Week 1 1B2013s2 WK1 HANDOUT

Research foundation 7 8 reporting entity the

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Unformatted text preview: individual entity, Other times a reporting entity will comprise a group of entities, some of which individually may be reporting entities. One of the entities (i.e. the parent entity) within the group will control the other entities so that they operate together to achieve objectives consistent with those of the controlling entity. The group will issue consolidated general purpose financial reports regarding the collective operation of the group of entities. !  Objective of general purpose financial 9 reporting. !  The qualitative characteristics that determine the usefulness of information in financial statements; !  The definition, recognition and measurement of the elements from which financial statements are constructed; - i.e. assets, liabilities, equity, expenses and revenue. 10 Objective of financial reports So what is useful information? “The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions” (para 12) “The economic decisions that are taken by users of financial statements require an evaluation of the ability of an entity to generate cash and cash equivalents and of the timing and uncertainty of their generation” (para. 15) -Balance Sheet " Financial Position. -Cannot accommodate all users’ complete information needs, as information is financial in nature, and portray financial effects of past transactions. (para 13) -also show the stewardship of management. (para 14) 11 -Income statement " Financial Performance. -Cash Flow Statement " Cash Inflows and Outflows. 12 L2 The Framework Principles Underlying Accounting Conventions !  Understandability !  Relevance !  What attributes should financial information possess to be useful and satisfy the users’ evaluation of financial reports? !  Purpose is to identify those attributes or qualitative characteristics that financial information should possess if it is to serve the objective of general purpose financial statements. –  Materiality !  Reliability –  Faithful representation •  Substance over form •  Neutrality •  Prudence Assumptions !  Accrual basis !  Going concern !  Accounting period !  Economic entity !  Monetary unit !  Historical Cost –  Completeness !  Comparability 13 14 Understandability Relevance !  Information has the quality of relevance when it !  Information needs to be readily influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluation. (para. 26) understandable by users (para 25) –  Users assured to have reasonable knowledge of business, accounting, etc. (Which is why you are studying this even though you may never work as an accountant when you graduate) –  That does not mean that we exclude things just because they are complex....
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This note was uploaded on 09/22/2013 for the course ACCT 1511 at University of New South Wales.

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