BUSN7050
Corporate Accounting
Lecturer:
Dr Xiu-Ye Zhang
BUSN7050 Corporate Accounting
• Course Convenor
• Lecturers and Tutors:
Dr Wanmeng Xu Wanmeng.Xu@anu.edu.au
Dr Xiu-Ye Zhang Xiu-Ye.Zhang@anu.edu.au
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Dr Xiu-Ye Zhang
Office: Room 2045,PAP Moran Bld (26B)
Tel: +61 2 612 50180
Email: Xiu-Ye.Zhang@anu.edu.au
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Course details
• This course covers:
– the characteristics of the Australian accounting
environment and its financial reporting requirements for
companies
– accounting for non-current assets (revaluation, impairment)
and intangible assets
– accounting for income tax
– accounting for foreign currency
– accounting for financial instrument
– accounting for leases
– accounting for provision and contingent liabilities
– a comprehensive coverage of consolidation issues
– accounting for owners’ equity (share capital and
reserves)
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Learning outcomes
• Outcome 1: An understanding of the regulatory
environment in which the companies are formed and
operate in Australia.
• Outcome 2: A solid foundation in accounting and
reporting requirements of the Corporations Act and
relevant Australian Accounting Standards Board
(AASB) accounting standards.
• Outcome 3: A comprehensive understanding of the
advanced issues in accounting for assets, liabilities
and owner’s equity.
• Outcome 4: The ability to account for a range of
advanced financial accounting issues.
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Learning outcomes
• Outcome 5: An understanding of the accounting
requirements for a corporate group and familiarity with
the theory underlying the methods used to account for
inter-company investments.
• Outcome 6: The ability to prepare consolidated accounts
for a corporate group.
• Outcome 7: The ability to analyse complex issues, to
formulate well-reasoned and coherent arguments and to
reach well considered conclusions.
Prescribed Textbook
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Loftus, J., Leo, K., Boys, N., Daniliuc, S., Luke, B., Ang, H. and
Byrnes, K., 2022. Financial Reporting, 4th ed, Wiley.
Purchase options:
Purchase direct from Wiley:
• Textbook + Interactive E-Text Code
• Wiley special offer
Wiley, has launched Wiley Business Now – giving students access to all Wiley’s
Business E-text titles for a low-cost monthly subscription
For Semester 1 only they are offering access to the required E-text for this course
(+more!) for only one payment of $6.95, for the whole semester!
You’ll also have access to practice questions, quizzes, video content to help understand
complex themes and you can highlight, bookmark, make notes, and generate automatic
citations.
Subscribe here, or find out more!
7Course administration
• Students taking this course are expected to commit at least
10 hours a week to completing the work.
• This will include:
– 2 hours a week: lecture
– 1 hour a week: tutorial
– 7 hours a week: private study
• Course delivery
– Live and Echo360: available on&after scheduled lecture time
– Live in-person and online tutorial: no recording. You must
attend your enrolled tutorial.
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8Assessment
Tutorial preparation needs to show serious attempts at ALL the questions. Attempts
at less than 60% questions will get 0 mark. Attempts at more than 80% questions
can get 0.5 mark.
Tutorial attendance will be recorded. 1 mark, 0.5 mark and 0 mark will be allocated.
The mid-semester and final examinations are compulsory and not redeemable.
You do not have to obtain 50% or more for one single assessment element but must
obtain 50% or more as total final mark to be eligible for a pass grade in the course.
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Assessment
items
Description and detail of
the assignment
Due date %
Tutorial
participation
and
preparation
Students are required to attend their
assigned tutorial each week;
Tutorial preparation to be submitted
on Turnitin by 09:00 on Wednesday
Every week from week 2
onwards (deadline)
5
5
Mid Semester
Examination
Covering material from
Lectures 1-5 inclusive
Week 6 or 7 40
Final
Examination
Covering material from
Weeks 6-12 inclusive
Final exam period 50
9Tutorials
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• All of the tutorial questions provided on Wattle are to be
attempted prior to attending the tutorials.
• Your preparation will gain you credits!!
• Your participation will gain you credits and
confidence!!
• The tutorial questions will be available after each lecture
• The solutions to the questions will be made
available on Wattle from 17:00 on each Thursday
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Lecture 1
Accounting regulation, the conceptual
framework and revenue recognition
Readings: Chapters 1 and 16 from the prescribed textbook
Sub-topics:
• The nature of a company
• Forming a company
• Types of companies
• Key sources of accounting regulation
• Main bodies of accounting regulation
• Australian accounting standards
• International Accounting Standards Board
• Conceptual framework
• Revenue recognition
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1. The nature of a company
• A company is a legal entity:
– incorporated via registration by Australian Securities
and Investments Commission (ASIC)
– subject to requirements of Corporations Act 2001.
• A company has the following attributes:
– limited liability (or no liability for mining companies)
– its own separate legal existence
– legal powers of a natural person
– right to own assets and enter contracts
– right to sue and be sued.
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What does it mean that a company has limited liability?
A. only managers are legally responsible for the debts of a
company.
B. only some shareholders are legally responsible for the
debts of a company.
C. shareholders are legally responsible for the debts of a
company only to the extent of the nominal value of their
shares.
D. shareholders are legally responsible for the debts of a
company only to the extent of the (part of the) nominal
value of their shares already paid.
In-class quiz 1.
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2. Forming of a company
• To register a company, a person lodges the
prescribed application form with ASIC.
• A certificate of registration and an Australian
Company Number (ACN) are issued.
• To deal with issues relating to directors and
members and the day-to-day management,
a company might use:
replaceable constitution
rules
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3. Types of companies
• Public companies
– minimum 1 member, no maximum number
– minimum of 3 directors
– can invite public to subscribe for securities,
but it’s not required to have a share capital
(can be limited by guarantee)
– can list on Australian Securities Exchange (ASX)
– must prepare financial statements in accordance with
the accounting standards and have them audited.
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3. Types of companies
• Proprietary (Pty) companies:
– minimum of 1 member/shareholder, maximum of 50
– minimum of 1 director residing in AU
– cannot raise funds from the public, but required to
have a share capital.
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4. Sources of accounting regulation
• The major sources of financial reporting regulation in
Australia are:
– The Corporations Act 2001
– Australian Accounting Standards
– The Conceptual Framework for Financial
Reporting (Conceptual Framework)
– ASX Listing Rules.
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5. Main bodies of accounting regulation
• The five main bodies that formulate and/or enforce
accounting regulations in Australia are:
1.The Australian Securities and Investments
Commission (ASIC).
2.The Australian Securities Exchange (ASX).
3.The Australian Accounting Standards Board (AASB).
4.The Financial Reporting Council (FRC).
5.Australian Prudential Regulation Authority (APRA)
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5.1. ASIC
• ASIC is Australia’s corporate, markets and financial
services regulator.
• ASIC undertakes financial reporting surveillance with the
purpose of improving the quality of financial reporting.
• The role of the ASIC is to enforce and regulate company
and financial services laws:
– administers and monitors implementation of
the Corporations Act and investigates and
prosecutes for breaches
– promotes confidence in the financial system
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5.1. ASIC
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The Corporations Act 2001
• The Corporations Act requires preparation of a financial
report and a Directors’ Report for each financial year for
all:
– disclosing entities
– public companies
– large proprietary companies
• In limited circumstances, some small proprietary
companies may be required to prepare a financial
report and directors’ report in directed to do so by
shareholders or the ASIC
– registered schemes
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5.1. ASIC
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The Corporations Act 2001
• Disclosing entity: With few exceptions, entities whose
securities are listed on a securities exchange are
disclosing entities.
• Public companies: Any company other than a proprietary
company.
• Large proprietary company
• Registered scheme: Registered scheme refers to a
managed investment scheme that is registered under
s.601EB of the Corporations Act.
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5.1. ASIC
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The Corporations Act 2001
• Small proprietary company (1 July 2019):
• must satisfy at least two of the following criteria:
– Consolidated revenue for financial year is < $50 million.
– Consolidated gross assets at end of financial year is < $25
million.
– Fewer than 100 employees at end of financial year.
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5.2. ASX
Australian Securities Exchange Group
• Listing rules help ensure that information is
disseminated in an efficient and timely manner.
Failure to comply may lead to removal from the Board.
• ASX Listing Rules divided into 20 chapters -
key are Chapter 3 (continuous disclosure)
and Chapter 4 (periodic disclosure).
• Primary focus on disclosure
• Listing Rule 3.1 provides the general principle that:
– once an entity is or becomes aware of any information
concerning it that a reasonable person would expect
to have a material effect on the price or value of the
entity’s securities, the entity must immediately tell the
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5.3. Australian Prudential Regulation
Authority (APRA)
• APRA is the prudential regulator of the Australian
financial services industry.
• The aim of APRA’s supervision is to promote financial
stability by requiring institutions to manage risk prudently
so as to minimise the likelihood of financial losses to
depositors, policy holders and superannuation fund
members.
• APRA identifies the key risks taken by an entity, ensures
the risks are adequately measured, managed and
monitored, and assesses the adequacy of the entity’s
financial resources to accommodate potential losses.
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5.4. FRC
• Australian accounting standard-setting institutional
arrangements
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5.4. FRC
• Functions and powers of the FRC:
− provide broad oversight of the process for setting
accounting and auditing standards
− appoint members of the AASB
− approve and monitor the AASB’s priorities,
business plan, budget and staffing
− give the AASB directions, advice or
feedback on matters of general policy
− no power to direct AASB in the development or making
of particular standards
− no power to veto a standard formulated and
recommended by AASB.
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The role of the Financial Reporting Council is to provide
broad oversight of the process for setting standards in
Australia, including the authority to direct the AASB to
develop, amend or revoke a particular standard.
A. True
B. False
In-class quiz 2.
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5.5. AASB
• Operates from 1991, replacing the Accounting
Standards Review Board.
• Functions (under s. 227 of ASIC Act) include:
– developing a conceptual framework
– making accounting standards that have force of law under s.
334 of the Corporations Act
– formulating accounting standards for entities not governed
by the Corporations Act
– participating in and contributing to the development of a
single set of accounting standards for worldwide use.
• AASB reports to the Financial Reporting Council (FRC).
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6. International Accounting Standards Board
• IASB is an independent, privately funded accounting
standard setter.
• Overseen by the IFRS Foundation.
• Established in 2001, replacing the International
Accounting Standards Committee (IASC).
• Committed to the development of a single set of high
quality, enforceable global accounting standards.
• IASB releases IFRS following public
consultation.
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6. International Accounting Standards Board
• IASB has an IFRS Interpretations Committee:
– ‘official’ interpretative arm of the IASB
– reviews on a timely basis accounting issues that have arisen
within the context of current IFRSs and provides authoritative
guidance on those issues
– provides guidance on issues not covered in IFRSs
– provides interpretations of existing requirements within IFRSs.
• IFRS Interpretations Committee’s interpretations are
adapted by the AASB to suit the Australian
environment. (AASB 1048 Interpretation of Standards)
• Interpretations have the force of law.
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The main benefits of Australian adopting IFRS may include:
A. increasing the comparability of financial reports prepared
in different countries so that capital ultimately flows to
entities that can use it the most productively.
B. reducing the financial reporting costs for Australian
multinational companies.
C. removing barriers to international capital flows by reducing
differences in financial reporting requirements and so
increasing understanding by foreign investors of
Australian reports.
D.all of the given answers.
In-class quiz 3.
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7. Australian accounting standards
• The s 224 of the ASIC Act requires that
accounting standards developed by the
AASB to provide financial information that:
– allows users to make decisions about the
allocation of scarce resources
– helps directors discharge their financial reporting
obligations
– is relevant to assessing performance, financial
position, financing and investment
– is relevant and reliable, facilitates comparability and
is readily understandable
– reduce the cost of capital and enable Australian
entities to compete effectively overseas.
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7. Australian accounting standards
• Before making or formulating a standard,
s 231 of ASIC Act requires AASB to carry
out a cost–benefit analysis – unnecessary
when adopting an international standard.
• Once the AASB makes a standard it is approved by
Commonwealth Parliament.
• Directors are required to ensure that the company’s
financial statements comply with that standard.
What if directors believe the standards are not
appropriate?
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7. Australian accounting standards
• Australia adopted IFRS in 2005 in response
of the decision by European Union that all
listed companies within Union should adopt
IASB standards.
• Australian accounting standards are identical to their
international equivalents, with one exception:
– AASBs contain additional paragraphs relevant to
public sector and not-for-profit entities and paragraphs
related to RDR.
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7. Australian accounting standards
• As a result of adopting international standards there are
three sources of AASB standards:
– AASB 1-99: equivalent to IFRS standards issued by the IASB
• have same number as equivalent IASB standard
– AASB 101-199: equivalent to IAS standards issued by the
IASC prior to 2001 (predecessor to the IASB)
• have same number (+100) as the IAS standards on which
they are based
– AASB 1001-1099: no international equivalents
• have same number as the previous AASB
standard
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7. Australian accounting standards
• The following standards apply to the preparation of
financial statements:
• AASB 101 Presentation of Financial Statements
• AASB 107 Statement of Cash Flows
• AASB 108 Accounting Policies, Changes in
Accounting Estimates and Errors
• AASB 1048 Interpretation of Standards.
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8. Conceptual Framework
• Prescribes the nature, function and limits of financial
reporting.
• Its purpose is to provide a coherent set of principles:
– assist the Australian Accounting Standards Board (Board) to
develop Australian Accounting Standards (Standards) that are
based on consistent concepts;
– assist preparers to develop consistent accounting policies when
no Standard applies to a particular transaction or other
event, or when a Standard allows a choice of accounting policy;
– assist all parties to understand and interpret the Standards.
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8. Conceptual Framework
• Prior to 2020, the Australian conceptual framework
comprises:
– the Framework for the Preparation & Presentation of
Fin. Statements
– SAC 1 Definition of the Reporting Entity
• On or after 1 January 2020, the AASB adopted the
revised Conceptual Framework issued by IASB in
March 2018 – which replaced both the old framework
and SAC 1.
• While the old framework will still apply for some entities
during a transition period, we will now focus on the newly
revised framework.
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8. Conceptual Framework
• The IASB’s revised conceptual framework comprises 8
chapters:
– Chapter 1: The objective of general purpose financial reporting.
– Chapter 2: Qualitative characteristics of useful financial
information
– Chapter 3: Financial statements and the reporting entity
– Chapter 4: The elements of financial statements
– Chapter 5: Recognition and derecognition
– Chapter 6: Measurement
– Chapter 7: Presentation and disclosure
– Chapter 8: Concepts of capital and capital maintenance
• The Framework must be adhered to by preparers of general
purpose financial reports (GPFRs).
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8.1. The objectives of GPFR
• General-purpose financial reports (GPFRs) :
– is to provide financial information about the reporting entity
that is useful to existing and potential investors, lenders and
other creditors in making decisions relating to providing
resources to the entity. Those decisions involve decisions about:
• (a) buying, selling or holding equity and debt instruments;
• (b) providing or settling loans and other forms of credit; or
• (c) exercising rights to vote on, or otherwise influence, management’s actions
that affect the use of the entity’s economic resources.
– The objective of general purpose financial reporting forms
the foundation of the Conceptual Framework.
– GPFRs are not designed to show the value of a reporting
entity; but they provide information to help users to estimate
the value of the reporting entity.
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8.1. The objectives of GPFR
• In 2010 AASB 1053 Application of Tiers of Australian
Accounting Standards was issued to be applied on or
after 1 July 2013 (early adoption was allowed).
• There are two “tiers” of reporting requirements:
– Tier 1 requires full application of all standards and
interpretations
– Tier 2 allows significantly reduced disclosure by
applicable entities. Tier 2 entities will be required to
apply recognition, measurement and presentation
requirements with substantially reduced disclosures.
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8.1. The objectives of GPFR
• Entities for two tiers of reporting:
– Tier 1 – publicly accountable entities;
• Publicly accountable entities are entities that:
– have issued debt or equity instruments in a public market
– hold assets in a fiduciary capacity for outsiders.
– Tier 2 – all other preparers of GPFRs.
• Tier 1 applies to
– For-profit private sector entities that have public accountability.
– Australian government and state, territory, and local governments
• Tier 2 applies to
– For-profit private sector entities that do not have public accountability.
– Not-for profit private sector entities
– Public sector entities other than Australian government and state, territory,
and local governments.
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Reduced disclosure regime (RDR)
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8.2. Qualitative characteristics of financial
reporting
• Two types of characteristics of financial reporting
are identified in the current Framework:
– Fundamental (essential):
• Relevance (including materiality)
• Faithful representation
– Enhancing (not essential):
• Comparability
• Verifiability
• Timeliness
• Understandability.
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8.2. Qualitative characteristics of financial
reporting
• Relevance - information is relevant if:
• It is capable of making a difference in the decisions made
by the capital providers as users of financial information
• It has predictive value, confirmatory value or both.
• It is capable of making a difference whether the users use it
or not.
• Faithful representation - is attained when the
economic phenomenon is depicted completely,
neutrally and free from material error.
• A depiction is complete if it includes all information
necessary for faithful representation.
• Neutrality is the absence of bias intended to attain a
predetermined result.
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8.2. Qualitative characteristics of financial
reporting
• Comparability enables users to identify similarities
in and differences between two sets of economic
phenomena.
• Verifiability helps assure users that information
faithfully represents the economic phenomena that it
purports to represent.
• Timeliness means having information available to
decision makers before it loses its capacity to
influence decisions.
• Understandability enables users to comprehend its
meanings.
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8.3. Elements of financial statements
• Assets
• Liabilities
• Equity
• Income
• Expenses
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Statement of Profit and Loss
aka The Income Statement
Statement of Financial Position
aka The Balance Sheet
Definition of Assets
Each of the five elements are defined in the Conceptual
Framework (“CF”).
• Definition of asset:
– ‘An asset is a present economic resource controlled by the
entity as a result of past events’. (CF 4.3)
• The term “economic resource” is defined as:
– “… a right that has the potential to produce economic
benefits.” (CF 4.4)
• This definition consists of three key terms:
– Right
– Potential to produce economic benefits
– Control
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Rights
• The Conceptual Framework specifies that the rights, in order to be
an asset of the entity, must:
– both have the potential to produce for the entity economic
benefits beyond the economic benefits to all other parties … and
be controlled by the entity (CF 4.9)
• Therefore, rights to access public goods that are available to all
parties are typically not assets.
• A single physical object (such as a machine) or a non-physical
object (such as intellectual property) often give rise to multiple rights,
e.g., the right to use and right to transfer.
• Strictly speaking, the “economic resource” is the collection of rights
rather than the object itself.
• However, “describing the set of rights as the physical object will
often provide a faithful representation of those rights in the most
concise and understandable way.” (CF 4.12)
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Potential to Produce Economic Benefits
• Paragraph 4.14 of the Conceptual Framework states:
– “An economic resource is a right that has the potential to produce
economic benefits. For that potential to exist, it does not need to be
certain, or even likely, that the right will produce economic benefits. It is
only necessary that the right already exists and that, in at least one
circumstance, it would produce for the entity economic benefits beyond
those available to all other parties.”
• Examples of potential economic benefits:
– receive contractual cash flows;
– exchange economic resources with another party on favourable terms;
– produce cash inflows or avoid cash outflows;
– receive cash or other economic resources by selling the economic
resource;
– extinguish liabilities by transferring the economic resource. (CF 4.17)
• The “economic resource” is the right to potential economic benefits, not the
future economic benefits themselves. (CF 4.17)
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Control
• Paragraph 4.20 defined control as follows:
– “An entity controls an economic resource if it has the present
ability to direct the use of the economic resource and obtain the
economic benefits that may flow from it. Control includes the
present ability to prevent other parties from directing the use of
the economic resource and from obtaining the economic benefits
that may flow from it. It follows that, if one party controls an
economic resource, no other party controls that resource.”
• NB: Control is not equivalent to Ownership:
– An entity can control an economic resource but not own it, e.g. a
long-term lease.
– An entity might only own 51% of the voting stock of another
entity, but this is sufficient to give it control over 100% of the
other entities assets.
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Definition of Liabilities
• Definition of liability:
– A liability is a present obligation of the entity to transfer an economic
resource as a result of past events. (CF 4.26)
• For a liability to exist, three criteria must all be satisfied:
– the entity has an obligation
– the obligation is to transfer an economic resource;
– the obligation is a present obligation that exists as a result of past
events. (CF 4.27)
• An obligation is defined as “… a duty or responsibility that an entity has no
practical ability to avoid. An obligation is always owed to another party (or
parties).” (CF 4.29)
• A legal debt is a liability, however not all liabilities are legal debts, e.g., an
obligation can also be imposed by customary practices (constructive
obligation). (CF 4.31)
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Definition of Equity
• Definition of equity:
– ‘the residual interest in the assets of the entity after
deducting all its liabilities’ (CF 4.63)
– Equity = Assets – Liabilities
– Represents accounting’s measure of the value of the
company to the owners, also known as book value.
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Definitions of Income and Expenses
• Definition of income (aka revenue and gains):
– “Income is increases in assets, or decreases in
liabilities, that result in increases in equity, other than
those relating to contributions from holders of equity
claims.” (CF 4.68)
• Definition of expenses:
– “Expenses are decreases in assets, or increases in
liabilities, that result in decreases in equity, other than
those relating to distributions to holders of equity
claims.” (CF 4.69)
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Recognition of the Five Elements
• Recognition is the process of capturing for inclusion in
the statement of financial position or the statement(s) of
financial performance an item that meets the definition of
one of the elements of financial statements—an asset, a
liability, equity, income or expenses. (CF 5.1)
• Thus, to be recognised, an item must satisfy the
definition of one of the five elements.
• However, not all items that meet the definition of one of
the five elements are recognised.
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Recognition Criteria
• An asset or liability is recognised only if recognition of that
asset or liability and of any resulting income, expenses or
changes in equity provides users of financial statements with
information that is useful, i.e. with:
– relevant information about the asset or liability and
about any resulting income, expenses or changes in;
and
– a faithful representation of the asset or liability and of
any resulting income, expenses or changes in equity. (CF
5.7)
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Disclosure versus Recognition
• Recognition means to record the event or transaction in the
body of the financial statements.
• Disclosure means to provide information about the event or
transaction outside the body of the financial statements, e.g,
in the Notes to the financial statements.
• It is common to disclose events that meet the definitions but
fail the recognition criteria.