Explain the role of accounting standards.
Define AARF and AASB.
Outline the process for development of Australian accounting standards.
Discuss the development of the conceptual framework and the Statements of Accounting Concepts.
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Chapter 5Basic accounting standards1 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by ObjectivesExplain the role of accounting standards.Define AARF and AASB.Outline the process for development of Australian accounting standards.Discuss the development of the conceptual framework and the Statements of Accounting Concepts.2 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Objectives (continued)Describe the impact on the presentation of financial reports of the Corporations Act’s 5th Schedule, Approved Accounting Standards, Australian Accounting Standards, and the Australian Stock Exchange.Outline the statutory compliance requirements for an ABN, the GST, a BAS and the PAYG income tax system.3 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Accounting standardsAttempt to improve and bring about consistency and quality of financial reporting.Deal with accounting policies.4 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Accounting standards (continued)There are two major associations that develop rules and practices for the accounting profession:The Institute of Chartered AccountantsThe Australian Society of Certified Practicing Accountants. The Australian Accounting Research Foundation (AARF) was established from these two bodies. 5 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Role of Australian Accounting Standards Board (AASB)to produce high quality standardsto improve the quality of Australian financial reporting.6 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Australian Accounting StandardsThese standards are legally enforceable for all members of accounting profession and penalties apply to those who do not comply.However, they are not enforceable to non-members.7 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Australian Accounting Standards (continued)AASB also undertakes to:review existing standardsdevelop additional standardsreview submissions from the public in relation to accounting standards.8 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Development of Australian Accounting Standards (AAS)The AASB prepares a discussion paper on a proposed standard.The discussion paper is distributed for comments.A review of the comments is made and an exposure draft is prepared.9 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Development of AAS (continued)The exposure draft is distributed to the Australian Stock Exchange (ASX) and a variety of accounting firms for comments.Once reviewed, the AASB drafts a final version.Approval from the ministerial council is sought.The standard is published.10 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Conceptual frameworkStatements of Accounting Concepts:are being developed to provide a conceptual framework for the accounting professionassist in dealing with issues not currently covered by an accounting standardare a set of concepts which examine financial accounting and reporting in Australiaaim to improve financial reporting.11 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Conceptual framework (continued)12 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Conceptual framework (continued)The conceptual framework provides:a set of orderly concepts and reportinga number of reporting requirementsaccounting standards to make it easier to be more consistent and logical.13 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by The four Statement of Accounting ConceptsSAC 1 Definition of the reporting entitySAC 2 Objective of general purpose financial reportingSAC 3 Qualitative characteristics of financial informationSAC 4 Definition of the elements of financial statements delayed until 30 June.14 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by SAC 1 Definition of the reporting entity: To define and explain the concept of a reporting entityIt also looks at: the political significance of the entity the economic significance the size of the entity in terms of sales the size of the entity in terms of employees the separation of management and economic interest.15 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by SAC 2 Objective of general purpose financial reporting: Aims to establish the objective of general purpose financial reporting (GPFR) by reporting entitiesThe statement identifies: the users of GPFR the information needs of users the types of information that the GPFRs should provide.16 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by SAC 3 Qualitative characteristics: Identifies those characteristics that financial information should contain The standards direct that GPFRs should contain a number of characteristics that consist of: relevance reliability timeliness comparability comprehension materiality.17 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by SAC 4 Definition and recognition of the elements: Aims to establish definitions of elements of financial statementsThe elements are:assetsliabilitiesequityrevenueexpenses.18 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Financial reportsAustralian Stock Exchange (ASX):monitors publicly listed companiesrequires companies to comply with additional disclosure informationcan delist companies if they do not comply.19 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Financial reports (continued)Australian Securities and Investments Commission (ASIC): does not establish accounting standards is concerned by company disclosures in their financial statements governs companies by enforcing laws from the Corporations Act.20 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Financial reports (continued)Schedule 5 outlines:the type of disclosure requiredthe format of the Statement of Financial Performancethe format of the Statement of Financial Position.21 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Compliance requirements for GST and PAYGAn Australian business number (ABN):is a unique 11-digit numberallows a business to deal with multiple ATO departments.22 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Compliance requirements for GST and PAYG (continued)The Goods and Services tax (GST):is a tax of supply of goods and services within Australia (10 per cent)requires that businesses must register if gross turnover > $50 000requires that not-for-profit organisations register if gross turnover > $100 000makes registration for GST optional and not compulsory if gross turnover < $50 000.23 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Effect of registering for GSTOnce registered, a business is required to adhere to the following: GST must be charged on all taxable supplies a tax invoice must be available to customers requiring one GST transactions must be reported to the ATO and payments made by the due date.24 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Effect of registering for GSTInput tax credits (offset against GST payable) may be applied from acquisitions.If a business does not have an ABN, it could be subject to withholding credits.25 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Operation of the GST systemTaxable suppliesGST-free suppliesInput taxed supplies.26 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Tax invoice features:Prominent ‘Tax Invoice’Name of the supplierSupplier’s ABNInvoice issue dateDescription of itemsGST-inclusive priceTotal price.27 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Pay As You Go (PAYG)Payment of tax on incomePAYGWithholdingInstalments28 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by A Business Activity Statement (BAS) is to:be completed by businesses registered for GSTbe lodged with the ATObe reported monthly or quarterlyreflect GST collected and paid.29 2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by