1. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 1 Chapter 5 Basic accounting standards

2. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 2 Objectives Explain the role of accounting standards. Define AARF and AASB. Outline the process for development of Australian accounting standards. Discuss the development of the conceptual framework and the Statements of Accounting Concepts.

3. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 3 Objectives (continued) Describe the impact on the presentation of financial reports of the Corporations Act’s 5th Schedule, Approved Accounting Standards, Australian Accounting Standards, and the Australian Stock Exchange. Outline the statutory compliance requirements for an ABN, the GST, a BAS and the PAYG income tax system.

4. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 4 Accounting standards Attempt to improve and bring about consistency and quality of financial reporting. Deal with accounting policies.

5. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 5 Accounting standards (continued) There are two major associations that develop rules and practices for the accounting profession: – The Institute of Chartered Accountants – The Australian Society of Certified Practicing Accountants. The Australian Accounting Research Foundation (AARF) was established from these two bodies.

6. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 6 Role of Australian Accounting Standards Board (AASB) to produce high quality standards to improve the quality of Australian financial reporting.

7. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 7 Australian Accounting Standards These standards are legally enforceable for all members of accounting profession and penalties apply to those who do not comply. However, they are not enforceable to non- members.

8. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 8 Australian Accounting Standards (continued) AASB also undertakes to: review existing standards develop additional standards review submissions from the public in relation to accounting standards.

9. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 9 Development of Australian Accounting Standards (AAS) The AASB prepares a discussion paper on a proposed standard. The discussion paper is distributed for comments. A review of the comments is made and an exposure draft is prepared.

10. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 10 Development of AAS (continued) The exposure draft is distributed to the Australian Stock Exchange (ASX) and a variety of accounting firms for comments. Once reviewed, the AASB drafts a final version. Approval from the ministerial council is sought. The standard is published.

11. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 11 Conceptual framework Statements of Accounting Concepts: are being developed to provide a conceptual framework for the accounting profession assist in dealing with issues not currently covered by an accounting standard are a set of concepts which examine financial accounting and reporting in Australia aim to improve financial reporting.

12. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 12 Conceptual framework (continued)

13. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 13 Conceptual framework (continued) The conceptual framework provides: a set of orderly concepts and reporting a number of reporting requirements accounting standards to make it easier to be more consistent and logical.

14. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 14 The four Statement of Accounting Concepts SAC 1 Definition of the reporting entity SAC 2 Objective of general purpose financial reporting SAC 3 Qualitative characteristics of financial information SAC 4 Definition of the elements of financial statements delayed until 30 June.

15. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 15 SAC 1 Definition of the reporting entity: To define and explain the concept of a reporting entity It also looks at: the political significance of the entity the economic significance the size of the entity in terms of sales the size of the entity in terms of employees the separation of management and economic interest.

16. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 16 SAC 2 Objective of general purpose financial reporting: Aims to establish the objective of general purpose financial reporting (GPFR) by reporting entities The statement identifies: the users of GPFR the information needs of users the types of information that the GPFRs should provide.

17. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 17 SAC 3 Qualitative characteristics: Identifies those characteristics that financial information should contain The standards direct that GPFRs should contain a number of characteristics that consist of: relevance reliability timeliness comparability comprehension materiality.

18. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 18 SAC 4 Definition and recognition of the elements: Aims to establish definitions of elements of financial statements The elements are: assets liabilities equity revenue expenses.

19. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 19 Financial reports Australian Stock Exchange (ASX): monitors publicly listed companies requires companies to comply with additional disclosure information can delist companies if they do not comply.

20. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 20 Financial reports (continued) Australian Securities and Investments Commission (ASIC): does not establish accounting standards is concerned by company disclosures in their financial statements governs companies by enforcing laws from the Corporations Act.

21. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 21 Financial reports (continued) Schedule 5 outlines: the type of disclosure required the format of the Statement of Financial Performance the format of the Statement of Financial Position.

22. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 22 Compliance requirements for GST and PAYG An Australian business number (ABN): is a unique 11-digit number allows a business to deal with multiple ATO departments.

23. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 23 Compliance requirements for GST and PAYG (continued) The Goods and Services tax (GST): is a tax of supply of goods and services within Australia (10 per cent) requires that businesses must register if gross turnover > $50 000 requires that not-for-profit organisations register if gross turnover > $100 000 makes registration for GST optional and not compulsory if gross turnover < $50 000.

24. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 24 Effect of registering for GST Once registered, a business is required to adhere to the following: GST must be charged on all taxable supplies a tax invoice must be available to customers requiring one GST transactions must be reported to the ATO and payments made by the due date.

25. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 25 Effect of registering for GST Input tax credits (offset against GST payable) may be applied from acquisitions. If a business does not have an ABN, it could be subject to withholding credits.

26. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 26 Operation of the GST system Taxable supplies GST-free supplies Input taxed supplies.

27. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 27 Tax invoice features: Prominent ‘Tax Invoice’ Name of the supplier Supplier’s ABN Invoice issue date Description of items GST-inclusive price Total price.

28. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 28 Pay As You Go (PAYG) Payment of tax on income PAYG – Withholding – Instalments

29. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting for Business – A non-accountant’s guide 2/e by Jopling, Lucas and Norton Slides prepared by Rick Nieuwenhoven 5- 29 A Business Activity Statement (BAS) is to: be completed by businesses registered for GST be lodged with the ATO be reported monthly or quarterly reflect GST collected and paid.