Flashcards
Financial Accounting Theory - Module 2
Cards in this deck (15)
- 1What is an Accounting Standard?AS are normative theories as they prescribe (tell) accountants how certain accounting transactions should be done. Do not cover all accounting transactions but specific issues. Typically have code name. Typically developed by the Accounting Standards Board. Australia has now adopted IAS.
- 2What is an Accounting Standard Setter?Body that developed accounting standards as the AASB or the IASB. These boards follow a process of identifying need for a accounting standard, drafting it and requesting feedback from interest external parties, revising and then putting out final version or scrapping the standard.
- 3What is a General Purpose Report?The process of financial accounting leads to the generation of reports which are GPFRs. These reports are for general use by wide range of users . Examples are Statement of Fin Pos (BS), Statement of Fin Perf (Profit and Loss/Income Statement). GRFP are also financial statements that comply with AS and GAAP.
- 4What is a Special Purpose Report?These reports are those that meet specific information needs of specific users. Usually prepared for those who have power to demand them from a company such as the taxation office, audit office, banks who provide big loans or large shareholders. No prescribed format as it is up to individual users to determine what information they want and how it should be presented
- 5What is the Conceptual Framework (CF) of Accounting?FASB definition 'a coherant system of interralted objectives and fundamentals that is expected to lead to consistent standards'. CFs are normative theories as they prescribing the general framework for accounting practice. CFs are not always mandatory but act as a reference guide for accounting standard setters making new standards and a reference framework for accounting practioners where there is no accounting standards to tell them how to complete a particular type of transactions. Typically made of building blocks that cover topics like objective of financial reporting, who the users of financial reports are, the qualitative characteristics of FR, the definitions of the elements of FR
- 6What is the Framework for the Preparation and Presentation of Financial Statements?Name of the Australian Conceptual Framework following the adoption of IAS
- 7What are Highlight Statements?Statements chosen by the individual company including certain information based on what is contained in the companies actual financial statements. These can include certain ratios or profit or sales figures and can cover one or several years. Not mandatory and vary from one company to another. Typically found in the voluntary parts of annual reports.
- 8What is Professional Accounting Body?represent the interest of members of the accounting professions. Australia has severl main profession body with two major ones being CPA Australia and CA in Australia. Professional accountants are people who are registered members of these. Professional bodies set core requirements for approved accounting degrees and lobby on accounting standards, business regulations.
- 9What is Disclosure?The is the process of providing information
- 10What is Regulation?Regulation of legislation is prescribed by law. This means it has been developed by official government agency or has been passed through fed or state parliament. Mandatory disclosure requirements are those required by regulation or legislation.
- 11What are Markets (share, stock or equity)?Commonly known as share, stock or equity markets and are the entities which process the trading of shares and publish share prices such as the ASX.
- 12What is Public Interest Theory?Theory that is commonly used to discuss the process undertaken in developed (or even non development) of regulation. PIT assets that the Government is a neutral arbiter and develops regulation based on he interests of the public. Government is not seen to have any self-interest
- 13What is Capture Theory?Theory used to discuss the process of regulation development. CT assets that Government initially brings in regulation that is the public interest but that process or the regulatory body itself ends up being taken over by the group that was originally subject of regulation. An example is the AASB in the 1980s which was brought in by the Governmemt but then became dominated by professional accounting body members.
- 14What is Economic Interest Group (Private Interest) Theory?Another theory used to discuss process of regulation development. Theory asserts that interest groups form and it is the power of those interest groups that affects what type of regulation we get. Government or the regulator are also seen as an interest group as government wants to stay in power but develop and amend regulation based on which interest group can best support their goal of staying in power. These is no notion of public interest in this theory.
- 15What is Professional JudgementBased on the fact that there are many aspects of what an accountant has to do that are not covered by requirements in accounting standards or regulation. This means it is up to accountant to sometimes determine if an item is material of which method/rate of depreciation will be used with certain assets. PJ may also be requirement to determine if an entity is a "reporting entity" or whether an asset of liability should be recognised. PJ based on the fact accountants have choices.
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