Advanced Financial Accounting | Qualitative Characteristics

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student
Name of the University
Author’s Note

ADVANCED FINANCIAL ACCOUNTING1
Table of Contents
Introduction...................................................................................................................2
Reporting Entity............................................................................................................2
Definition, Description and Discussion on a Reporting Entity..................................2
Identification of a Reporting Entity............................................................................3
Fundamental Qualitative Characteristics......................................................................3
Understanding on Relevance and Representational Faithfulness...........................3
If one is More Important than the other in Accounting for Assets and Liabilities......4
Conclusion....................................................................................................................5
References...................................................................................................................6

ADVANCED FINANCIAL ACCOUNTING2
Introduction
The managements of the companies are required to consider certain aspects
while carrying out the financial reporting related operations. Two of these crucial
aspects are the fulfilment of the requirements of reporting entity concept and ensure
the presence of fundamental qualitative characteristics in the financial reporting for
making them more relevant to their users. It is needed for the managements of the
business organizations to ensure the fulfilment of these aspects for making their
financial reporting more relevant and purposeful. In order to ensure this, it is needed
for the companies to comply with the provided rules and regulations provided by the
standard setting bodies. There are two main objectives of this report and Beach
Energy Limited (Beach Energy) is selected in order to proceed with this report. The
first part of the report discusses about the definition and requirements of Reporting
Entity along with the determination of the fact that whether Beach Energy is a
reporting entity or not. The next part of the report discusses about two main
fundamental qualitative characteristics of financial information and their importance
in the accounting for assets and liabilities.
Reporting Entity
Definition, Description and Discussion on a Reporting Entity
As mentioned in AASB 101 Presentation of Financial Statements, a reporting
entity can be defined as a company for which it is rational to assume that there is
existence of users that are reliant on the general purpose financial reports for gaining
the information that will be of great use to them in order to make and evaluate
decisions related to allocate scarce resources. A single entity or a group including a
parent and all of its subsidiary companies can be the reporting entity (aasb.gov.au
2020).
The Australian accounting profession adopted the concept of reporting entity
with the intention of reducing the reporting requirements forced on certain
organizations through the accounting standards. As mention in the concept, a
reporting entity is needed to prepare the financial statements in adherence with all
the required accounting standards as well as accounting interpretations referred to
as general purpose financial statements (GPFSs) (deloitte.com 2020).
There are three crucial factors that are required to be considered while
determining whether a company is a reporting entity or not. In line with the above-
provided definition of reporting entity, it is a crucial aspect to consider whether there
are users reliant on the financial reports in order to make and evaluate decision
about the scarce resources of a company (Potter, Ravlic and Wright 2013). Now, the
presence of dependent users can be ascertained in the presence of three primary
factors and these are discussed below:
Separation of Ownership and Management – It is more probable that there is the
presence of users reliant on the general purpose financial reports when the
ownership is spread largely and the management and owners or other parties having
interest in the entity are separated in greater level (aasb.gov.au 2020).
Economic or Political Influence – Economic or political importance or influence
can be considered as the capability of a firm of making major impact on the
wellbeing of the outside parties. It is more likely that there is the presence of users
dependent on the general purpose financial statements of the firm when it has
greater political or economic impact. Reporting entities recognized based on this
aspect are probable to consider the companies with leading position in the