The Reporting Entity Concept Of The Australian Accounting Standards Board

1027 WordsMar 24, 20175 Pages
Question 1A & 1B The Reporting Entity Concept makes up part of the Australian Accounting Standards Board (AASB) Conceptual Framework and has been in use since its inception in Australian Accounting Standards in the early 90s (Hamidi-Ravari, 2014). The creation of Statement of Accounting Concept 1 (SAC 1) has allowed for businesses to determine if they are a reporting entity by outlining the various criteria applicable to such decision making. International Financial Reporting Standards (IFRS, n.d.) states that entities can include “sole proprietorships, corporations, trusts, partnerships, associations and a group of entities”. For a business to determine if it is a reporting entity, there is a range of criteria in SAC 1 to refer to. The…show more content…
The second criteria is that if the business has economic or political importance or influence, it is highly likely that it classifies as a reporting entity. Economic or political influence means that the business will have a bigger impact on the welfare of external parties, and such entities would include businesses that are market leaders, public sector entities with regulatory powers, and employer/employee affiliations (Peter Carey, 2013). The third criteria outlined in SAC 1 is the need for a reporting entity to have certain financial characteristics. Such characteristics include the size of the entity (e.g. value of assets, number of employees or customers) and the entity’s level of indebtedness to external stakeholders. The larger the size of the entity, the greater the likelihood of users who are dependent on general purpose financial reports to assist in making resource allocation decisions for their business (Peter Carey, 2013). Question 2A & 2B If a business does fulfil the reporting entity criteria, AASB 1053 Application of Tiers defines what the reporting requirements are that such a business can expect to abide by (AASB, 2010). There are two tiers of reporting requirements for the preparation of general purpose financial reports in AASB 1053 (AASB, 2010). The first reporting tier is Australian Accounting Standards and the second tier is Australian Accounting Standards with reduced

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