SACE INTERNATIONAL (SACE-I)

ACCOUNTING STUDIES
Stage 2
Chapter 1:
The Role of Accounting (Part 3)
- Users and uses of Accounting Information
- Influences on Accounting Information

By:
Siti Salwa Mohamad
1
 Users of accounting information
Direct
Investor
Owner/ Shareholder
Creditor

External Indirect
Government
Employee/Trade
Two broad groups unions
of users of
accounting Economic planner
information Pressure groups

Management
Internal
BOD
 Internal Users
• Include all levels of management and other governing
bodies of an organisation, such as:
• owners,
• managers
• executives of clubs
• board of directors

• Makes decision on various aspects of the operation of

the organisation, such as:
• financing
• personnel
• production
• marketing
 External Users
 Individuals and organizations outside a company who want financial
information about the company.

 They make decisions for themselves regarding future investment in a

business, the provision of goods or services, or the extension of credit to
the business.

 They are interested in the organization’s performance and financial

position .

 They want to evaluate how efficiently and profitably management and the
organization have used the resource entrusted to them (financial stability
and returns on investment).
USES AND USERS OF FINANCIAL ACCOUNTING
INFORMATION

INTERNAL USES
USERS
Owners (sole Interested in profit earned from their
trader and investments in the business to financial
partnership) stability/ growth of business.

Managers/ To determine the level at which to conduct

Board of operations, to change pricing policy, to control
Directors customers accounts, to determine business
(corporation) expansion policy, sales trends of productions,
dividend payout, to borrow & repay loan.
USES AND USERS OF FINANCIAL ACCOUNTING
INFORMATION
EXTERNAL USES
USERS
Shareholders/ To decide whether to buy/ hold/ sell shares of the
investors company.

By referring to financial statements investors will

determine the ability of the company in the repayment
of dividends
Lenders/ To evaluate the risk of granting credit or
Creditors lending money.
To decide whether to allow for financial loan

By referring to financial statements lenders will

determine the ability of the business in repayment of
interest and the amount borrowed
 USES AND USERS OF FINANCIAL ACCOUNTING
INFORMATION
EXTERNAL USES
USERS
Suppliers of goods To decide whether to grant credit purchases of inventory
to businesses

By referring to financial statements suppliers will

determine ability of the corporations in the repayment of
debts

Government To decide on tax payments to government

agencies
By referring to financial statements government agency
will determine the amount of tax to be paid by
businesses.
USES AND USERS OF FINANCIAL ACCOUNTING
INFORMATION
EXTERNAL USES
USERS
Customers To decide whether remain loyal to products and to
consume products of businesses.

By referring to financial statements customers will

determine whether the products as highly demanded by
other customers

Employees To decide whether to stay in the businesses or find

another employers.

By referring to financial statements employees will

determine the ability of the businesses in repayment of
salary
 USES AND USERS OF FINANCIAL ACCOUNTING
INFORMATION
EXTERNAL USES
USERS
Financial Financial analyst, economists, journalists,
advisors/ researchers, trade unions, stockbrokers,
Analyst advisor statisticians, insurance and credit rating
industries, etc.

Pressure groups Eg: regional pressure groups, environmental

protection groups (to examine the organizations’
impact on the environment)
Etc. Business contact group, competitors, biz rivals,
those interested in mergers & takeovers,
Australian Securities Exchange, taxation
authorities.
INFLUENCES ON
ACCOUNTING
INFORMATION
 Influences on Accounting
Information

Australian Conceptual
Regulatory Frameworks Frameworks and
Accounting Standards

The Needs of the Technological

Accounting Entity Developments
 REGULATORY FRAMEWORKS

Australian Securities & Investments

Commission (ASIC)
 An independent
commonwealth
government body

 responsible for consumer

protection in
superannuation,
insurance, deposit taking
and from 2002, credit.
Australian Securities & Investments Commission (ASIC)

Role/ Functions
enforces and regulates company and financial services laws to protect
consumers, investors and creditors

keep the public informed of these matters through media

releases and our annual report

In specific, it regulates Australian companies, financial markets,

financial services organizations and professionals who deal and advise
in investments, superannuation, insurance, deposit taking and credit.

ASIC deals with complaints about misconduct or illegal activity by directors,

officers, company administrators, auditors etc.
 How ASIC can influence
accounting information

ASIC prescribes the format of reports and the standards

for the particulars of the reports and these are
mandatory for all companies.

ASIC also issues working guide for accountants which

contains policy statements, practice notes, class orders,
media releases & other materials from ASIC Digest of
particular relevance to accountants.
 REGULATORY FRAMEWORKS
Corporation Law of Australia
Corporations Act 2001:
 Registering a company.
 Company powers and how they are exercised.
 Contracts before registration.
 Selecting and using a name for company.
 Duties and powers of officers and employees.
 Powers of directors.
 Appointment, remuneration and cessation of appointment of directors.

Company Law Review Act 1998:

 Small business guide.
 Setting up a company.
 Company directors and company secretary (duties, liabilities &
appointment).
 Shares & shareholders.
 Returns to shareholders.
 Annual financial reports and audit. *refer to clause.
 Registering a company.
 How Corporations Law of Australia
can influence accounting information
* Clause on Annual financial reports and audit.

10.2 Financial Records

 Under the Corporation Law, all proprietary companies
must keep sufficient financial records to record and
explain their transactions and financial position & to
allow true and fair financial statements to be prepared &
audited.

 Financial records here means some kind of systematic

records of the company’s financial transactions – not
merely a collection of receipts, invoices, bank statements
and cheque butts. Financial records may be kept on
computer.
 REGULATORY FRAMEWORKS
Australian Stock Exchange (ASX)
Objectives:
 Providing a fair and well-informed market for
financial securities; and
 Providing an internationally competitive
market.
ASX’s Listing Rules deal with listing and
quotation, market information, trading and
settlement, and general supervisory matters.
The principles on which Listing Rules are
based embrace the benefits of listed entities,
maintenance of investor protection and the
need to protect the reputation of the market.
 How ASX can influence
accounting information
* Clause in Listing Rules :

Ongoing reporting
• Financial reporting is required on a half yearly and
annual basis in Australia.  Certain companies that
are listed under a listing category for companies
without a track record of revenue or profit are
required to also prepare and file quarterly cash
flow statements. In addition, mining and oil & gas
exploration companies are required to file quarterly
reports on activities including changes in
tenement interests, issued and quoted securities.
 REGULATORY FRAMEWORKS

Australian Taxation Department

Is the Federal Government’s main revenue

collection agency.

AIM: to manage and shape

the revenue systems that
sustain social and economic
policy and fund services for
Australians.
Australian Taxation Department

Role/ Functions

To administer legislation for taxes,

superannuation and excise (except custom duty).

Address broader issues affecting Australia’s revenue

system, such as aggressive tax planning, persistent tax
debtors, globalization and the cash economy.

Support the delivery of community benefits, with roles

in other areas such as private health insurance, family
assistance and cross-agency support.
 How Australian Taxation can
influence accounting information
* Clause :

“Businesses self-assess their own

indirect taxes. For tax periods starting
on or after 1 July 2012, we will take the
information you submit on your activity
statements (about what you owe or
expect to be refunded) as your tax
assessment under indirect tax laws.
Your activity statement will be treated
as your notice of assessment, issued on
the day you lodge.”
AUSTRALIAN CONCEPTUAL FRAMEWORK & ACCOUNTING
STANDARDS

Australian Accounting Standards Board (AASB)

 Supported by the government and the Australian

Accounting Research Foundation (AARF).
 All accounting standards issued by
the AASB and which are allowed
by the Commonwealth Parliament
become Applicable Accounting
Standards which must be adhered
to by company directors when
preparing financial statements.
 Australian Accounting Standards Board (AASB)

Role/ Functions
responsible for developing and issuing
AASB Accounting Standards (AASBs)

the “care & maintenance” of the body of

standards

to develop a Conceptual Framework for

the purpose of evaluating proposed
Accounting Standards.

Its functions and powers are set out in the

ASIC Act 2001.
 Australian Accounting Standards Board (AASB)

How AASB can influence accounting information

AASB Standards issued from 2000 onwards apply to all types of

entities and the AAS series will be phased out over time.

Members of CPA Australia, the Institute of Chartered Accountants in

Australia and the National Institute of Accountant have to ensure
that entities with which they are involved comply with Accounting
Standards in preparing their general purpose financial reports.

The AASB monitor its work program on an ongoing basis. Each year
the AASB prepares a Business Plan, which includes a work program,
for submission to the AASB’s oversight body, the Financial Reporting
Council (FRC).
AUSTRALIAN CONCEPTUAL FRAMEWORK & ACCOUNTING
STANDARDS

Australian Accounting Research Foundation

(AARF)

 Was established jointly by

CPA Australian (CPAA) or
ASCPA and The Institute
of Chartered Accountants
in Australia (ICAA) on 23
November 1996
Australian Accounting Research Foundation (AARF)

Objectives:
To improve the quality of auditing and
assurance services in Australia through the
development of auditing and assurance
standards and guidance.
Contribute to the development of
international auditing and assurance
standards and guidance.

Contribute to the development of legislation and

regulation in Australia in respect of commercial
law, including corporate governance, financial
reporting and auditing matters.
AUSTRALIAN CONCEPTUAL FRAMEWORK & ACCOUNTING
STANDARDS
International Accounting Standards Board (IASB) &
International Accounting Standards Committee
Foundation (IASCF)
 IASB is an independent standard setting
board with 12 full-time and 2 part-time
members which aims to develop a
comprehensive set of accounting
standards for application world-wide.
 The activities and funding of the IASB are
overseen by the IASCF
 AASB is one of the 8 national setters with
which the IASB conducts formal liaison. A
member of the IASB has been designated
as Australia’s liaison member and attends
the AASB meetings as an observer.
 IASB & IASCF

Principal responsibilities:
Develop and issue IFRSs and exposure drafts, and
Approve interpretations develop by IFRIC.
Objectives:
To develop in the public interest, a single set of
high quality, understandable and enforceable
global accounting standards
To promote the use and rigorous application of those
standards
To bring about convergence of national accounting
standards and International Accounting Standards to
high quality solutions.
AUSTRALIAN CONCEPTUAL FRAMEWORK & ACCOUNTING
STANDARDS
Australian Conceptual Framework
(Framework for the Preparation and Presentation of
Financial Statement)

 Issued by IASB

 It sets out the concepts

that underlie the
preparation and
presentation of financial
reports for external users.
 Australian Conceptual Framework

Purpose of the framework:

Assist the AASB in the development of future
Australian Accounting Standards and in its review of
existing Australian Accounting Standards

Assist the AASB in promoting harmonization of

regulations, accounting standards and procedures
relating to the presentation of financial reports by
providing a basis for reducing the number of
alternative accounting treatments permitted by
Australian Accounting.

Assist preparers of financial reports in applying

Australian Accounting Standards and in dealing with
topics that have yet to form subject of an Australian
Accounting Standards
 Australian Conceptual Framework

Purpose of the framework:

Assist auditors in forming an opinion as to whether
the financial reports conform with Australian
Accounting Standards;

Assist users of financial reports in interpreting the

information contained in financial reports prepared
in conformity with Australian Accounting Standards

Provide those who are interested in the work of the

AASB with information about its approach to the
formulation of Australian Accounting Standards.
 Australian Conceptual Framework
Main issues covered:
 Objectives of financial reports;
 Assumptions underlying
financial reports;
 Qualitative characteristics of
financial reports;
 Elements of financial reports;
and
 Recognition criteria for the
elements of financial
statements.
**The framework will be revised from time to
time on the basis of the Boards experience of
working with it.
 Australian Conceptual Framework
The conceptual framework deals with general concepts
& applications.
Statement of accounting concepts (SACs)
 SACs provide definition of basic terms and
rules that affect accounting procedures.
 These are not currently enforceable by law
but give guidelines upon which financial
decisions are based.
 SAC 1 Definition of the Reporting Entity
 SAC 2 Objective of General Purpose
Financial Reporting
 SAC 3 Qualitative Characteristics of
Financial Information
 SAC 4 Definition and Recognition of the
Elements of Financial Statements
THE NEEDS OF THE ACCOUNTING ENTITY
 Presentation of accounting information is
influenced by the needs of the accounting
entity

 Classification of information in reports must

be done in a way that is useful to statement
users.

 Businesses need various types of

information for decision making and control
and therefore require information to be
presented in various ways, e.g. departmental
reports and staff sales reports may be used
in the process of appraisal.
TECHNOLOGICAL DEVELOPMENTS
 Accounting systems are increasingly
becoming computerised as software
and hardware become cheaper.

 Reports can be now be design in

different formats and information
can be processed quickly, easily and
more efficiently as accounting
software packages are fully
integrated.
TECHNOLOGICAL DEVELOPMENTS
 Information can now be provided more
regularly and accurately in a format
required by statement users. This
supports the qualitative characteristics of
financial information.

 Examples of accounting software:

Mr Accounting
MYOB
UBS
SQL
First Accounting
SOCIAL AND ETHICAL ISSUES
Social issues - active society
 Influence the way businesses operate and perform.
 Influence the way accounting information is reported.
 Sustainable development- “triple bottom line reporting”

**towards greater transparency & accountability in public

reporting & communication is reflected towards more
comprehensive disclosure of corporate performances
 includes: environment, social, and economic
dimension.
 Eg: sustainability report, CSR report.