Financial Accounting: Regulatory Environment News Report

This report is a comprehensive analysis of the financial accounting environment, focusing on regulatory changes and news updates from April 1, 2019, to July 31, 2019. It covers key developments such as the proposed new definition for not-for-profit entities, the new Conceptual Framework for Financial Reporting, and decisions regarding fair value measurement. The report also addresses amendments to AASB standards, including those related to business combinations and IFRS 9. Furthermore, it provides information on webinars and podcasts from IFRS, discussing topics like credit-impaired financial assets, IBOR reform, and amendments to IFRS 17. Additionally, the report includes a memo explaining the available methods for classifying expenses in financial statements, specifically the nature of expenses method and the function of expense method, along with relevant references to AASB standards. The report is designed to keep accounting professionals informed of the latest changes impacting their work. Desklib provides past papers and solved assignments for students to enhance their understanding of financial accounting.

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

1FINANCIAL ACCOUNTING
Table of Contents
Answer to Question 1: The Regulatory Environment and Financial Reporting........................2
Answer to Question 2: Financial Statement Presentation..........................................................4
Requirement (i)......................................................................................................................4
Requirement (ii).....................................................................................................................5
Requirement (iii)....................................................................................................................7
References................................................................................................................................10

2FINANCIAL ACCOUNTING
Answer to Question 1: The Regulatory Environment and Financial Reporting
NEWSLETTER
DEFINITION AND GUIDANCE OF NOT-
FOR-PROFIT ENTITY (11 JUNE, 2019)
The present definition of a not-for-profit entity
is to be replaced with a substantive definition
by ED 219 Not-for-Profit Entity Definition
and Guide and this is states in a proposal.
There are two independent parts in this
proposed definition; 1) providing goods and
services to the community for social benefits is
the primary objective, and 2) supporting the
objective instead of a financial return is the
provision of any equity. It is proposed that the
new definition will be added to AASB 1057
Application of Australian Accounting
Standards where the old definition will be
removed (aasb.gov.au, 2019).
CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING (6 JUNE, 2019)
The AASB has issued a new Conceptual
Framework for Financial Reporting for the for-
profit entities in private sector having public
accountability and have legislative obligation
to adhere to the Australian Accounting
Standards. Moreover, other for-profit
companies have the option to willingly adopt
this new Conceptual Framework which applies
to the period of annual reporting on or after 1
January 2020. This new Conceptual
Framework integrates IASB’s meaning of
‘reporting entity’ while revising the definition
and recognition criteria of assets and liabilities
(aasb.gov.au, 2019).
DECISION OF PROPOSING
ILLUSTRATIVE EXAMPLES AND
CLARIFICATIONS ON FAIR VALUE
MEASUREMENT (10 MAY, 2019)
On 30 April, the Board of AASB has decided
for proposing illustrative examples for
assisting public sector entities in applying
certain principles in AASB 13 Fair Value
Measurement. An amendment to AASB 13 has
also been decided to propose which will
include the use of cost approach in AASB 13
for the determination of fair value of the assets
of the not-for-profit entities operating in the
public sector (aasb.gov.au, 2019).
EXPOSURE DRAFT: REFERENCE TO
THE CONCEPTUAL FRAMEWORK (6
JUNE, 2019)
Narrow-scope amendments to AASB 3
Business Combination for updating for
updating the reference to the Conceptual
Framework for Financial Reporting without
altering the business combination related
accounting requirements has been proposed by
ED 290 Reference to the Conceptual
Framework. This could change the accounting
requirement for business combination because

3FINANCIAL ACCOUNTING
of the broader definition of liability in the new Conceptual Framework (aasb.gov.au, 2019).
IFRS 9 WEBINAR: CURING OF A
CREDIT-IMPAIRED FINANCIAL
ASSETS (22 JULY, 2019)
In March 2019, the IFRS implementation
committee considered the process of
presenting the amounts in the statement of
profit and loss by a company in case there is a
full payment of credit-impaired financial asset
or the asset is no longer credit impaired. It was
concluded by the committee that the
companies can get the sufficient basis for
addressing this issue from the IFRS standards.
Angie Ah Kun and Elizabeth Figgie, two
technical staffs of the IFRS implementation
committee discussed the conclusion they
reached (ifrs.org, 2019).
LAUNCHING OF NEW QUATERLY
PODCAST BY IFRS FOUNDATION (5
JULY, 2019)
The new quarterly podcast emphasizing on the
works undertaken by the International
Accounting Standard Board (Board) and the
IFRS Interpretations Committee in order to
support the reliable application of IFRS
standards has been published by the IFRS
foundation. The important topics covered by
this podcast are the questions regarding the
application of new financial instruments, lease
standards, revenue recognition – IFRS 9, IFRS
16 and IFRS 15 along with the accounting of
cryptocurrencies (ifrs.org, 2019).
PROPOSED TARGETED AMENDMENTS
TO IFRS STANDARDS IN RESPONSE
TO IBOR REFORM BY IASB (3 MAY,
2019)
Four public comment proposed changes to the
old and new standards for financial
instruments, IAS 39 and IFRS 9 have been
published by the International Accounting
Standards Board (Board) in order to
reformation of the interest rate benchmarks
like interbank offer rates (IBORs). The Board
has planned for amending IFRS 9 Financial
Instruments and IAS 39 Financial
Instruments: Recognition and Measurement in
order to provide relief from specific
requirements of hedge accounting (ifrs.org,
2019).
NEW WEBINAR: EXPOSURE DRAFT
AMENDEMTS TO IFRS 17 OVERVIEW
IFRS has made a new recorded webinar
available that provides an overview of the
Exposure Draft Amendments to IFRS 17 and
this is published by the International
Accounting Standards Board on 26 June 2019.
Laura Kennedy and Roberta Ravelli, the

4FINANCIAL ACCOUNTING
technical staffs at the IFRS foundation are
responsible for the presentation (ifrs.org,
2019).

5FINANCIAL ACCOUNTING
Answer to Question 2: Financial Statement Presentation
Requirement (i)
MEMO
To: The Directors
From: The Accountant
Date: 03.08.2019
Subject: Explanation on Available Methods for Classifying Expenses
According to Paragraph 97 of AASB 101, an entity is needed to disclose the nature and
amount separately of the income or expenses items. There are two method available for the
classification of expense in the statement of profit and loss and other comprehensive income;
they are Nature of Expenses method and Function of Expense method (aasb.gov.au, 2019).
According to Paragraph 103 of APES 101, the nature of expense method requires an entity to
aggregate expenses within profit or loss as per their nature such as material purchase,
transportation cost, employee benefits and others and this method does not undertake the
reallocating them among functions within the company (aasb.gov.au, 2019).
According to Paragraph 103 of AASB 101, function of expense method or cost of sales
method undertakes classifying expenses in accordance with their function as a part of cost of
sales such as cost of distribution or administrative activities. Under this method, an entity is
needed to disclose its cost of sales separately from other expense (aasb.gov.au, 2019).

6FINANCIAL ACCOUNTING
It needs to be mentioned that the second method that is the cost of sales method will result in
higher profit being reported to shareholders because this method does not consider changes in
finished goods as an expense which lead to the increase in profitability (aasb.gov.au, 2019).
According to Paragraph 105 of AASB 101, historical and industry factors along with the
nature of industry need to be considered at the time to select between the available methods.
An indication of the costs that vary directly or indirectly is obtained from both the methods.
Managements are needed to select the most reliable as well as relevant method of
presentation while considering their pros and cons (aasb.gov.au, 2019).
Requirement (ii)
Function of Expense Method

7FINANCIAL ACCOUNTING
Cost of Sales Method

8FINANCIAL ACCOUNTING
Requirement (iii)

9FINANCIAL ACCOUNTING

10FINANCIAL ACCOUNTING

11FINANCIAL ACCOUNTING
References
Aasb.gov.au. (2019). Presentation of Financial Statements. Retrieved 3 August 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
News. (2019). Aasb.gov.au. Retrieved 3 August 2019, from
https://www.aasb.gov.au/News/Not-for-Profit-Entity-Definition-and-Guidance-(June-
2019)?newsID=327180
News. (2019). Aasb.gov.au. Retrieved 3 August 2019, from
https://www.aasb.gov.au/News/Conceptual-Framework-for-Financial-Reporting?
newsID=327179
News. (2019). Aasb.gov.au. Retrieved 3 August 2019, from
https://www.aasb.gov.au/News/Decision-to-propose-illustrative-examples-and-
clarification-on-fair-value-measurement-for-public-sector-entities?newsID=327174
News. (2019). Aasb.gov.au. Retrieved 3 August 2019, from
https://www.aasb.gov.au/News/Exposure-Draft--Reference-to-the-Conceptual-
Framework?newsID=327178
IFRS. (2019). Ifrs.org. Retrieved 3 August 2019, from https://www.ifrs.org/news-and-
events/2019/07/ifrs-9-webinar-curing-of-a-credit-impaired-financial-asset/
IFRS. (2019). Ifrs.org. Retrieved 3 August 2019, from https://www.ifrs.org/news-and-
events/2019/07/ifrs-foundation-launches-new-quarterly-podcast/
IFRS. (2019). Ifrs.org. Retrieved 3 August 2019, from https://www.ifrs.org/news-and-
events/2019/05/iasb-proposes-targeted-amendments-to-ifrs-standards-in-response-to-
ibor-reform/