Tutor 2

Chapter 10 + Chapter 2
First hour activity DQ 10.1, 10.4, 10.6 DQ 10.8, DQ 10.9, Ex 10.10
DQ 2.1 DQ 2.10
DQ10.1 Outline the regulatory process in Australia in relation to accounting
standard setting, and discuss the influence of international bodies in the
standard‐setting process.

DQ10.4 Briefly explain the nature of the Conceptual Framework for Financial
Reporting, and discuss the perceived advantages and disadvantages of having a
conceptual framework.
A conceptual framework of accounting theory

- develop standards which are consistent and logically formulated

- provide guidance to accountants in areas of accounting where standards have not

been established

- enable standard users to better understand standards and proposed standards.

Advantages:

- develop a common conceptual framework that is both complete and internally

consistent.

- provide a sound foundation for developing future accounting standards that are
principles-based, internally consistent, internationally converged, and that lead to
financial reporting which provides the information needed for investment, credit,
and similar decisions
Disadvantages:

- the cost of developing the framework versus the benefits.

- since it is not compulsory for standard setters to follow the conclusions of the
conceptual framework, will it be ignored?
- Factors that Cynthia
needs to consider in
selecting an
appropriate structure
for her
- business include:
- Simplicity in setting


up the business: sole

traders and small
partnerships are
- easier to set up
compared to
companies.
- Establishment costs:


companies are more

 expensive to establish
compared to sole
- traders and
partnerships.
- Liability issues: sole


traders and
partnerships have
unlimited liability,
which
- means owners and
partners are
personally liable for
their business’ debts,
- including those
resulting from lawsuits
 or the actions of other
partners. If
- unlimited liability is a
concern, then Cynthia
may want to consider
setting up a
- company instead of
being a sole trader or
partnership.
- Tax: tax reporting


requirements for
companies are far
greater than for sole
traders
- and partnerships.
- Control of the


business: as an owner
of a sole trader,
Cynthia would have a
- complete control over
her business. If she
chooses to partner
with someone
- through a partnership,
she will need to
discuss business
matters with her
partner.
- If Cynthia decides to
set up a company and
employs a
 management team,
she
- may not have as much
control in running the
business as it will be
the
- responsibility of the
management team.
DQ2.1Factors that Cynthia needs to consider in selecting an appropriate structure for her
business include:

- Simplicity in setting up the business: sole traders and small partnerships are easier to
set up compared to companies.

- Establishment costs: companies are more expensive to establish compared to sole

traders and partnerships.

- Liability issues: sole traders and partnerships have unlimited liability, which means
owners and partners are personally liable for their business’ debts, including those
resulting from lawsuits or the actions of other partners. If unlimited liability is a
concern, then Cynthia may want to consider setting up a company instead of being a
sole trader or partnership.

- Tax: tax reporting requirements for companies are far greater than for sole traders and
partnerships.
- Control of the business: as an owner of a sole trader, Cynthia would have a complete
control over her business. If she chooses to partner with someone through a
partnership, she will need to discuss business matters with her partner. If Cynthia
decides to set up a company and employs a management team, she may not have as
much control in running the business as it will be the responsibility of the
management team.

- Access to capital: the access to finance for a sole trader is limited to the owner’s
resources. On the other hand, a partnership has greater access to capital from
resources of all partners, and a company has even far greater access to capital from
various shareholders.