Topic2-tutorialanswers..docVIP

THE UNIVERSITY OF ADELAIDE BUSINESS SCHOOL MASTERS PROGRAMS ACCTING 7019 ACCOUNTING CONCEPTS AND METHODS (M) Topic 2: Conceptual framework, statement of financial position (balance sheet) TUTORIAL Questions and Problems 1. Text, page 458, Discussion question 3 3. ‘One of the major changes in both corporations legislation and accounting standards is the adoption of the reporting entity concept.’ This comment was made in a presentation at an accounting conference. One of the directors of your entity, a Brisbane-based company that is a wholly owned subsidiary of a Sydney-based company, was at the presentation and was concerned at his lack of knowledge of this concept. Explain to the director what is meant by the ‘reporting entity’ concept, the steps the company needs to take to determine whether it is a reporting entity, and the potential impact of this concept on financial reporting. Discuss as well whether or not the reporting entity concept should be abandoned. . Currently, a reporting entity is defined in SAC 1 as an entity in which it is reasonable to expect the existence of users who depend on general-purpose financial reports for information to enable them to make decisions about the allocation of scarce resources, i.e. economic decisions. Note that these users do not have power to command that the entity supply them with information. Hence, they are not entitled to special-purpose financial reports. The users that are expected to exist are in three categories: 1. Resource providers. This category includes employees, lenders, creditors, suppliers and investors. In the case of non-business entities, the category includes donors, members of clubs, taxpayers and ratepayers. 2. Recipients or consumers of goods and services, i.e. customers, beneficiaries, taxpayers and ratepayers. 3. Parties performing a review or overseeing function. These include parliaments, governments, regulatory agencies, labour unions, employer groups, media,