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

1.THE PURPOSE OF FINANCIAL STATEMENTS

THE GENERAL PURPOSE OF FINANCIAL STATEMENTS IS TO PROVIDE INFORMATION ABOUT THE RESULTS OF OPERATIONS FINANCIAL POSITION, AND CASH FLOWS OF AN ORGANISATION. THIS INFORMATION IS USED BY THE READERS OF FINANCIAL STATEMENTS TO MAKE A DECISIONS REGARDING THE ALLOCATION OF RESOURCES.

FINANCIAL STATEMENTS CAN ALSO BE ASSIGNED SEVERAL ADDITIONAL PURPOSES, WHICH ARE

CREDIT DECISIONS.

LENDERS USE THE ENTIRE SET OF INFORMATION IN THE FINANCIAL TO DETERMINE WHETHER THEYSHOULD EXTEND CREDIT TO A BUSINESS, OR RESTRICT THE AMOUNT OF CREDIT ALREADY EXTENDED

INVESTMENT DECISIONS.

INVESTORS TO DECIDE WHETHER TO INVEST, AND THE PRICE PER SHARE AT WHICH THEY WANT TO INVEST . AN ACQUIRES USES THE INFORMATION TO DEVELOP A PRICE AT WHICH TO OFFER TO BUY A BUSINESS

TAXATION DECISION.

GOVERNMENT ENTITIES MAY TAXA BUSINESS BASED ON ITS ASSETS OR INCOME, AND CAN DERIVE THIS INFORMATION FROM THE FINANCIALS

UNION BARGAINING DECISIONS

A UNION CAN BE BASE ITS BARGAINING POSITIONS IN THE PERCEIVED ABILITY OF A BUSINESS TO PAY; THIS INFORMATION CAN B GLEANED FROM THE FINANCIAL STATEMNETS

2. DUE PROCESS EMPLOYED BY AASB

a. strategic international influence-

maximising australia input and influence wiht the IASB and whne relevant, other international standards setters such as the internatioanl public sectors accounting standards borad.

b. transparency-

making public the information on which the AASB bases its decisions at the earliest oppourtunity , incuding public board papers and meetings and timely notification of tentative and final decision

c. appropriate consultation -

consultation in a genuine and timely way with interested and affected entities, profesional bodies, community organisations and individuals, to enhance th quality of the standards. consulting with other regulators to avoid creating cumulative or overlaping regulatory burdens

d. accountability-

a cost analysis is performed for all new and amending standards, either in the form of a regulation impact statemnet or simiilar document , or in the basis for conclusions, analysing the potential effects of the propasal on affected parties and explaining the rationale for why decisions were made. allstandards are periodically reviewed to test their continuing relevance pparagraphs

3.HOW TO OBTAIN CONSULTATIONS

There is no one right way of undertaking public consultation

TARGETED at those who most likely to be affected by the project

EARLY enough to scope key issues and have an effort on the project decisions

INFORMED , MEANINGFUL- disclose relevant project information in an understandable format and the

techniques are appropriate to the local culture and customs

TWO WAY so that both sides have oppourtunities to excnahge information,listen ask question, and have their issues addressed

  INCLUSIVE of gender

  LOCALISED to reflect the local timeframes

FREE from manipulation

DOCUMENTED to keep track of who has been consulted and key issued raised

ONGOING throughout the project life.