr Vehicles (Purchased $60000) with accumulated depreciated f $30000 n mtr vehicles The assets have been appraised by an independent valuer wh values the land at $ and the Mtr Vehicles at $33,000 Carry Amunt land - $70000 Fair value - $120,0000 = $50000 Carry Amunt Vehicle - $30000 Fair Value DR Land 50,000 CR Gain n Revaluatin 50,000 (Incme) (OCI) (T recrd revaluatin f increase land) DR Gain n Revaluatin 50,000

4 CR OCI Summary 50,000 (Transfer gains t OCI Summary) DR OCI Summary 50,000 CR Asset Revaluatin Reserve 50,000 (T clse OCI summary t reserve accunt) (Equity Accunt) Revaluatin f Mtr Vehicles DR Accumulated Depreciatin 30,000 CR Mtr Vehicles 30,000 (Write back accumulated depreciatin and shw mtr vehicles at carry amunt) DR Mtr Vehicles 27,000 CR Gain n Revaluatin 3,000 DR Gain n Revaluatin 3,000 CR OCI Summary 3,000 DR OCI Summary 3,000 CR Asset Revaluatin Reserve 3,000 INITIAL REVALUTION DECREASE A Ltd has disclsed the buildings infrmatin as at 30 June 2013: Buildings $100,000 Less: Accumulated Depreciatin ($20,000) $80,000 Carry Amunt At 1 July, 2013 the Directrs f A Ltd decide t adpt the revaluatin mdel and revalue f $70,000 DR Accumulated Depreciatin Building 20,000 (Clse AD accunt) DR Expense n Revaluatin n Bulding 10,000 (Revalue) CR Building 30,000 (Revaluatin decrease n building) DR Prfit r Lss Summary 10,000 CR Expense n Revaluatin n Building 10,000 (Transfer f Expense) DR Retained Earnings (Decrease in Equity) 10,000

5 CR Prfit and Lss Summary 10,000 THE IMPAIRMENT AMOUNT TEST Whenever an asset s carrying amunt exceeds recverable amunt, the asset is said t suffer an impairment lss and must be written dwn t the recverable amunt The write-dwn must be recgnised as an expense in that perid if the cst mdel is used, r accunted fr as a revaluatin decrease if the revaluatin mdel is used. Mtr vehicle Acc. Depr. (25,000) Carrying Amunt This mtr vehicle has a recverable amunt f $35,000 and as this is less than the carrying amunt it must be written dwn t its amunt. DR Impairment Lss n Vehicle CR Acc. Depr. And Impairment Lss SALE OF NON-CURRENT ASSETS Prceeds recrded at the grss amunt received Carrying amunt represents expense fr the perid If the selling price exceeds the carrying amunt f the asset, then there is a gain n dispsal. The gain is reprted in the incme statement as part f incme If the selling price is less than the carrying amunt, there is a lss n dispsal, which is reprted as an expense A machine was purchased fr $8,000 and has accumulated depreciatin f $6,000 when sld n 1 January 2013 fr $3,500 (Ignre GST) DR CASH 3,500 Cr PROCEEDS FROM SALE OF MACHINE 3,500 (Recrds prceeds frm sale) DR CARRYING AMOUNT OF ASSET SOLD 2,000 DR ACCUMULATED DEPR. 6,000 CR MACHINE 8,000 (Made a gain f $1,500) Sale when carrying amunt exceeds selling price A machine was purchased fr $8,000 and had accumulated depreciatin f $6,000 when sld n 1 January 2013 fr $1200 DR CAB 1,200 CR Prceeds frm sale 1,200 DR Carrying amunt f asset sld 2,000 DR Accumulated Depreciatin 6,000

ACCT2101 FINAL REVISION

ACCT2101 FINAL REVISION Tpic 5: Current Assets Cntingent asset A pssible asset that arises frm past events (uncertain, nt in cntrl f the entity) Nt recgnised in financial statements - cntinually assessed