ACCT6003 Financial Accounting Process Assignment

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

1FINANCIAL ACCOUNTING PROCESS
Table of Contents
Answer to Question 1......................................................................................................................2
Requirement a..............................................................................................................................2
Requirement b..............................................................................................................................2
Requirement c..............................................................................................................................2
Answer to Question 2......................................................................................................................3
Requirement a..............................................................................................................................3
Requirement b..............................................................................................................................3
Requirement c..............................................................................................................................4
References........................................................................................................................................6

2FINANCIAL ACCOUNTING PROCESS
Answer to Question 1
Requirement a
According to SAC 1, there is not any dependency of the concept of reporting entity on
the private and public sector as this concept is developed based on the general purpose financial
reporting objectives (aasb.gov.au 2018). General purpose of financial reporting states that
business organizations having legal class, have the eligibility to form a reporting entity. Apart
from this, it is required for the business organizations to provide all the necessary information to
the respected authorities in order to be a reporting entity.
Requirement b
As per SAC 2 the Statement of Accounting Concept, the main objective behind the
preparation of the general-purpose financial reports is the delivery of necessary information to
the users related with the reporting companies so that this information can help the users in the
process to make and evaluate various decisions for the allocation of scare resources (aasb.gov.au
2018).
Requirement c
The names of the three factors are financial characteristics, political or economic
influence and the separation between management and economic interest. Clear existence of the
reporting entities can be seen from the gap between the ownership of the companies and the
management. Moreover, the existence of reporting entities can be ascertained from political
influence. Financial characteristics are also indicators of the existence of the reporting entities
(aasb.gov.au 2018).

3FINANCIAL ACCOUNTING PROCESS
Answer to Question 2
Requirement a
Two fundamental characteristics are discussed below:
Faithful Representation: In order to be useful, it is required for the business organizations to
represent the financial phenomena of the financial statements in the most faithful manner. In this
particular characteristic, the financial information must contain three sub-characteristics; they are
free from any errors, to be neutral and to be complete (Rankin et al. 2012).
Relevance: Financial information of the reporting entities must be relevant as relevant
information is capable enough to create difference in the decision-making process of the users.
Thus, in order to be relevant, financial information must have both confirmatory and predictive
value, as there is an interconnection between these two values. Users use the predictive values in
order to predict the future financial outcomes. At the same time, with the use of confirmatory
values, the users can obtain feedbacks of any previously evaluated financial topics (Brigham and
Houston 2012).
Requirement b
Three enhancing characteristics are discussed below:
Timeliness: It is the responsibility of the business organizations to deliver the required financial
information to the users at the right time so that they can be helpful in the process of financial
decision-making (Brigham and Ehrhardt 2013).
Verifiability: In the presence of the verifiability aspect of financial information, the users can
become assure that the organizations have presented this financial information on the most
faithful basis (Rankin et al. 2012).

4FINANCIAL ACCOUNTING PROCESS
Comparability: In the presence of the comparability aspect of financial information, the users of
financial information can become able to identify and understand the similarities and differences
in the financial information (Kulikova, Grigoryeva and Gubaidullina 2014).
Understandability: It is required for the business organizations to clearly classify, characterize
and present the financial information for easy understanding of the users (Brigham and Ehrhardt
2013).
Requirement c
The examples are as follows:
Faithful Representation: The delivery of complete description about the liabilities of the
companies in the financial statements can be considered as an example in this context (Kulikova,
Grigoryeva and Gubaidullina 2014).
Relevance: The delivery of financial information of the current years to the users for decision-
making can be considered as an example in this context (Brigham and Ehrhardt 2013).
Timeliness: Business entities use to publish all the financial information in a certain time of the
year. It can be presented as an example in this context (Kulikova, Grigoryeva and Gubaidullina
2014).
Verifiability: The process to verify inventory by checking and recalculating the ending
inventory can be presented as an example in this case (Brigham and Ehrhardt 2013).
Comparability: The users of financial information become able to compare the value of
particular financial phenomena due to faithful representation.

5FINANCIAL ACCOUNTING PROCESS
Understandability: Example of this aspect is the publication of financial information in simple
and user-friendly form.

6FINANCIAL ACCOUNTING PROCESS
References
Aasb.gov.au. (2018). Definition of the Reporting Entity. [online] Available at:
http://www.aasb.gov.au/admin/file/content102/c3/SAC1_8-90_2001V.pdf [Accessed 16 Mar.
2018].
Aasb.gov.au. (2018). Framework for the Preparation and Presentation of Financial Statements.
[online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/Framework_07-
04_COMPjun14_07-14.pdf [Accessed 16 Mar. 2018].
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage
Learning.
Kulikova, L.I., Grigoryeva, L.L. and Gubaidullina, A.R., 2014. The interrelation between the
professional judgment of the accountant and the quality of financial reporting. Mediterranean
Journal of Social Sciences, 5(24), p.61.
Rankin, M., Ferlauto, K., McGowan, S.C. and Stanton, P.A., 2012. Contemporary issues in
accounting. Milton, Australia: Wiley.