Regulation of Accounting in Australia

Regulatory Environment of Accounting in Australia

Regulation

 overseeing, according to predetermined rules, an activity by an entity not directly involved in the activity.

Regulation is

• For example:

– the government is deliberately intervening in the production

of general purpose financial statements;

– this control is through a standard setting body: Australian

Accounting Standards Board (AASB) which is supposed

Regulatory Bodies and ACTS

Australian Securities and Investments Commission (ASIC)




ASIC runs a financial reporting surveillance program with the aim of improving the quality of financial reporting. We regularly review the annual and interim financial reports of selected listed companies and other significant public interest entities to monitor compliance with the Corporations Act and Australian Accounting Standards. We also review financial reports based on complaints, other intelligence and through our audit inspection program.

Australian Stock Exchange (ASX)


ASX Compliance Pty Limited is a wholly owned subsidiary within the ASX Group that provides compliance and enforcement services to the various ASX Group entities that hold licences under the Corporations Act to operate markets or clearing and settlement facilities.
ASX Compliance has delegated authority to make certain compliance and enforcement decisions on behalf of the relevant ASX licensee under its operating rules. It also provides other services as necessary to ensure:

• in the case of a market licensee, it has adequate arrangements for monitoring and enforcing compliance with its operating rules (as required by s792A of the Corporations Act); and

• in the case of a clearing and settlement facility licensee, it has adequate arrangements for enforcing compliance with its operating rules (as required by s821A of the Corporations Act).

ASX Compliance has a separate Board of Directors to other ASX Group entities (currently only one out of four ASX Compliance directors is also a director of other ASX entities).
Alan Cameron AO, a former chairman of ASIC, is the chairman of the ASX Compliance Board.
Kevin Lewis, Group Executive and Chief Compliance Officer, heads the ASX Compliance function and, in that capacity, reports directly to the ASX Compliance Board.

Financial Reporting Council (FRC)

The Financial Reporting Council (FRC) is the peak body responsible for overseeing the effectiveness of the financial reporting framework in Australia.  Its key functions include the oversight of the accounting and auditing standards setting processes for the public and private sectors, monitoring the effectiveness of the auditor independence regime, and advising the Minister on these matters. It is a statutory body under Part 12 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act).

International Accounting Standards Board (IASB)

The IASB is the independent standard-setting body of the IFRS Foundation. Its members (currently 15 full-time members) are responsible for the development and publication of IFRSs, including the IFRS for SMEs and for approving Interpretations of IFRSs as developed by the IFRS Interpretations Committee (formerly called the IFRIC). All meetings of the IASB are held in public and webcast. In fulfilling its standard-setting duties the IASB follows a thorough, open and transparent due process of which the publication of consultative documents, such as discussion papers and exposure drafts, for public comment is an important component. The IASB engages closely with stakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession.

Australian Acounting Standard Board(AASB)

The AASB had adopted the IASB and transform International Accounting Standard(IAS) and International Financial Reporting Standards(IFRS) into the Australian Standard. The AASB is an Australian Government agency under the Australian Securities and Investments Commission Act 2001. Under that Act, the statutory functions of the AASB are:

• to develop a conceptual framework for the purpose of evaluating proposed standards;
• to make accounting standards under section 334 of the Corporations Act 2001;
• to formulate accounting standards for other purposes;
• to participate in and contribute to the development of a single set of accounting standards for worldwide use;
• and to advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy.

The vision of the AASB is to be recognised as a global centre of excellence, delivering a truly distinctive contribution to the development of high-quality financial reporting standards.


Mission
The mission of the AASB is to:
(a) develop and maintain high-quality financial reporting standards for all sectors of the Australian economy; and
(b) contribute, through leadership and talent, to the development of global financial reporting standards and to be recognised as facilitating the inclusion of the Australian community in global standard setting.

International Financial Reporting and Interpretation Committee(IFRIC)

The IFRS Interpretations Committee is the interpretative body of the IFRS Foundation. Its mandate is to review on a timely basis widespread accounting issues that have arisen within the context of current International Financial Reporting Standards (IFRSs). The work of the Interpretations Committee is aimed at reaching consensus on the appropriate accounting treatment (IFRIC Interpretations) and providing authoritative guidance on those issues.

In developing interpretations, the Interpretations Committee works closely with similar national committees.   The interpretations cover both:

• newly identified financial reporting issues not specifically dealt with in IFRSs; and
• issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop in the absence of authoritative guidance

The Interpretations Committee comprises 14 voting members drawn from a variety of countries and professional backgrounds. They are appointed by the Trustees of the IFRS Foundation and are selected for their ability to maintain an awareness of current issues as they arise and the technical ability to resolve them.

IFRIC interpretations are subject to IASB approval and have the same authority as a standard issued by the IASB.

FASB and its joint Project
 

At their joint meeting in October 2004, the IASB and the US FASB decided to add to their respective agendas a joint project to develop a common conceptual framework, based on and built on both the existing nd the FASB Conceptual Framework, that both Boards would use as a basis for their accounting standards.
The two boards reached the following tentative decisions about the approach to the project:

• The project should initially focus on concepts applicable to business entities in the private sector. Later, the boards should consider the applicability of those concepts to other sectors, beginning with not-for-profit organisations in the private sector.
• The project should be divided into phases, with the initial focus being on achieving the convergence of the frameworks and improving particular aspects of the frameworks dealing with objectives, qualitative characteristics, elements, recognition, and measurement. Furthermore, as the frameworks converge and are improved, priority should be given to addressing issues that are likely to yield benefits to the boards in the short term, that is, cross-cutting issues that affect a number of their projects for new or revised standards.
• The converged framework should be in the form of a single document. It should include a summary and a basis for conclusions.

Accounting Basics

ACCOUNTING

Accounting tis the process of communicating about a business entity to users such as shareholder, manager and stakerholder. The communication is generally in the form of financial statement that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable. The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookm keeping. and auditing.


The American Institute of Certified Professional Accounting (AICPA) defines accountancy as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof."


ACCOUNTING EQUATION


The 'basic accounting equation' is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits.
                ASSETS=LIABILITY + EQUITY
This equation is also the framework for keeping track of money as it flows in and out of your company. Starting with the first penny you earn, you'll record in a general ledger each and every transaction using a double-entry system of debits and credits. Assets get recorded on the top or the left side of the balance sheet; liabilities and owners' equity are recorded on the bottom or the right side of the balance sheet.
The information on each company's general ledger is unique to that business; however, all companies classify their general ledger accounts as assets, liabilities or owners' equity. Businesses use more specific accounts within each classification, for example, "current assets" or "long-term liabilities," to organize and track their finances.


Assets


An asset is anything of value that your company owns — including cash. Assets get recorded on the balance sheet in terms of their dollar values. Remember, even if you used credit to purchase an asset, you still own it. Its full dollar value gets recorded on one side of the balance sheet as an asset, and the amount you owe gets recorded on the other side of the balance sheet as a liability. There are several types of assets
Current assets:These are assets with dollar amounts that continually change, for example, cash, accounts receivable,
inventory or raw materials your company uses to make a product. They are listed on the balance sheet in order of their liquidity,
or how fast they can be converted into cash.
Fixed Assets:

A transaction or event obligating the entity that has already occured. Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property  which cannot easily be converted into cash.This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed
Moreover, a fixed/non-current asset can also be defined as an
asset not directly sold to a firm's consumers/end-users. As an
example, a baking firm's current assets would be its inventory (in this case, flour, yeast, etc.), the value of sales owed to
the firm via credit (i.e. debtors or accounts receivable), cash
held in the bank, etc. Its non-current assets would be the oven
used to bake bread, motor vehicles used to transport
deliveries, cash registers used to handle cash payments, etc.
Each aforementioned non-current asset is not sold directly to
consumers.

Intangible Assets:
An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. A company brand name is considered to be an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.
Fictitious Assets:
Asset created by an accounting entity (and included under assets in the balance sheet) that has no tangible existence or realizable value but represents actual cash expenditure. The purpose of creating a fictitious asset is to  account for expenses (such as those incurred in starting a business) that cannot be placed under any normal account heading. Fictitious assets are written off as soon as possible against the firm's earnings.

:

The liability which is to be paid of at the time of
dissolution of firm is called fixed liability. Examples are
Capital, Reserve and Surplus.

Long-term liability:
The liability which is not payable within the next accounting
period is called long-term liability. Examples are Debentures
of a company, Mortgage Loan etc.

Current liability:
The liability which is to be paid of in the next accounting period is current liability.. Examples: Sundry, creditors,
Bills Payable and Bank overdraft etc.

Trade liability:
Liability which is incurred for goods and services supplied
or expenses incurred is called trade liability. Example; Bill payable and Sundry period.

Financial liability:
Liability which is incurred for financial purposes is called
financial liability. Example: Bank overdraft, load taken for a short period.

Contingent liability:
A contingent liability is one which is not an actual
liability but which will become an actual one on the
happening of some event which is uncertain. Examples: Bills
discounted before maturity, Liability of a case pending in
the court.


EQUITY

In accounting, equity is usually defined as the value
of the assets contributed by the owners. This is added to
the total income earned and retained by the company to give the company's total equity value. This description of equity is correct but very simplistic. A more profound description is really that used by the homeowner, that is, equity is the owner's value in an asset or group of assets. So the business raises funds without incurring debt and has no obligation to repay specific sums at specific milestones.

TYPES OF EQUITY

Share Capital:
Share capital (UK English) or capital stock (US English) refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. For example, a company can issue shares in exchange for computer servers, instead of purchasing the servers with cash.
The term has several meanings. In its narrow, classical sense, still commonly used in accounting, share capital comprises the nominal values of all shares issued, less those repurchased by the company.

LIABILITY
a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics:
Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;
A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;
A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement;
and,A transaction or event obligating the entity that has already occurred.Types of LiabilityFixed liability

Authorised share capital is also referred to, at times, as

registered capital. It is the total of the share capital which a limited company is allowed (authorized) to issue. It presents the upper boundary for the actually issued share capital.

Issued share capital is the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorized capital. Shares outstanding are those issued shares which are not treasury shares. These are all the shares held by the investors in the company.

Treasury shares are those issued shares which are held by the issuing company itself, the usual result of Issued capital can be subdivided in another way, examining whether it has been paid for by investors:

a buyback.

Subscribed capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ("unsubscribed capital").

Called up share capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments.Paid up share capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in installments ("calls-in-arrears").

Reserves:

Equity reserves are created from several possible sources:

Reserves created from shareholders' contributions, the most common examples of which are:

legal reserve fund - it is required in many legislations and it must be paid as a percentage of share capital

share premium - amount paid by shareholders for shares in excess of their nominal value Reserves created from profit, especially retained earnings, i.e. accumulated accounting profits, or in the case of nonprofits, operating surpluses. However, profits may be distributed also to other types of reserves, for example:

legal reserve fund from profit - many legislations require creation of the fund as a percentage of profits

remuneration reserve - will be used later to pay bonuses to employees or management.

translation reserve - arises during consolidation of entities with different reporting currencies.

Reserve is the profit achieved by a company where a certain amount of it is put back into the business which can help the business in their rainy days