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This website provides general information that may be useful for students in completing assignments. We hope that students will find the questions and answers provided below to be useful. The AASB (or its staff) are not available to provide any further assistance to students in regards to assignments.

Answers:

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An accounting standard is a technical pronouncement that sets out the required accounting for particular types of transactions and events. The accounting requirements affect the preparation and presentation of an entity’s financial statements.

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Click here to read more about the process by which the AASB sets accounting standards in Australia.

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Accounting standards in Australia were initially developed by the professional accounting bodies, and were enforceable under their codes of ethics.

From 1966, the professional bodies jointly operated the Australian Accounting Research Foundation (AARF), which ultimately encompassed both the Accounting Standards Board (AcSB) and the Public Sector Accounting Standards Board (PSASB). These Boards worked closely together in preparing standards for private sector and public sector organisations.

At the start of 1984, the Accounting Standards Review Board (ASRB) was established by the Ministerial Council for Companies and Securities to review the standards produced by the profession and give them the force of company law, where approved by the ASRB. This system operated under the Companies Act 1981 (Cwlth) and corresponding State/Territory Codes. The ASRB and the profession’s AcSB merged in 1988, with the ASRB continuing to work closely with the PSASB.

The ASRB was re-established under the Australian Securities Commission Act 1989 and in 1991 was renamed the Australian Accounting Standards Board (AASB). The AASB’s standards then applied under the Corporations Law.

Another restructure was put in place in 2000, with the AASB merging with the PSASB. The new AASB was formally re-established under the Australian Securities and Investments Commission Act 1989 (as it was then re-titled). The regulatory changes also included the establishment of the Financial Reporting Council (FRC) by the Australian Government, to oversee the activities of the AASB. The AASB’s standards now apply under the Corporations Act 2001 and the AASB continues to operate under the Australian Securities and Investments Commission Act 2001.

The Australian accounting standard setters also put significant effort into contributing to the development of international accounting standards under the International Accounting Standards Committee (IASC), which was established in 1973 and became the International Accounting Standards Board (IASB) in 2001. The AASB also sought to harmonise and converge its standards with those of the IASB, and to assist the Public Sector Committee (PSC) of the International Federation of Accountants in developing standards for the public sector. The PSC is now called the International Public Sector Accounting Standards Board (IPSASB).

In 2002, the FRC gave a broad strategic direction to the AASB requiring the adoption of pronouncements issued by the IASB – the International Financial Reporting Standards (IFRSs). Accordingly, Australian equivalents to IFRSs apply to annual reporting periods beginning on or after 1 January 2005. The AASB has also retained some domestic standards and interpretations.

In 2003, the FRC also issued a further broad strategic direction to the AASB in relation to the harmonisation of Government Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting in the public sector.

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General purpose financial statements that comply with accounting standards should present fairly the financial position, financial performance and cash flows of an organisation. This information will be useful to owners, investors, creditors, analysts, employees, regulators and others in making and evaluating decisions about the allocation of scarce economic resources.

When corporations and other organisations comply with accounting standards, their general purpose financial statements should be more comparable than they would otherwise be. This allows investors and other users of the financial statements to better compare the organisations.

Financial statements also provide one means by which the management and governing body of an organisation are accountable to those who provide resources to the organisation. The provision of information for accountability purposes is a particularly important aspect of financial reporting by public sector organisations and not-for-profit entities in the private sector.

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The FRC provides broad oversight of the process for setting accounting standards in Australia. The FRC appoints the members of the AASB, other than the Chairman, and can issue broad strategic directions to the AASB. However, the Australian Securities and Investments Commission Act 2001 limits the FRC’s ability to become involved in the technical deliberations of the AASB.

Like the AASB, the Auditing and Assurance Standards Board (AUASB) also operates under the Australian Securities and Investments Commission Act 2001 and is subject to oversight by the Financial Reporting Council. The AUASB develops auditing standards that apply under Australian company law. There is no direct relationship between the AASB and the AUASB, other than sharing offices and facilities.

The Australian Securities and Investments Commission (ASIC) is responsible for the enforcement of the accounting standards issued by the AASB under the Corporations Act 2001. ASIC has the power to issue class orders, or specific orders to a company, to give relief from certain requirements of the Act, including the application of AASB standards, where it is satisfied that the statutory requirements for relief are met. ASIC may refer significant issues that it sees in practice to the AASB for consideration.

The Australian Prudential Regulation Authority (APRA) is responsible for the regulation of banks, insurers and other authorised deposit-taking institutions. APRA considers the compliance of entities with AASB accounting standards as part of its oversight processes.

The Australian Stock Exchange (ASX) provides facilities for the listing and transfer of equities of listed public companies. The ASX expects listed entities to produce comparable general purpose financial statements in accordance with AASB accounting standards.

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The AASB is an Australian Government agency, reporting to the Minister for Superannuation and Corporate Law. The AASB’s principal funding is via parliamentary appropriation under the Australian Treasury portfolio. Significant funding is also received from the States and Territories, the professional accounting bodies and the Australian Stock Exchange.

The International Accounting Standards Board (IASB) is part of the International Accounting Standards Committee Foundation (IASCF), which is an independent private-sector organisation based in London. The Australian Government provides a significant annual monetary contribution to the activities of the IASCF.

The IASB is committed to developing, in the public interest, a single set of high quality, global accounting standards that require transparent and comparable information in general purpose financial statements. In pursuit of this objective, the IASB co-operates with national accounting standard-setters (like the AASB) to achieve convergence in accounting standards around the world.

The International Public Sector Accounting Standards Board (IPSASB) is a board of the International Federation of Accountants (IFAC). IFAC is funded principally by its members, which are professional accounting bodies from around the world. Those bodies may propose nominations for membership of the IPSASB and other boards of IFAC.

The IPSASB focuses on the accounting and financial reporting needs of national, regional and local governments, related governmental agencies, and the constituencies they serve. It addresses these needs by issuing and promoting benchmark guidance and facilitating the exchange of information among accountants and those who work in the public sector or rely on its work. The AASB considers the work of the IPSASB in developing and issuing accounting standards for public sector entities in Australia.

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Australian Pronouncements Corresponding IASB Pronouncements
AASB Standards  
      numbered from 1 International Financial Reporting Standards (IFRSs)
      numbered from 101 International Accounting Standards (IASs)
      numbered from 1001 no equivalent
AASB/UIG Interpretations  
      numbered from 1 IFRIC Interpretations
      numbered from 101 Standing Interpretations Committee (SIC) Interpretations
      numbered from 1001 no equivalent
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“IFRSs” is the collective term used to describe the authoritative pronouncements issued by the IASB. Technically, IFRSs comprise the following:
1. two series of standards – those explicitly called International Financial Reporting Standards and the older series of International Accounting Standards, and
2. two series of Interpretations – those issued by the former Standing Interpretations Committee (SIC) and those issued by the existing International Financial Reporting Interpretations Committee (IFRIC) of the IASB.

Under a broad strategic direction from the FRC, the AASB has adopted IFRSs for application by entities reporting under the Corporations Act 2001 for annual reporting periods beginning on or after 1 January 2005. This is to ensure that general purpose financial statements prepared by for-profit entities in accordance with AASB standards will also be in accordance with IFRSs.

The AASB has a transaction neutrality policy, which means similar transactions and events should be accounted for in a similar manner by all types of entities, whether in the for-profit sector, the not-for-profit private sector, or the public sector – unless there is a sound reason to be different in particular circumstances. The AASB considers the specific needs of not-for-profit entities in the private and public sectors when preparing new and revised IFRSs for adoption in Australia.

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Besides the International Accounting Standards Board (IASB) and the International Public Sector Accounting Standards Board (IPSASB), many countries have national accounting standard-setters. For example, to name just a few: Canada, China, France, Germany, Hong Kong, Japan, Korea, Latvia, Lebanon, Malaysia, New Zealand, Nigeria, Singapore, South Africa, Sri Lanka, Sweden, the United Kingdom and the United States of America.

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General Purpose Financial Statements
General purpose financial statements (GPFSs) are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs. GPFSs include those that are presented separately or within another public document such as an annual report or a prospectus. GPFSs comprise the specific financial statements and the accompanying explanatory notes.

In Australia, GPFSs were known as general purpose financial reports (GPFRs) until 2007, when the terminology of the IASB was adopted in AASB accounting standards.

For more on general purpose financial statements, see Accounting Standard AASB 101 Presentation of Financial Statements.


Depreciation
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. In the case of an intangible asset, the term “amortisation” is generally used instead of “depreciation”. The two terms have the same meaning.

For more on depreciation, see AASB 116 Property, Plant and Equipment and AASB 136 Impairment of Assets.


Income tax
The deferred tax accounting method that was in general use for decades up to 2005 was based on permanent and timing differences between accounting profit and taxable income. However, deferred tax accounting now is based on temporary differences, which are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base.

Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:
(a) deductible temporary differences;
(b) the carryforward of unused tax losses; and
(c) the carryforward of unused tax credits.

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.

For more on accounting for income taxes, see AASB 112 Income Taxes.


Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. This definition is from AASB 132 Financial Instruments: Presentation.

The terms “financial asset”, “financial liability” and “equity instrument” are further defined in AASB 132. An equity instrument is simply any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. However, the definitions of financial asset and financial liability are long and complicated! These terms are very important, as there are extensive accounting and reporting requirements for financial instruments and their components.

One very important issue, for example, is the classification of financial instruments by the issuer of the instrument as equity, a liability, or even a combination of both. This is often called the “debt/equity classification” issue. Another difficult issue is the availability of hedge accounting for financial instrument risks that are hedged by other instruments, transactions or balances. Major issues such as these have kept standard setters busy for many years!

For more on financial instruments, see:
AASB 7 Financial Instruments: Disclosures
AASB 132 Financial Instruments: Presentation, and
AASB 139 Financial Instruments: Recognition and Measurement.


Cash flow statements
Users of an entity’s financial statements are interested in how the entity generates and uses cash and cash equivalents. This is the case regardless of the nature of the entity’s activities and irrespective of whether cash can be viewed as the product of the entity, as may be the case with a financial institution. Entities need cash for essentially the same reasons however different their principal revenue-producing activities might be. They need cash to conduct their operations, to pay their obligations, and to provide returns to their equity holders.

For more on cash flow statements, see AASB 107 Cash Flow Statements.

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Take a look at the AASB’s Glossary of Defined Terms; it may help you. The Glossary lists the definitions of many words used in the accounting standards.

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To locate research studies on accounting standards, students should make use of online library and reference catalogues.

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Journals are available through library databases and the professional body libraries, including Business Source Premier, JSTOR, and Expanded Academic ASAP.

Some useful journals include:
Journal of Accounting Research;
Accountancy (London);
Accounting, Auditing & Accountability Journal;
Accounting Horizons;
Accounting, Organizations and Society;
Accounting Review;
Accounting Research Journal;
Contemporary Accounting Research;
Journal of Accounting & Economics.

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Media releases published on the International Accounting Standards Board website provide excellent updates on international accounting standards.

Similarly, useful information is published online by the International Public Sector Accounting Standards Board in relation to public sector accounting issues.

The following websites may contain information about current developments that could be relevant to accounting standards:

http://www.apesb.org.au
http://www.asx.com.au
http://www.auasb.gov.au
http://www.cpaaustralia.com.au [sign up for free e-newsletters]
http://www.frc.gov.au
http://www.ethics.org.au
http://www.charteredaccountants.com.au  [sign up for free e-newsletters]
http://www.iasplus.com/au/alerts.htm
http://www.iasplus.com/index.htm

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Each year, the Australian Accounting Standards Board invites one or more outstanding Honours graduates in accounting or related fields to join the AASB Graduate Intern Program, during which they will work in a supportive team and actively participate in all stages of the standard-setting process.

Graduate Interns join the technical staff of the AASB for 12 months following completion of their Honours year or following similar research experience.

For more information, visit the AASB Graduate Program section of the website.