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Accounting Standards in Australia

The document discusses accounting regulations and standards in Australia. It provides context for why accounting regulations developed, tracing it back to the growth of joint stock companies in the late 19th century. It notes the current body that sets accounting standards in Australia is the AASB under the Financial Reporting Council. Finally, it discusses the concept of a reporting entity, which accounting standards apply to, and notes the concept is being replaced by a focus on whether an entity prepares general purpose financial statements and is publicly accountable.

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29 views1 page

Accounting Standards in Australia

The document discusses accounting regulations and standards in Australia. It provides context for why accounting regulations developed, tracing it back to the growth of joint stock companies in the late 19th century. It notes the current body that sets accounting standards in Australia is the AASB under the Financial Reporting Council. Finally, it discusses the concept of a reporting entity, which accounting standards apply to, and notes the concept is being replaced by a focus on whether an entity prepares general purpose financial statements and is publicly accountable.

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© All Rights Reserved
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ACW2120 Financial Accounting 2, Semester 1, 2020

Tutorial Solution Topic 1 –Regulation of Companies


CHAPTER 1
REVIEW QUESTIONS

10. What are the main reasons for the development of accounting regulations?
The history of accounting regulation had its origins in the industrialised European settlement of the
late 18th century. The social, political and economic changes which occurred saw the gradual decline
of the importance of family enterprises and the separation of ownership from control as the control
of entities was delegated by owners to agents. The growth in the number and size of 'joint stock
companies in the late nineteenth century prompted the rise of disclosure although, initially, this
focused on stewardship. The greater complexity of organisations in the mid to late twentieth
century and twenty-first century gradually resulted in disclosure requirements developing into a
more sophisticated form of financial reporting, which remains an ongoing process.

13. What are the current arrangements for setting accounting standards in Australia?
The AASB under the auspices of the Financial Reporting Council is entrusted with the task of making
accounting standards both for the purposes of the Corporations Act and for the public and not-for-
profit sectors in Australia. [See Figure 1.1 in section 1.7.4].

15. To which entities do accounting standards apply? Discuss the nature of a reporting entity, and
consider reasons for the concept being replaced.
Accounting standards apply to the general-purpose financial statements/reports of entities which
are “reporting entities” and also to those entities which decide to prepare general-purpose financial
statements even if they are not reporting entities.

The AASB, in SAC 1, provided the following definition of a reporting entity:

Reporting entities are all entities (including economic entities) in respect of which it is
reasonable to expect the existence of users who rely on the entity’s general purpose
financial report for information that will be useful to them for making and evaluating
decisions about the allocation of scarce resources.

All reporting entities are subject to accounting standards when preparing their general-purpose
financial statements. Entities such as small proprietary companies, family trusts, partnerships, sole
traders and wholly owned subsidiaries of Australian reporting entities will normally not be required
to prepare general purpose statements in accordance with accounting standards.

The introduction of the IASB’s differential reporting requirements for Small and Medium-Sized
Entities shifted the focus from whether an entity is/is not a reporting entity to whether the entity is
required to prepare a general-purpose financial statement/report and is publicly accountable.

However as noted in the text the Australian differential reporting requirements for Small and
Medium-Sized Entities have retained the primacy of the reporting entity concept in determining
which entities are required to prepare GPFRs. Public accountability is used to determine which
entities are permitted to use the Reduced Disclosure Regime. The RDR involves recognition and
measurement requirements of full IFRSs (Tier 1), as already adopted in Australia, but with
disclosures substantially reduced (Tier 2) in comparison with those required under full IFRSs.

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