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BAO3309 Advanced Financial Accounting

tag 0 Download 6 Pages / 1,261 Words tag 19-07-2021

Questions

On 7 November 2014, the Australian Securities and Investment Commission (ASIC) announced its areas of focus for 31 December 2014 financial reports of listed entities and other entities of public interest with many stakeholders. One of those areas of focus was accounting policy choices. According to ASIC preparers and auditors need to focus on the appropriateness of key accounting policy choices and that its surveillance will focus on material disclosures of key accounting policy choices:

Accounting policy choices

Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.

Material disclosures 

ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.

Source: http://asic.gov.au/about-asic/media-centre/find-a-media-release/2014-releases/14-294mr-focus-for-31-december-2014-financial-reports/<accessed 1/2/2017>

In its commentary on this issue, CPA Australia observed the following:

Accounting policy choices made in respect of off-balance sheet arrangements is another focus area for ASIC. The requirements of AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 12 Disclosures of Interests in Other Entities should be considered by entities when determining the correct accounting treatment for off-balance sheet arrangements. 

ASIC continues to remain sensitive to the accounting policy choices companies make when recognising revenue, as the appropriate application of the requirements including the timing of recognition and reflecting the substance of underlying transactions, are critical for a suitable revenue recognition policy.

Companies that state compliance with IFRS in their financial statements, and their auditors should pay attention to the potential impact of applying the new accounting standard IFRS 15 Revenue from Contracts with Customers and make appropriate disclosures if required. . IFRS 15 was issued by the International Accounting Standards Board in May 2014, with an application date set for accounting periods beginning on or after 1 January 2017 (a copy of IFRS 15 can be obtained from CPA Library). The Australian Accounting Standards Board’s work program indicates that the Australian version of IFRS 15 will be issued in quarter 4 of 2014.

Source: https://www.cpaaustralia.com.au/media/familiar-look-to-asics-focus-areas<accessed 1/2/2017>

In addition to this information, ASIC released an attachment which provided more detail on its areas of focus with regards to accounting estimates, accounting policy choices and key disclosures, a copy of which is available here:

http://download.asic.gov.au/media/2249282/attachment-to-14-294mr.pdf 

Required

  1. Explain, with reference to the research literature, how accounting policy choices can affect financial results?
  2. Why did ASIC choose to focus its investigation on material disclosures of decision useful information such as assumptions supporting accounting estimates, significant accounting policy choices? Explain your answer with reference to the research literature.
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