Hello I am currently a 3rd year accounting student, I am based in Australia and study at QUT. I just started
semester 2 2019 and was wondering if I could get some feedback with my financial accounting questions. I have a series of questions I have answered, although I was wondering if they were correct or not. If I have any errors please help me identify them. All of my answers are based off my lecture slides and AASB PDF's , although I am unable to upload my lecture slides through course hero, as I do not know how to do so and each time I do the website says the document is not supported.
My Questions and Answers
Discuss briefly the eight overall considerations to be applied in the presentation of financial statements?
In terms of these discuss the following statements:
(1) Offsetting is permitted under what circumstances. Give an example.
1) Fair Presentation and Compliance with Australian Accounting Standards
a. Financial Statements are required to 'present fairly' on an entity's financial position, financial performance and cash flows.
b. This is achieved by company's
i. Complying with Australian accounting standards, and where necessary, including additional disclosures to explain events.
2) Going Concern
a. Financial Statements for an entity are prepared on a going concern basis, unless management needs to liquidate or cease trading
3) Accrual Basis of Accounting
a. Applied to financial statements other than the statement of cash flows, which is prepared on a cash basis
4) Materiality and Aggregation
a. Each material class of similar items must be presented separately in the financial statements, e.g. assets, liabilities, revenue, expenses.
b. If however the class of items are immaterial it can be aggregated with other similar items either in the financial statements or in the notes
a. Assets and Liabilities, and income and expenses are not to be offset unless required or permitted by an Australian accounting standard
b. Offsetting is another term for netting - company's assets and liabilities shown on the balance sheet on a net basis eg a debt offset - a debt to a company A is offset by an invoice/bill owed by company A
c. Why no offsetting? Detracts from the ability of users to understand the entity's future cash flows
6) 6 Frequency of Reporting
a. A Company Must present a complete set of financial statements including comparative information at least annually
7) Comparative Information
a. AASB 101 requires disclosure of comparative financial information in respect of the preceding period for all amounts required to be reported in the current period's financial statement.
8) Consistency of Presentation
a. There must be a consistency of presentation and classification of items in the financial statement from one period to the next unless:
i. There has been a significant change in the entity operations
ii. A change in presentation or classification is warranted to provide more relevant information
iii. Or a change in presentation or classification required by another accounting standard.
Offsetting is permittied If the entity (AASB 112, Section 70)
- Has a legally enforceable right to set off the recognised amountsl and
- Intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
An example is - Eg . (AASB 112 Section 72 "An entity will normally have a legally enforceable right to set off a current tax asset against a current tax liability when they relate to income taxes levied by the same taxation authority and the taxation authority permits the entity to make or receive a single net payment"
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