Question

A legal wrangle developed between the Australian Taxation office and Hampton Ltd (HL) concerning the treatment of disputed income tax payments. This prompted Australian Securities and the Investments Commission (ASIC) to seek a formal ruling on the dispute and call for full disclosure of the effects of tax disputes in the company’s financial statements.

The excerpts of the letter received from ASIC stated that: If you are a preparer of financial statements, or a company director, you need to ensure that the general purpose financial reports you are releasing are in compliance with accounting standards released by the AASB. Please also note that these standards are the result of a long and extensive due process which directly involved in public consultation.

Having read this letter, one of the Board of Directors directed the Company Finance Director to send him a brief explanation about accounting standards due process.

The Finance Director in the company for which you are an accountant has required you to:

1. Explain general purpose financial statements.                                                                              
2. Explain the due process employed by the AASB in the preparation of accounting standards.                                                                                                                                                                                   
3. Briefly describe how to obtain public consultation.                                                                                   

Answer 1

General-purpose financial statements :-

General-purpose financial statements released to a broad group of users. These are issued throughout the year to aid investors and creditors in their decision making process. These statements include the income statement, balance sheet, statement of cash flows, statement of shareholders’ equity, and any accompanying disclosures. If the financial statements have been audited, then they should also include the audit report.

There are four main financial statements:

(1) balance sheets (2) income statements (3) cash flow statements and (4) statements of shareholders' equity.

Due process employed by the AASB :-

All the accounting standards are a result of long and broad due process.The starting point for the AASB’swork program is to identify a technical issue.

This are three ways:- 1) The IASB equivalent was adopted by AASB - the issues on the International Financial ReportingInterpretations Committe’s (IFRIC) work programs were also adopted by AASB. 2) AASB monitors the International Public Sector Accounting Board’s (IPSASB) work program to identifythe similar issues associated with the AASB work program. 3) The AASB’S issues related to profit making companies are identified by referring to IASB and for nonprofit making companies by referring to IPSASB.

Public consultations:-

Public consultation is a process that involves the public in providing their views and feedback on a proposal to consider in the decision-making.

1.The public are perfectly capable of making sense of complex issues.

2.Decision makers are not necessarily expert on the issues for which they are deciding or debating. Evidence suggests that this holds true for the vast majority of cases. The public consultation is that it can take place at practically any stage of the policy cycle, from objective setting and design to delivery and evaluation, and at each stage it can inform government of the public’s opinion as well as help identify less well-known alternatives and overlooked consequences.