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

Ans.

A.

General purpose financial statements are those financial statements released to a broad group of users. These statements include the income statement, balance sheet, statement of cash flows, statement of shareholders' equity, and any accompanying disclosures.

The purpose of this Statement is to establish the objective of general purpose financial reporting by reporting entities in the private and public sectors. The Statement identifies the users of general purpose financial reports, the common information needs of such users and the broad types of information, consistent with those needs, that general purpose financial reports should provide.

B.

Following chart describe the process employed by AASB in preparation of accounting standards :-