Week02_Practice_Question_Solutions - Week 2 Practice...

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Week 2 Practice Questions 11.1 Explain the relationship between the Corporations Act and the accounting standards in the production of compulsory company reports. The obligation to prepare and distribute audited general purpose financial reports arises from Part 2M.3 of the Corporations Act. The obligation to comply with Accounting Standards arises in two ways: (i) To satisfy the general requirement that the financial report (the financial statements specified in accounting standards (s. 295(1) (a) and (b)) and the notes to the financial statements) give a true and fair view of the matters required by the Act (s. 297). The Courts have held that prima facie those financial reports must adhere to Accounting Standards to give a true and fair view. (ii) In addition, the financial report must comply with AASB standards [annual financial report – s. 296(1); half year financial report – s. 304]. (iii) The obligation to present consolidated accounts is likewise specified in accounting standards [annual financial report – s. 295(2) (b); half-year financial report – s. 303(2) (b)]. The application of accounting standards is subject to contrary requirements of the Corporations Act or the regulations [see s. 334(1)]. Most AASB standards only apply to those companies (and other entities subject to Part 2M.3) that are reporting entities. Since small proprietary companies are not required to comply with s. 296(1) or s. 304, they do not have to comply with AASB standards to satisfy the Corporations Act (except when required by a member request or an ASIC direction under s. 293 or s. 294). The core accounting standards, AASB 101, AASB 107, AASB 108, AASB 1031 and AASB 1048 apply to all entities required to present financial reports under Part 2M.3. 11.4 What is the role of the notes to the financial statements included a financial report? The obligation to provide notes is imposed by s. 295(3) (or for half-years, s. 303(3)). The role of notes to financial statements is to provide additional information to that included in the individual financial statements. They are: (a) disclosures required by the regulations; and (b) disclosures required by the accounting standards; and (c) any other information necessary to give a true and fair view. Therefore the notes can serve one or following functions: to provide detail of information provided in summary form in the financial statements; to explain how information included in the financial statement has been prepared (for example, statement of accounting policies);
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to provide information on events or transactions that do not satisfy the recognition criteria for elements of financial reporting (for example, contingent liabilities and some post reporting date events); to provide additional disclosure required by individual accounting standards; and to provide additional disclosures (to those expressly required by the Corporations Act, the regulations and accounting standards) that are necessary to satisfy the overriding
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.

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Week02_Practice_Question_Solutions - Week 2 Practice...

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