Unit3Accrualaccounting2.pptVIP

BFA103_03 * Regulation of financial reports Henry’s Hardware is a sole proprietorship. Accounting for businesses of this type does not need to be regulated because generally, apart from the owner, people do not need to have access to financial information about such businesses. On the other hand, the accounting for companies, particularly public companies, does need to be regulated. Public companies are required to publish financial reports that comply with accounting standards BFA103_03 * Regulation of financial reports There are more than 40 Australian accounting standards, for example: AASB 101 Presentation of financial statements AASB 102 Inventories AASB 107 Cash flow statements (AASB stands for “Australian Accounting Standards Board) Australia used to develop its own standards but from 2005 our standards have been amended so that they are now equivalent to international accounting standards BFA103_03 * Regulation of financial reports Why have accounting standards? protects the interests of report users who are entitled to receive relevant and reliable information reduces the options available to accountants and so improves inter-company comparisons, but still leaves room for differences due to special circumstances takes advantage of the expertise of standard setters when new problems need to be addressed BFA103_03 * Regulation of financial reports protects accountants who, if criticised, can say that they were following established standards if potential investors feel that they can rely on financial reports (because they know that they comply with accounting standards), then capital will flow more freely to where it is needed, and the economy will benefit BFA103_03 * Regulation of financial reports Why bother complying with standards? A range of inter-related regulations ensure accountants follow them: (1) Corporations Act all public companies and large proprietary companies must prepare annual financial reports and a directors’ report (section 292)