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Lecture 3- Financial Reporting Framework
Accounting for Management (ACCTN101)
University of Waikato
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Lecture 3 ACCTN101- FINANCIAL REPORTING FRAMEWORK WHY DO WE NEED CONSTRUCTS? - - To provide a framework for financial reporting Entities have a large number of events and transactions o There needs to be a basis to select financial information for recording. o There needs to be a basis to classify financial information appropriately for reporting. Communication of financial information can therefore be: o Meaningful o Understood o Consistent FINANCIAL REPORTING FRAMEWORK The financial reporting framework may be seen as the framework or structure establishing and overseeing external reporting requirements. - Financial Reporting Act 1993 The framework prescribes: - Which reports to prepare. - Who to report to and what measurement and disclosure requirements there are within these reports. UNDER THIS FINANCIAL REPORTING FRAMEWORK: - Financial reporting requirements apply to all reporting entities o Includes: Both private sector and public sector reporting SIGNIFICANT INFLUENCES AFFECTING THE CHANGES IN FINANCIAL REPORTING: Legislative backing: - Legal backing for accounting standards through the Financial Reporting Act require compliance with financial reporting standards (NZ IFRSs) Harmonisation: - International harmonisation in financial reporting. o which has subsequently led to NZ adoption of international financial reporting standards. Consistency: - NZ IFRSs bring consistency in accounting treatments of events; there needs to be compliance with generally accepted accounting practice (GAAPs). o a true and fair view of the firm's activities Benefit- Cost Analysis: - Relationship between the benefits derived from financial information and the costs of providing that information. Reflecting Economic Reality: - Events should be accounted for in accordance with their economic effect? REGULATION OF REPORTING Acts of Parliament - Companies Act 1993 - Financial Reporting Act 1993 o External Reporting Board NZ Framework Inter Financial Reporting Standards (IFRSs) Legal backing given by Financial Reporting Act NZ professional accounting body (Charted Accountants Australia and New Zealand (CA ANZ) FIGURE 2: NEW ZEALAND FINANCIAL REPORTING FRAMEWORK Authoritative source: Requirements determined by legislation: Financial reporting Act 1993 (ASRB) Companies Act 1993 Securities Markets Act 1988 Public Finance Act 1989 Local Government Act 2002 Types of entities Which reporting entities must comply with the financial reporting requirements? New Zealand Financial Reporting Framework Financial statements Which financial statements must be prepared by the reporting entities? Authoritative source: Requirements set out by NZICA (FRSB): NZ Framework New Zealand Preface Differential Reporting Framework NZ Equivalents to IFRSs Accounting principles Which principles must be adopted in the preparation of financial statements? Reporting requirements What are the disclosure, presentation and information requirements with regards to what is relevant to users? Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. QUALITATIVE CHARACTERISTICS Qualitative characteristics of useful financial statements: - Fundamental characteristics - Enhancing characteristics Qualitative characteristics of useful financial statements Fundamental qualitative characteristics Relevance Enhancing qualitative characteristics Faithful representation Comparability Predictive value Complete Verifiability Confirmatory value Neutral Timeliness Both predictive and confirmatory values Free from error Understandability GENERAL FEATURES REQUIRED IN THE PRESENATION OF FINANCIAL STATEMENTS - Fair presentation and compliance with IFRSs Going Concern Accrual basis of accounting Materiality and aggregation Offsetting Frequency of reporting Comparative information Consistency of presentation FUNDAMENTAL ELEMENTS FOR FINANCIAL REPORTING The 5 fundamental financial elements to be disclosed in the financial statements: - Assets o Current Assets o Non-Current Assets o Investment Assets o Intangible Assets - Liabilities o Current Liabilities o Long-term Liabilities - Owner’s Equity o Contributed Capital o Retained Earnings (Profit/ Losses and Drawings/ Dividends) o Reserves Income o Sales Income o Services/ Fees Income o Gains - - Expenses o Cost of Goods Sold o Administrative Expenses o Selling and Distribution Expenses o Finance Costs
Lecture 3- Financial Reporting Framework
Course: Accounting for Management (ACCTN101)
University: University of Waikato
