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200400: COMPANY ACCOUNTING

TOPIC 1: ACCOUNTING STANDARDS

Chapter 4: Published Financial Statements

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Introduction

This chapter covers the following areas:

External reporting/GPFRs

Formats of company financial statements

Reporting entity concept

Sources of authority and guidance

True and fair view

Financial statements and notes

Disclosing entities

Accounting standards
ASX listing requirements

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Format of Company Financial

Statements

Financial statements involve the preparation

and dissemination of economic information
required by users
Who are these users?
Time period covered generally one financial year or
half yearly period
May be prepared for individual company or
consolidated group

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Accountability

Definition: the quality of being accountable, liable

to give an account of, and answer for, discharge of
duties or conduct
Directors of companies are accountable to
shareholders who have invested in the company
on condition that:
Directors publish financial statements
Financial statements are audited

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External reporting

External reports published financial statements of companies

Prepared in context of the conceptual framework (CF)
CF: a framework designed to provide preparers, users, auditors
and accounting standard setters with an explicit set of
accounting concepts to guide financial reporting
Under the CF company external reports are designed to supply
general information requirements of a range of user groups.
These are referred to as General Purpose Financial Reports
(GPFRs)

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Conceptual Framework

The CF consists of:

SAC1 Definition of Reporting entity

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Existence
of users
depending
on GPFRs

SAC2 Objectives of GPFRs

Definition: GPFRs should focus on providing information to users
who are unable to command the preparation of reports tailored to
their particular information needs
Relevant Information: information useful to users for making and
evaluating decisions about the allocation of scarce resources

AASB Framework

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Qualitative Characteristics

AASB Framework identifies the characteristics that

financial information should possess. The two
fundamental characteristics are:
Relevance - relevant to information needs of users
Faithful representation

AASB Framework also identifies financial information

as needing enhancing characteristics of:
Comparability
Verifiability
Timeliness
Understandability

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Format of Company Financial

Statements

Directors Report
Financial report

Financial statements

Notes

Directors declaration

Consolidated/group accounts (if required)

Auditors report

Note Corporations Act S295 narrow definition of financial

statements

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Published Financial Reports

Published financial reports are:

Prepared in accordance with Corporations Act and
accounting standards
Audited
Lodged with ASIC
These financial statements become public
information

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Conflict between SAC1 and Corporations

Act Reporting entity Concept

SACs not mandatory

Companies must follow Corporations Act
provisions
Corporations Act Part 2M3 requires many
entities to prepare financial reports
Accounting standards specifically state the
categories of companies to which they apply

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Sources of Authority and Guidance for

Company Financial reporting

Corporations Act
S286-291 Financial records
S297 True and fair view and S295(3) Additional information
necessary to provide true and fair view
S314 Concise financial reporting

Accounting Standards
Company financial report must be made out in accord with
applicable accounting standards
If compliance with accounting standards does not result in a true and
fair view additional information must be presented by directors

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Sources of Authority and Guidance for

Company Financial reporting

ASX Listing Requirements (only applies to

companies listed on ASX).
Continuous disclosure of price-sensitive information
Half yearly reporting
Annual statement of corporate governance practices
Some additional disclosure requirements

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True and Fair View

Term not defined in Corporations Act but generally

incorporates:
Compliance with statutory provisions, regulations
and accounting standards
Appropriate accounting policies
Disclosure of all material matters
Providing information useful for decision making

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Financial Statements

S295(2) financial statements comprise those required by accounting

standards

AASB101 Presentation of Financial Statements is the relevant standard

Under AASB101 complete set of financial statements comprises:
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes

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Directors Statements

Directors Declaration
Directors must declare:
That there are reasonable grounds to believe that the entity will
be able to pay its debts as they become due
That the financial statements and notes are in accordance with
the Corporations Act including compliance with accounting
standards and provision of a true and fair view
Directors Report
General information about operations and activities
Specific items of information as per S300 of Corporations Act

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Auditors Report

Auditor must form an opinion on:

Whether financial report is in accordance with
Corporations Act
Whether auditor has been given all required
information
Whether entity has kept sufficient financial records
Whether entity has kept records and registers
required by Corporations Act

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