The Financial Reporting Framework

The major influences on financial reporting for companies in Australia are; the AASB (Australian Accounting Standards Board) Framework, accounting standards (such as the International Accounting Standard Board), UIG (AASB subcommittee, Urgent Issues Group) interpretations, the Corporations (or other) Act, and stock exchange listing requirements. The aim of Not-for-Profit-Enterprises is use its resources in an efficient manner to best achieve the objectives of the organisation.

Due process is the the allowance for all interested parties to comment on proposed accounting standards before finalisation. Topics are selected by the AASB or allocated to the AASB by the IASB. The due process employed by standards setters provides managers with an opportunity to lobby standards setters. The Corporations Act requires that the following be included with a company's financial statements; the director's report, the director's statement, the auditor's report. The director's report give names of the director's, activities, profit or loss, dividends, review of operations. The director's statement declares wther the director considers the income statement and balance sheet to represent a true and fair view. The auditor's report, prepared externally, forms an opinion of the financial statement. The annual report must include an income statement, a balance sheet, changes in equity, statement of cash flows and notes to the financial statements.

A conceptual framework is an attempt to develop some basic concepts of accounting in order to assist in the determination of how a particular transaction may be accounted for. The Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users. A conceptual framework means fewer and more consistent accounting standards, as it is able to resolve problems in advance, and improved communication with between standards bodies and accountants. It also protects the standards against politicisation.

The Framework defines the reporting entity, from which there are users who rely upon the financial statements as their major source of financial information about the entity. The Framework defines the objective of financial statemenst are providing information about the financial position, performance and changes. Financial statements must be prepared on an accrual basis and not a cash basis. The accrual basis is when transactions are recognised when they occur and not when cash is paid and received. Financial statements are prepared on the basis that the entity will continue to operate into the forseeable future. General purpose financial statements have the qualitative characteristics, according to the AASB Framework, of relevance, reliability, understandability and comparability.

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. An asset is recognised in the balance sheet only when it is probable that the future economic benefits will flow to the entity and the asset can be reliably measured in value. Liabilities are defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. IS only recorded when it is probable that the liability will be settled and the value can be measured. Equity is the residual interest in the assets of the entity after deducting its liabilities.

Expenses are decreased in economic benefits during the accounting period in the form of outflows or depletions of assets or the incurrence of liabilities that result in decreases in equity. Income is increases in economic benefits in the form of inflows, enhancements of assets, or the decreases in liability. Both require independence from the contribution of equity participants. Revenue is the gross inflows arising in the course of ordinary activities.

Income = Revenue + Gains
Revenue = Inflows from ordinary activities
Gains = All other inflows.

Recognition of transactions according to the AASB Framework is either from historic cost or current cost or realisiable value or current value.

The external audit aims to provide assurance that the financial statements of the company provide a true and fair view of the company's financial position, performance and cash flows. The expectation gap describes the difference between the role performed by the external auditor and the role that the shareholders expect of said auditor. Subsequent to Enron, an auditor must be independent of the client from who the audit is conducted.