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BUSN7050
Corporate Accounting Course details • This course covers: – the characteristics of the Australian accounting environment and its financial reporting requirements for companies – accounting for non-current assets (revaluation, impairment) and intangible assets – accounting for income tax – accounting for foreign currency – accounting for financial instrument – accounting for leases – accounting for provision and contingent liabilities – a comprehensive coverage of consolidation issues – accounting for owners’ equity (share capital and reserves) Research School of Accounting 4 Learning outcomes • Outcome 1: An understanding of the regulatory environment in which the companies are formed and operate in Australia. • Outcome 2: A solid foundation in accounting and reporting requirements of the Corporations Act and relevant Australian Accounting Standards Board (AASB) accounting standards. • Outcome 3: A comprehensive understanding of the advanced issues in accounting for assets, liabilities and owner’s equity. • Outcome 4: The ability to account for a range of advanced financial accounting issues. Research School of Accounting 5 Learning outcomes • Outcome 5: An understanding of the accounting requirements for a corporate group and familiarity with the theory underlying the methods used to account for inter-company investments. • Outcome 6: The ability to prepare consolidated accounts for a corporate group. • Outcome 7: The ability to analyse complex issues, to formulate well-reasoned and coherent arguments and to reach well considered conclusions. Prescribed Textbook Research School of Accounting 6 Loftus, J., Leo, K., Boys, N., Daniliuc, S., Luke, B., Ang, H. and Byrnes, K., 2022. Financial Reporting, 4th ed, Wiley. Purchase options: Purchase direct from Wiley: • Textbook + Interactive E-Text Code • Wiley special offer Wiley, has launched Wiley Business Now – giving students access to all Wiley’s Business E-text titles for a low-cost monthly subscription For Semester 1 only they are offering access to the required E-text for this course (+more!) for only one payment of $6.95, for the whole semester! You’ll also have access to practice questions, quizzes, video content to help understand complex themes and you can highlight, bookmark, make notes, and generate automatic citations. Subscribe here, or find out more! 7Course administration • Students taking this course are expected to commit at least 10 hours a week to completing the work. • This will include: – 2 hours a week: lecture – 1 hour a week: tutorial – 7 hours a week: private study • Course delivery – Live and Echo360: available on&after scheduled lecture time – Live in-person and online tutorial: no recording. You must attend your enrolled tutorial. Research School of Accounting 8Assessment Tutorial preparation needs to show serious attempts at ALL the questions. Attempts at less than 60% questions will get 0 mark. Attempts at more than 80% questions can get 0.5 mark. Tutorial attendance will be recorded. 1 mark, 0.5 mark and 0 mark will be allocated. The mid-semester and final examinations are compulsory and not redeemable. You do not have to obtain 50% or more for one single assessment element but must obtain 50% or more as total final mark to be eligible for a pass grade in the course. Research School of Accounting Assessment items Description and detail of the assignment Due date % Tutorial participation and preparation Students are required to attend their assigned tutorial each week; Tutorial preparation to be submitted on Turnitin by 09:00 on Wednesday Every week from week 2 onwards (deadline) 5 5 Mid Semester Examination Covering material from Lectures 1-5 inclusive Week 6 or 7 40 Final Examination Covering material from Weeks 6-12 inclusive Final exam period 50 9Tutorials Research School of Accounting • All of the tutorial questions provided on Wattle are to be attempted prior to attending the tutorials. • Your preparation will gain you credits!! • Your participation will gain you credits and confidence!! • The tutorial questions will be available after each lecture • The solutions to the questions will be made available on Wattle from 17:00 on each Thursday 10 Lecture 1 Accounting regulation, the conceptual framework and revenue recognition Readings: Chapters 1 and 16 from the prescribed textbook Sub-topics: • The nature of a company • Forming a company • Types of companies • Key sources of accounting regulation • Main bodies of accounting regulation • Australian accounting standards • International Accounting Standards Board • Conceptual framework • Revenue recognition Research School of Accounting 11 1. The nature of a company • A company is a legal entity: – incorporated via registration by Australian Securities and Investments Commission (ASIC) – subject to requirements of Corporations Act 2001. • A company has the following attributes: – limited liability (or no liability for mining companies) – its own separate legal existence – legal powers of a natural person – right to own assets and enter contracts – right to sue and be sued. Research School of Accounting 12 What does it mean that a company has limited liability? A. only managers are legally responsible for the debts of a company. B. only some shareholders are legally responsible for the debts of a company. C. shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares. D. shareholders are legally responsible for the debts of a company only to the extent of the (part of the) nominal value of their shares already paid. In-class quiz 1. Research School of Accounting 13 2. Forming of a company • To register a company, a person lodges the prescribed application form with ASIC. • A certificate of registration and an Australian Company Number (ACN) are issued. • To deal with issues relating to directors and members and the day-to-day management, a company might use: replaceable constitution rules Research School of Accounting 14 3. Types of companies • Public companies – minimum 1 member, no maximum number – minimum of 3 directors – can invite public to subscribe for securities, but it’s not required to have a share capital (can be limited by guarantee) – can list on Australian Securities Exchange (ASX) – must prepare financial statements in accordance with the accounting standards and have them audited. Research School of Accounting 15 3. Types of companies • Proprietary (Pty) companies: – minimum of 1 member/shareholder, maximum of 50 – minimum of 1 director residing in AU – cannot raise funds from the public, but required to have a share capital. Research School of Accounting 16 4. Sources of accounting regulation • The major sources of financial reporting regulation in Australia are: – The Corporations Act 2001 – Australian Accounting Standards – The Conceptual Framework for Financial Reporting (Conceptual Framework) – ASX Listing Rules. Research School of Accounting 17 5. Main bodies of accounting regulation • The five main bodies that formulate and/or enforce accounting regulations in Australia are: 1.The Australian Securities and Investments Commission (ASIC). 2.The Australian Securities Exchange (ASX). 3.The Australian Accounting Standards Board (AASB). 4.The Financial Reporting Council (FRC). 5.Australian Prudential Regulation Authority (APRA) Research School of Accounting 18 5.1. ASIC • ASIC is Australia’s corporate, markets and financial services regulator. • ASIC undertakes financial reporting surveillance with the purpose of improving the quality of financial reporting. • The role of the ASIC is to enforce and regulate company and financial services laws: – administers and monitors implementation of the Corporations Act and investigates and prosecutes for breaches – promotes confidence in the financial system Research School of Accounting 19 5.1. ASIC Research School of Accounting The Corporations Act 2001 • The Corporations Act requires preparation of a financial report and a Directors’ Report for each financial year for all: – disclosing entities – public companies – large proprietary companies • In limited circumstances, some small proprietary companies may be required to prepare a financial report and directors’ report in directed to do so by shareholders or the ASIC – registered schemes 20 5.1. ASIC Research School of Accounting The Corporations Act 2001 • Disclosing entity: With few exceptions, entities whose securities are listed on a securities exchange are disclosing entities. • Public companies: Any company other than a proprietary company. • Large proprietary company • Registered scheme: Registered scheme refers to a managed investment scheme that is registered under s.601EB of the Corporations Act. 21 5.1. ASIC Research School of Accounting The Corporations Act 2001 • Small proprietary company (1 July 2019): • must satisfy at least two of the following criteria: – Consolidated revenue for financial year is < $50 million. – Consolidated gross assets at end of financial year is < $25 million. – Fewer than 100 employees at end of financial year. 22 5.2. ASX Australian Securities Exchange Group • Listing rules help ensure that information is disseminated in an efficient and timely manner. Failure to comply may lead to removal from the Board. • ASX Listing Rules divided into 20 chapters - key are Chapter 3 (continuous disclosure) and Chapter 4 (periodic disclosure). • Primary focus on disclosure • Listing Rule 3.1 provides the general principle that: – once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell the ASX that information.Research School of Accounting 23 5.3. Australian Prudential Regulation Authority (APRA) • APRA is the prudential regulator of the Australian financial services industry. • The aim of APRA’s supervision is to promote financial stability by requiring institutions to manage risk prudently so as to minimise the likelihood of financial losses to depositors, policy holders and superannuation fund members. • APRA identifies the key risks taken by an entity, ensures the risks are adequately measured, managed and monitored, and assesses the adequacy of the entity’s financial resources to accommodate potential losses. Research School of Accounting 24 5.4. FRC • Australian accounting standard-setting institutional arrangements Research School of Accounting 25 5.4. FRC • Functions and powers of the FRC: − provide broad oversight of the process for setting accounting and auditing standards − appoint members of the AASB − approve and monitor the AASB’s priorities, business plan, budget and staffing − give the AASB directions, advice or feedback on matters of general policy − no power to direct AASB in the development or making of particular standards − no power to veto a standard formulated and recommended by AASB. Research School of Accounting 26 The role of the Financial Reporting Council is to provide broad oversight of the process for setting standards in Australia, including the authority to direct the AASB to develop, amend or revoke a particular standard. A. True B. False In-class quiz 2. Research School of Accounting 27 5.5. AASB • Operates from 1991, replacing the Accounting Standards Review Board. • Functions (under s. 227 of ASIC Act) include: – developing a conceptual framework – making accounting standards that have force of law under s. 334 of the Corporations Act – formulating accounting standards for entities not governed by the Corporations Act – participating in and contributing to the development of a single set of accounting standards for worldwide use. • AASB reports to the Financial Reporting Council (FRC). Research School of Accounting 28 6. International Accounting Standards Board • IASB is an independent, privately funded accounting standard setter. • Overseen by the IFRS Foundation. • Established in 2001, replacing the International Accounting Standards Committee (IASC). • Committed to the development of a single set of high quality, enforceable global accounting standards. • IASB releases IFRS following public consultation. Research School of Accounting 29 6. International Accounting Standards Board • IASB has an IFRS Interpretations Committee: – ‘official’ interpretative arm of the IASB – reviews on a timely basis accounting issues that have arisen within the context of current IFRSs and provides authoritative guidance on those issues – provides guidance on issues not covered in IFRSs – provides interpretations of existing requirements within IFRSs. • IFRS Interpretations Committee’s interpretations are adapted by the AASB to suit the Australian environment. (AASB 1048 Interpretation of Standards) • Interpretations have the force of law. Research School of Accounting Research School of Accounting 30 The main benefits of Australian adopting IFRS may include: A. increasing the comparability of financial reports prepared in different countries so that capital ultimately flows to entities that can use it the most productively. B. reducing the financial reporting costs for Australian multinational companies. C. removing barriers to international capital flows by reducing differences in financial reporting requirements and so increasing understanding by foreign investors of Australian reports. D.all of the given answers. In-class quiz 3. 31 7. Australian accounting standards • The s 224 of the ASIC Act requires that accounting standards developed by the AASB to provide financial information that: – allows users to make decisions about the allocation of scarce resources – helps directors discharge their financial reporting obligations – is relevant to assessing performance, financial position, financing and investment – is relevant and reliable, facilitates comparability and is readily understandable – reduce the cost of capital and enable Australian entities to compete effectively overseas. Research School of Accounting 32 7. Australian accounting standards • Before making or formulating a standard, s 231 of ASIC Act requires AASB to carry out a cost–benefit analysis – unnecessary when adopting an international standard. • Once the AASB makes a standard it is approved by Commonwealth Parliament. • Directors are required to ensure that the company’s financial statements comply with that standard. What if directors believe the standards are not appropriate? Research School of Accounting