Accounting Standards Overview

Accounting Standards

• Standards are instructions and guidelines for financial reporting policies and practices
• They are technical documents outlining how businesses should complete specific elements in recording transactions
• They are mandatory (legally required) for all reporting entities

Purposes and Advantages of Accounting Standards

Protecting External Users

• Help external users by ensuring accounting reports of public companies contain relevant and faithfully represented information on company performance
• Assist external users (creditors, investors) to analyze and make informed judgments about entities
• Facilitate the provision of financial information and comparable reports

Assisting Directors

• Assist directors in performing their duties
• Ensure financial statements accurately reflect company performance
• Assist prepares of financial reports by giving them a framework and benchmarks, facilitating accountability and promoting accurate reporting
• Ensure directors of public companies are held accountable, regarding the large amounts of money invested in these organizations
• Providing confidence to investors in the Australian capital markets

Effect on Performance and Economy

• Concern for shareholders, reflected in high quality standards, has a profound effect on the performance of individual companies, and the health of the economy
• Enables Australian companies to compete effectively overseas
• Helps reducing the cost of capital

Accounting Bodies

Financial Reporting Council (FRC)

• Oversees appointments and budgets for AASB.
• Provides broad strategic direction
• Has a major indirect influence on the development of Accounting Standards companies are required to follow

International Accounting Standards Board (IASB)

• Appointed, funded and overseen by the IASCF (International Accounting Standards Committee Foundation)
• Develops a set of high-quality global accounting standards (IFRS)
• Transparent and comparable standards
• Collaborates with national accounting standards setters

Australian Accounting Standards Board (AASB)

• Independent accounting standards organization based in Melbourne
• Develops a conceptual framework for evaluating proposed accounting standards
• Develops and issues accounting standards (force of law for all reporting entities in Australia)
• Refers to IASB during the preparation of accounting standards.
• Participates in and contributes to the development of a single set of Accounting Standards for worldwide use

Australian Securities and Investments Commission (ASIC)

• Issues interpretations of accounting standards (in the form of Practice Notes)
• Monitors compliance with standards
• Refers practice issues to AASB for possible amendments
• Receives, processes and stores information given
• Regulates and informs the public about Australian companies

Lobby Groups

• Attempt to influence standard setting, with reference to their industry goals or interests
• Methods include:
  • Being appointed to FRC or AASB
  • Being appointed to committees or advisory groups
  • Involvement in the standard-setting process
  • Engaging in public debate on issues related to accounting standards

This quiz covers the essential aspects of accounting standards, including their purpose, advantages, and the protection they offer to external users. Learn how these standards guide financial reporting practices and support directors in maintaining company accountability. Test your knowledge on the implications of these technical documents in real-world financial scenarios.