ACCT3003 Accounting Standards and Governance - Study Resource

Portfolio 1ACCT3003 Accounting Standards and Governance20181316 Chapter 1 7. Provide a brief description of the differential reporting requirements in Australia as addressed by AASB 1053. Differential reporting requirements under AASB 1053 require a two-tier reporting system when an entity produces a general-purpose financial statement. General purpose financial statements are considered Tier 1 when they comply with all relevant accounting standards. Tier 2 financial statements follows the same recognition, measurement, and presentation requirements of Tier 1 but with reduced disclosure requirements. Differential reporting states that the same transactions should be subject to the same accounting requirements, to a feasible extent. 29. It is argued by some researchers that even in the absence of regulation, organisations will have an incentive to provide credible information about their operations and performance to certain parties outside of the organisation; otherwise, the costs of the organisation's operations will rise. What is the basis of this belief? The 'free market' perspective describes that without regulation, organisations will still have enough reason to provide information about their operations. There are private economics-based incentives for organisations to provide this information, such as keeping track of revenue and expenses. Without this information, expenses could rise as there will be no clear guidelines on which products to purchase or the cash amount available to spend. The 'free market' perspective also explains that organisations will continue to provide financial information to outside parties due to competition with other organisations and encouragement for shareholders to invest in their organisation. Chapter 2 28. For each of the independent situations identified below, consider and conclude whether the entity is required by the Corporations Act to prepare financial statements and, if so, whether it is a 'reporting entity'. You should also note the reporting implications of your decision. a. ABC Pty Ltd is a small proprietary company. The shareholders are Mr and Mrs ABC, who also manage the company's day-to-day operations. The company's bankers, The Bank, receive monthly management accounts, budgeted cash-flow information and the year-end statutory accounts. ABC Pty Ltd is not required to produce general purpose financial statements as there is limited benefit in their production. Mr and Mrs ABC are shareholders and managers, so they do not require a financial statement. There are also few external users who require a financial statement, so it is not necessary. They are however required to keep adequate financial records, which has been achieved as they provide monthly management accounts, budgeted cash-flow information, and year-end statutory accounts to the company's bankers. ABC Pty Ltd is not a reporting entity as there is no existence of users who require a financial statement.