RFFR 1 Unit 1 - Users & Their Needs.pptx

For refrence purposes

1. REGULATORY FRAMEWORK FOR FINANCIAL REPORTING I Semester 1 2024 Accounting Division SBPP UPNG

2. Unit 1: THE USERS & THEIR NEEDS THE USERS OF THE FINANCIAL INFORMATION

3. OBJECTIVE WHEN YOU COMPLETE THIS TOPIC, YOU SHOULD BE ABLE TOO; Explain basic accounting & financial reporting accounting. What is General Purpose Financial Reporting/Reports (GPFRs) Describe the major types of users of accounting information. Identify information needed by different user groups. What is non – financial information.

4. Intro- Part 1: Definition of Accounting & Financial Accounting It is essential that we understand the significance of accounting.

5. Intro- Part 1.1: Definition of Accounting & Financial Accounting W hat is accounting? It is a process whereby we gather, record, summarize and report useful information to those people regarded as having a reasonable rights to that information. What is financial reporting accounting? It is the part of accounting which is concerned with reporting to users outside of the organization. It focuses attention on the “stewardship function” of accounting i.e. its role as a way of telling investors, lenders, and arguably others such as employees, what has been done with their money or with their time and effort Watch the video on; What is financial reporting accounting?

6. Intro–Part 1.2 :Understanding The Different Accounting Functions

7. Intro- Part 1.3: Major Types of Users of Financial Accounting Information

8. Introduction: Part 2: What is GPFR? What is GPFR? It is a general report that shows all of the financial information that pertains to a business. It is a general observation of the company’s finances and meet the needs of the readers, rather than those of a specific groups of readers, such as investors, shareholders, business executives or budget planners.

9. Introduction: Part 2.1 : IASB interpretations of GPFRs & Reporting Entity IASB Interpretation of GPFRs? 1. Annual Reports 2. Prospectuses 3. Management’s focus and descriptions of an entity’s social or environmental impacts be all included in the financial report.

10. Introduction: Part 2.1: What is a reporting entity? SAC1: Definition of Reporting Entity? A ny legal, administrative, fiduciary arrangement, organizational structure or other party (including a person) having the capacity to deploy scare resources in order to achieve objectives and requires that “individual reporting entities be identified by reference to the existence of users who are dependent on general purpose financial reports for information for making and evaluating resource allocation. SAC1 defines reporting entity by reference to its users needs. A reporting entity has users dependent on its GPFRs for information about the entity. An entity which does not have users dependent on its GPFRs is not a reporting entity even if it publishes financial reports.

11. Introduction: Part 2.2: Reporting entities required to prepare GPFRs Reporting entities required to prepare GPFRs: Companies whose securities are publicly listed Listed trusts and other trusts which raise funds from the public. Government- controlled business undertakings. Federal state & territorial governments. Local governments Other reporting entities that qualify & prepare financial reports include; NGOs State Authorities & not gov’t controlled business entities.

12. Introduction: Part 2.2: Reporting entities required to prepare GPFRs Other private sector entities which do not exhibit characteristics to be identified as a reporting entity may include; Exempt proprietary companies Family Trusts Partnerships Sole Traders Wholly owned subsidiaries of Australian Reporting Entities

13. Introduction: Part 2.3: What is the objective of financial reporting? The objective of financial reporting . In Australia two studies were conducted. 1 st Kenley & Staubus (1972) “to provide financial information about the economic affairs of an entity for use in making decisions.” 2 nd Barton (1982) “satisfy the needs of users of financial information about the firms operations and its resources and obligations for use in economic decision making and control & for accountability purposes. The three key words derived from this definition are; accountability, decision usefulness and control. However, the tem “control” is associated with providing information to managers & governing bodies to assist them in controlling the operations of the entity. Thus the control objective is not relevant for financial reporting.

14. Introduction: Part 2.3: What is the objective of financial reporting? AARF issued SAC2: [Paragraph 7] GPFRs focuses on providing information to meet common information needs of users who are unable to command the preparation of reports tailored to their particular needs. [Paragraph 26] Also elaborates that the objective of GPFR is to provide information to users that is useful for making and evaluating decisions about the allocation of scare resources. SAC 2 recognizes a decision- usefulness objective for financial reporting and identifies four categories of users; 1.Resource providers. (shareholders, creditors & employees) 2. Receipts of goods & services. 3. Parties performing a review or oversight function. 4. Management & governing bodies

15. Introduction: Part 2.3: What is the objective of financial reporting? There are three questions arising from the choice of a decision – usefulness objective; What is the nature of the users decision which rely, at least in part on the financial information contained in the reports. What qualities are expected of the information in the reports. What information is needed to assist in the decision.

16. Intro – Part 2.4: The Nature of the Decision [ The user groups & decision needs include; ]

17. Intro – Part 2.4: The Nature of the Decision [ The user groups & decision needs include; ]

18. Intro – Part 3: The Seven Major User Groups Of Financial Information

19. Intro – Part 3: The Seven Major User Groups Of Financial Information

20. Intro – Part 3: The Seven Major User Groups Of Financial Information

21. Intro – Part 4: The Decision Requirement and Information Need

22. Intro – Part 4: The Decision Requirement and Information Need

23. Intro – Part 4: The Decision Requirement and Information Need

24. Intro – Part 5: What Is Non – Financial Information? What are non –financial information? Accounting is about communicating economic and quantifiable information that is useful for decision making however certain information about the health of the business is not explicitly reported in the financial statements. Whether the employees are happy with the latest pay offer, for example, is obviously of concern for anyone looking at the company, but it will not usually be reported in the annual reports, and it will certainly not appear in any of the financial statements. Watch a short video further elaborating on the non – financial information.

25. Summary Information requirements are essentially forward –looking. Different users, different purposes, may require information about the same items. Different users will require ( and be able to understand) different degrees of complexity and depth. Not all the information require is likely to be included in the financial accounts. One of the criteria for including information in GPFRs is that it should have “desirable” qualities or characteristics. The information that should be included in GPFRs should provide assistance in the decision – making process.