Accounting Explained With Brief History

Running head: ACCOUNTING
Accounting
Name of the Student
Name of the University
Author Note

1ACCOUNTING
Table of Contents
Introduction.....................................................................................................................2
Critical Description of a reporting entity.........................................................................2
Analysis of BINGO Industries Ltd...................................................................................3
Relevance and Representational Faithfulness – An overview.......................................4
Relevance and representational faithfulness for assets and liabilities..........................4
Conclusion......................................................................................................................5
References.....................................................................................................................6

2ACCOUNTING
Introduction
In Australia, most of the entities prepare financial statements to communicate the
information about the entity’s performance. However, one of the most significant
aspects in this regard is relevance and reliability of the information contained within
them. The financial statements can be extremely relevant or can be completely
misleading by hiding necessary information through careful manipulation. Hence, it
needs to be kept in mind that an entity classified as a reporting entity should prepare its
General Purpose Financial Report (GPFR) with great care. This is because there is a
common expectation amongst the users of the financial reports that they are reliable in
nature. They also tend to make their decisions on the basis of the reliability of the
financial reports. Amongst the users of the financial statements are a wide range of
stakeholders of the entity. They include members, shareholders, creditors, investors
and potential investors in an entity. The information contained below deals with the
aspects of a reporting entity and whether an entity can be classified as a reporting entity
or not. Similarly, it takes the example of BINGO Industries Ltd., an Australian entity to
understand the concept of relevance and reliability in financial reporting and whether the
chosen entity is following the same or not.
Critical Description of a reporting entity
In the current scenario, there are a wide variety of interpretations about the
concept of a reporting entity and whether one can be classified as a reporting entity or
not. According to paragraph 40 of SAC 1, a reporting entity is one in which it is highly
probable that there exist users who are highly dependent on the general purpose
financial reports for the process of obtaining information about an entity (Handley,
Wright and Evans 2018). This information will then be used by them in evaluating their
decisions about the entity and in the allocation of the scarce resources available with
them. These GPFRs play an important role in determining the performance of the entity
(Carey, Potter and Tanewski 2014). Hence, there are a set of rules and regulations
guiding them in the preparation of the GFRS. These are known as the accounting
standards and are issued by the Australian Accounting Standards Board (AASB). Apart
from these mandatory guidelines, there are a wide range of concepts contained within
the concept of a reporting entity. One of the concepts is that of a legal entity. This
concept suggests that any entity which has registered itself a legal entity should prepare
its financial reports for the usage of the members and other related parties (Tavadze
2018). Similarly, another concept which is a part of the reporting entity concept is the
concept of accountability. The accountability concept suggests that the elected
representatives and the appointed officials of a company like the Board and the
management have a responsibility towards the public. This information includes, but is
not limited to providing reliable information about the financial performance of the entity
(Draft 2015). There are other underlying concepts within the concept of reporting entity.
The concept of a reporting entity is also related to the needs and demands of the users
of the financial statements. Hence, appropriate information should be provided about
the important financial aspects of an entity. They include the funds available with the

3ACCOUNTING
entity, the manner in which they are spent and should help in the resource allocation
decisions of the users. Another situation is one where an entity comprises of several
entities as a part of it. In situations like these, it becomes necessary to state whether a
particular entity is able to exert control over all the other entities or not (Aasb.gov.au.
2020). The existence of the control by one entity over other entities can be determined
by a selected set of factors. These include the extent and implications of the financial
dependence of the other entities, whether the management can appoint and remove the
governing bodies and if it can direct the operations of the other entities of the group. As
per paragraph 51 of AASB 101, a reporting entity should disclose some of the
information clearly and prominently in the annual financial statements prepared by it
(Aasb.gov.au. 2020). They include the name of the reporting entity and any changes
which have occurred from the preceding financial period for which reports were
prepared. If the financial reports prepared for a particular period belong to a single
company or a group of companies. The date on which the reporting period ends and the
period covered by the financial reports of the entity. The level of rounding used in
preparing the statements and the currency in which the reporting is taking place should
also be clearly stated. Other necessary information should also be disclosed by the
entity to let the users evaluate the objectives, processes and policies necessary for
managing its capital available with it (Standard 2020). These include the qualitative
information about what constitutes its capital, whether there are external sources which
determine its level of capital and how its objectives are met through the capital.
Summary Quantitative data about what is a part of the capital and whether any changes
have occurred from the previous financial reporting period should be stated. If the entity
has followed the required guidelines, the same should be stated in the financial
statements of the entity. The requirements which need to be complied with and the
consequences of non-compliance with the requirements should also be clearly
mentioned for the usage of people accessing the financial statements.
Analysis of BINGO Industries Ltd.
The analysis of the financial statements of BINGO Industries Ltd. is conducted to
understand whether it can be classified as a reporting entity or not. The notes to the
financial statements begin with the statement of compliance. This states that the entity
has prepared its financial statements in accordance with the Corporations Act 2001 and
the Accounting Standards issued by the AASB to be able to comply with the law and the
IFRS (Bingoindustries.com.au. 2020). The reports of the entity are prepared for the
period of 1 April to 31 March and are prepared using the historical cost basis on the
basis of the fair values for the goods and services exchanged. Similarly, the reports are
prepared in Australian dollars and are rounded off to the nearest thousand dollars,
unless specified otherwise. The company also makes a clear mention about the
controlling and non-controlling interests owned by it and discloses the non-controlling
interests separately in the financial reports prepared by it. It also reports about the
important aspect of various segments in which it is operating and the tax which is paid
at the end of the individual reporting period (Bugeja, Czernkowski and Moran 2015).
Various important aspects like the current assets, current liabilities and the benefits
provided by an entity during a particular reporting period are all stated clearly by the
entity. The amount of capital available with the company along with the external sources

4ACCOUNTING
of funds available with it are segregated clearly. The bank loans taken by the entity, the
capital generated through the use of internal funds and the market currency risks faced
by the entity are all clearly stated. Along with these, the impact of the fluctuation in the
interest rates on the funds available with the company are all explained clearly in the
financial reports prepared by the entity. All these factors, when taken in combination
with each other suggest that BINGO Industries Ltd. is a reporting entity.
Relevance and Representational Faithfulness – An overview
As suggested by the literary meaning of the word itself, an information can be
considered to be relevant if it is capable of influencing the decisions of the users of the
financial statements. For example, the purchase of a major asset in a large scale
business is more important than the purchase of a paper bin for office usage purposes.
According to the concept of relevance, more importance should be given to the
purchase of the major asset. This is because of the large outflow of economic resources
involved in the purchase of the asset and its ability to determine the profits earned by
the business over the next few years (Hodder, Hopkins and Schipper 2014). Similarly,
representational faithfulness is another important aspect in the preparation of the
financial statements. This concept suggests that the financial statements prepared by
an entity for a particular time period should be accurate to the highest level and should
be free from any kind of bias. They should also be neutral in nature and must be
completed thoroughly. An information provided through the financial statements has two
important characteristics. It should have both confirmatory value and predictive value.
The confirmatory value should provide accurate information about the past events which
have occurred as a part of the business of the entity. The predictive power suggests
that the information in the current financial statements should provide information about
the future events that may occur as a part of the business conducted by the entity.
Relevant information is extremely useful to all the stakeholders of a company, especially
to the creditors and the potential investors in the entity (Azar, Zakaria and Sulaiman
2019). Representational faithfulness of the financial statements is said to exist when the
information provided about a company is a fair representation of the resources,
obligations and the future benefits that may arise as a part of the business activities.
Completeness means any transaction entered into by a company should be clearly
stated in the financial reports of the company. There are aspects in the reports like
creation of provisions and the recognition of contingent assets and liabilities in the
financial statements which involve a certain amount of estimation. In these situations,
the underlying information about the provisions and other relevant reasons should be
clearly explained to the users of the financial statements. In case of any errors occurring
in the financial statements of prior period, the information should be provided about the
same and the measures undertaken by the entity to rectify the errors.
Relevance and representational faithfulness for assets and liabilities
In case of accounting for assets and liabilities, it can be stated that both
relevance and representational faithfulness are equally important to ensure faithful
representation of the information. This is because omitting any of the concepts results in
financial reports producing misleading information (Song 2015). In case of Bingo
Industries Limited, the entity mentions about the usage of AASB 9 and AASB 15 in the

5ACCOUNTING
preparation of its financial statements. Due to the application of AASB 9 in preparing the
financial statements, the financial assets and liabilities of the entity were reclassified by
the entity (AASB 2018). Due to the application of AASB 9 by the entity, the entity
applied a more simple approach to the measurement of the expected credit losses. As
this information is relevant for the financial performance of the entity, the same is
explained in the reporting followed by the entity. Similarly, due to the application of
AASB 15, the entity measured its revenues on the basis of the revenue stream and the
performance obligations required to be fulfilled. Similarly, the application of AASB 16
resulted in the entity recognising assets and liabilities worth $49.1 million and $49.4
million respectively. An amount of $0.3 million was adjusted from the retained earnings.
These figures indicate the financial impact on the entity due to representational
faithfulness.
Conclusion
On the basis of the above discussion, it can be concluded that a reporting entity
is one whose GFRs are used by the users in making decisions about the allocation of
the resources available with them. There are various legal and ethical requirements
guiding a reporting entity in preparing its financial reports. The financial reports have
various qualitative characteristics. Relevance and representational faithfulness are two
of the most important qualitative characteristics in preparing the financial statements of
an entity. They are equally important in communicating the accurate information to the
users of the financial statements and no distinction can be made between them
regarding the same.

6ACCOUNTING
References
AASB, C.A.S., 2018. Investments in Associates and Joint Ventures.
Aasb.gov.au. (2020). [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf [Accessed 27
Jan. 2020].
Aasb.gov.au. (2020). [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/SAC1_8-90_2001V.pdf [Accessed 27
Jan. 2020].
Azar, N., Zakaria, Z. and Sulaiman, N.A., 2019. The Quality of Accounting Information:
Relevance or Value-Relevance?. Asian Journal of Accounting Perspectives, 12(1),
pp.1-21.
Bingoindustries.com.au. (2020). [online] Available at:
https://www.bingoindustries.com.au/getattachment/c0246340-f3c5-457b-b1f5-
84218cf043c6/fy18-ar.pdf [Accessed 27 Jan. 2020].
Bugeja, M., Czernkowski, R. and Moran, D., 2015. The impact of the management
approach on segment reporting. Journal of Business Finance & Accounting, 42(3-4),
pp.310-366.
Carey, P., Potter, B. and Tanewski, G., 2014. Application of the Reporting Entity
Concept in A ustralia. Abacus, 50(4), pp.460-489.
Draft, E., 2015. Conceptual Framework for Financial Reporting. 2015-05-01)[2015-07-
20]. http://kjs. mof. gov. cn/zhengwuxinxi/gongzuotongzhi/201506 P.
Handley, K., Wright, S. and Evans, E., 2018. SME reporting in Australia: where to now
for decision‐usefulness?. Australian Accounting Review, 28(2), pp.251-265.
Hodder, L., Hopkins, P. and Schipper, K., 2014. Fair value measurement in financial
reporting. Foundations and Trends® in Accounting, 8(3-4), pp.143-270.
Song, X., 2015. Value relevance of fair values—Empirical evidence of the impact of
market volatility. Accounting Perspectives, 14(2), pp.91-116.
Standard, I.A., 2015. Presentation of Financial Statements. Balance Sheet, 54, p.80A.
Tavadze, M., 2018. The Concept of Business Reputation of the Legal Entity. TSU
Journal of Law, 1(1).