unit 1 regulatory framework &accounting practice...
TRANSCRIPT
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Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum
Technology Education Section, Curriculum Development InstituteEducation Bureau, HKSARG
August 2008
Unit 1 : Regulatory Framework and Accounting Practices
Course 1: Contemporary Perspectives on Accounting
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On completion of this unit, you should be able to:On completion of this unit, you should be able to:
•• Understand the Understand the authority and scopeauthority and scope of regulatory of regulatory framework of accounting in Hong Kong and Hong Kong framework of accounting in Hong Kong and Hong Kong Financial Reporting Standards.Financial Reporting Standards.
•• Explain the Explain the objective objective of financial statements.of financial statements.
•• Identify Identify users users of financial statements and their of financial statements and their information needsinformation needs..
•• Explain the Explain the key assumptions key assumptions underlying the preparation underlying the preparation of financial statements.of financial statements.
•• Explain Explain principal qualitative characteristics principal qualitative characteristics of of financial statements.financial statements.
Learning ObjectivesLearning Objectives
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Organisation of Unit 1Regulatory Framework and Accounting Practices
Private sector regulatory bodies:- professional bodies- advisory committees
Public sector legislation:- the Companies Ordinance (CO)- the Inland Revenue Ordinance (IRO)
Regulations on accounting practices issued by HKICPA
Preface to Hong Kong Financial
Reporting Standards (Preface)
Framework for the Preparation and Presentation of Financial Statements
(Framework)
Hong Kong Financial Reporting Standards (HKFRSs)
Financial statements:- objectives- users and their information needs- key assumptions- principal qualitative characteristics
- Hong Kong Financial Reporting Standard (HKFRS)
- Hong Kong Accounting Standards (HKAS)
- Interpretation
Learning Resources CornerSummary of Major Changes on Selected HKFRSs
Learning Resources CornerConceptual Framework for Financial Reporting
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Regulatory FrameworkRegulatory Framework (1)(1)
First of all, we will go through the regulatory framework of accounting in Hong Kong (regulatory framework). Generally, the regulatory framework comprises various regulatory bodies and accounting practices set by them.
Do you know the sources of the accounting practices in Hong Kong?
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Regulatory Framework Regulatory Framework (2)(2)
Broadly speaking, accounting practices used in Hong Kong are known as Generally Accepted Accounting Practices (GAAP).
The content of GAAP is sourced from both public sector legislation and private sector regulatory bodies.
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
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Regulatory Framework Regulatory Framework (3)(3)
Public sector legislation principally consists of the statutes promulgated by the HKSAR Government , for examples: - the Companies Ordinance (CO); and - the Inland Revenue Ordinance (IRO).
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
HKSAR Government - Statutes
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Regulatory Framework Regulatory Framework (4)(4)
The private sector regulatory bodies comprise mainly:- professional bodies; and - advisory committees.
These private sector bodies do not have any legal power to enforce the compliance with the regulation imposed. However, professional sanctions and public reprimand are often strong deterrents against the non-compliance.
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
Statutes Professional Bodies
Advisory Committees
HKSAR Government- Statutes
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Regulatory Framework Regulatory Framework (5)(5)
Do you know who is the principal private sector regulatory body in Hong Kong?
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
Professional Bodies
Advisory Committees
HKSAR Government - Statutes
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Regulatory Framework Regulatory Framework (6)(6)
The principal private sector regulatory body is Hong Kong Institute of Certified Public Accountants (HKICPA).
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
Professional Bodies
Advisory Committees
HKSAR Government- Statutes
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Regulatory Framework Regulatory Framework (7)(7)
Can you tell what are the principal private sources of regulation on accounting practices in Hong Kong?
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
Professional Bodies
Advisory Committees
HKSAR Government- Statutes
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Regulatory Framework Regulatory Framework (8)(8)
The HKICPA has issued the following principles which provide the principal private sources of regulation on accounting practices in Hong Kong:- the Preface to Hong Kong Financial Reporting Standards (Preface);- the Framework for the Preparation and Presentation of Financial Statements(Framework); and
- the Hong Kong Financial Reporting Standards (HKFRSs).
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
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Regulatory Framework Regulatory Framework (9)(9)
As at 31 March 2007, the HKFRSs comprises:
- 8 Hong Kong Financial Reporting Standards (HKFRS);
- 31 Hong Kong Accounting Standards (HKAS); and
- 25 Interpretations.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (10)(10)
The Preface explains the scope, authority and timing of application of HKFRSs.
It also sets out the relationship between HKFRSs and International Financial Reporting Standards (IFRSs).
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (11)(11)
The International Accounting Standards Board (IASB) and the HKICPA have undertaken necessary activities to facilitate the convergence of the HKFRSswith IFRSs. The HKFRSs1 were fully converged with the IFRSs with effect from 1 January 2005.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
1The HKFRSs are issued with the same title and reference number as the IFRSs.
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Regulatory Framework Regulatory Framework (12)(12)
The Framework serves as the foundation of the HKFRSs. It sets out the general concepts that underlie the preparation and presentation of financial statements for external users.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (13)(13)
In particular, the Framework provides an assistance to preparers of financial statements in applying HKFRSs and in dealing with topics that have yet to form the subject of HKFRSs.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (14)(14)
HKFRSs apply to the general purpose financial statements and other financial reports of all profit-oriented entities.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (15)(15)
HKFRSs1 set out specific provisions in respect of recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
1For the detailed content of HKFRSs, you may refer to the following sources:- HKICPA Members’ Handbook at www.hkicpa.org.hk/ebook/main.php- Hong Kong Master GAAP Guide, CCH, 6th Edition- Deloitte’s Implementing HKFRSs at www.iasplus.com./dttpubs/0508hongkong.pdf
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Regulatory Framework Regulatory Framework (16)(16)
The HKFRS comprises:HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards HKFRS 2 Share-based PaymentHKFRS 3 Business CombinationsHKFRS 4 Insurance Contracts HKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 6 Exploration for and Evaluation of Mineral Resources HKFRS 7 Financial Instruments: Disclosures HKFRS 8 Operating Segments
HKFRSs
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (17)(17)
The HKAS comprises:HKAS 1 Presentation of Financial Statements* HKAS 2 Inventories HKAS 7 Cash Flow Statements HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 Events after the Balance Sheet Date HKAS 11 Construction ContractsHKAS 12 Income TaxesHKAS 14 Segment Reporting HKAS 16 Property, Plant and Equipment* HKAS 17 Leases
*HKAS 1, HKAS 2, HKAS 8, HKAS 16 and HKAS 18 are particularly relevant to the Elective Part - Accounting Module of the Business, Accounting and Financial Studies Curriculum.
HKFRSs
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (18)(18)
The HKAS comprises:HKAS 18 Revenue HKAS 19 Employee Benefits HKAS 20 Accounting for Government Grants and Disclosure of Government Assistance HKAS 21 The Effects of Changes in Foreign Exchange RatesHKAS 23 Borrowing Costs HKAS 24 Related Party Disclosures HKAS 26 Accounting and Reporting by Retirement Benefit Plans HKAS 27 Consolidated and Separate Financial StatementsHKAS 28 Investments in AssociatesHKAS 29 Financial Reporting in Hyperinflationary Economies HKAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions
*HKAS 1, HKAS 2, HKAS 8, HKAS 16 and HKAS 18 are particularly relevant to the Elective Part - Accounting Module of the Business, Accounting and Financial Studies Curriculum.
HKFRSs
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (19)(19)
The HKAS comprises:HKAS 31 Interests in Joint VenturesHKAS 32 Financial Instruments: Disclosure and PresentationHKAS 33 Earnings Per Share HKAS 34 Interim Financial ReportingHKAS 36 Impairment of AssetsHKAS 37 Provisions, Contingent Liabilities and Contingent AssetsHKAS 38 Intangible AssetsHKAS 39 Financial Instruments: Recognition and MeasurementHKAS 40 Investment Property HKAS 41 Agriculture
HKFRSs
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (20)(20)
The major Interpretation comprises:HKFRS-Int 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities HKFRS-Int 2 Members’ Shares in Co-operative Entities and Similar InstrumentsHKFRS-Int 4 Determining whether an Arrangement contains a LeaseHKFRS-Int 5 Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds HK(IFRIC)-Int 6 Liabilities arising from Participating in a Specific Market – Waste
Electrical and Electronic Equipment HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting
in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment HK(IFRIC)-Int 11 HKFRS 2–Group and Treasury Share Transactions HK(IFRIC)-Int 12 Service Concession Arrangements
HKFRSs
HKFRS InterpretationHKAS
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Regulatory Framework Regulatory Framework (21)(21)
Do you know how the aforesaid regulatory framework governs the accounting practices of organisations in Hong Kong?
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Regulatory Framework Regulatory Framework (22)(22)
The extent of influence of each of the aforesaid regulatory bodies depends on the form of business organisation.
Business Organisation
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Regulatory Framework Regulatory Framework (23)(23)
In Hong Kong, a business organisation may take the form of:−a sole proprietorship, −a partnership, or −a limited company incorporated under the Companies Ordinance.
Business Organisation
Sole Proprietorship
Limited company
Partnership
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Regulatory Framework Regulatory Framework (24)(24)
The requirements of the Companies Ordinance are applicable only to limited companies incorporated under the Companies Ordinance. All other business organisations not incorporated under this Ordinance do not need to comply with it.
Business Organisation
Sole Proprietorship
Limited company
Partnership
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Regulatory Framework Regulatory Framework (25)(25)
The requirements of the Inland Revenue Ordinance are applicable to every business organisation with assessable profit.
Business Organisation
Sole Proprietorship
Limited company
Partnership
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Regulatory Framework Regulatory Framework (26)(26)
The HKFRSs are applicable to the general purpose financial statements of all profit-oriented entities, whether incorporated or not.
Business Organisation
Sole Proprietorship
Limited company
Partnership
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The Framework The Framework
After going through the regulatory framework of accounting in Hong Kong, we will go into details of the Framework which, as mentioned before, sets out the general concepts that underlie the preparation and presentation of financial statements for external users.
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
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UsersUsers
Financial PositionFinancial Position PerformancePerformance Changes in Changes in Financial PositionFinancial Position
The Framework The Framework -- Objectives of Objectives of Financial StatementsFinancial Statements
According to the Framework, the objective of financial statements is to provide the following information of an entity that is useful to the users in making business decisions:−financial position;−performance; and −changes in financial position.
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Do you know who uses the financial statements to make business decisions?
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (1)(1)
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The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (2)(2)
The users of financial statements include:-present and potential investors, - employees, -lenders, - suppliers and other trade creditors, -customers, - governments and their agencies, and -the public.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
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Do you know what information the users need to make business decisions?
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (3)(3)
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Information that the investors needThey concern with the risk inherent in, and the return provided by, their investments. They need information to help them determine whether they should buy, hold or sell their investments. They are also interested in information which enables them to assess the ability of the entity to pay dividends.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (4)(4)
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Information that the employees needThey are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ability of the entity to provide remuneration, retirement benefits and employment opportunities.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (5)(5)
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Information that the lenders needThey are interested in information that enables them to determine whether their loans and interest will be paid when due.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (6)(6)
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Information that the suppliers needThey are interested in information that enables them to determine whether amounts owing from the entity will be paid when due.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (7)(7)
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Information that the customers needThey are interested in information about the continuance of an entity, especially when they have a long-term involvement with, or are dependent on, the entity.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (8)(8)
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Information that the government needsThey are interested in the allocation of resources and the activities of entities. They also require information in order to regulate the activities of entities, determine taxation policies and form the basis for compiling various statistics.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (9)(9)
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Information that the public needsFinancial statements provide information to the public about the trends and recent developments in the prosperity of the entity and the range of its activities.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
The Framework The Framework -- Users & their Information NeedsUsers & their Information Needs (10)(10)
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Financial statements are prepared under certain assumptions. Do you know what these assumptions are?
??
The Framework The Framework -- Key Assumptions Key Assumptions (1)(1)
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The Framework The Framework -- Key Assumptions Key Assumptions (2)(2)
Financial statements are prepared under two key assumptions:- accrual basis; and- going concern.
Financial Statements
Going Concern
Accrual Basis
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Under the accrual basis, the effects of transactions and other events are recognised when they occur (rather than when cash is received or paid) andthey are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (3)(3)
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Financial statements prepared on the accrual basis inform users about:- past transactions involving the payment and receipt of cash; and- obligations to pay cash and resources that represent cash to be received in
the future.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (4)(4)
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Accrual Basis - ExampleYou sold certain goods on credit on 10 December 2006 and received cash from your customer on 4 January 2007. The sale was recorded on 10 December 2006, not the date when cash was received.
This is the accrual basis of accounting.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (5)(5)
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The financial statements are normally prepared on going concern basis. In other words, the entity is assumed to continue its operation for the foreseeable future without the intention nor the need to liquidate or curtail materially the scale of its operations.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (6)(6)
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In assessing whether the going concern is appropriate, management takes into account all available information about the future, which is at least twelve months from the balance sheet date. (HKAS 1 “Presentation of Financial Statements”)
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (7)(7)
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However, if the going concern assumption is not suitable to be applied to a particular situation, the financial statements may have to be prepared on a different basis and, if so, the basis used should be disclosed.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (8)(8)
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Going Concern - ExampleManagement reviews its budgets to identify when cash flows might be under pressure. It reviews its bank credits to ensure that funds are adequate to cover any likely shortfalls. Further bank credits are to be negotiated, if necessary.
Having performed the above, the company can prepare financial statements on a going concern basis.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (9)(9)
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Going Concern – Another ExampleA liquidating entity will discontinue its operation very soon and, in this situation, the going concern basis is inappropriate in preparing the financial statements.
As the going concern basis is invalid, the entity is not allowed to measure its machinery at historical costs.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (10)(10)
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Going Concern – Another Example (continued)Measuring machinery at historical costs is allowed by the HKFRSs if going concern basis is valid. Alternatively, the entity should measure the machinery at the disposal value, a different basis, in order to better reflect the value contributable to the liquidating entity.
Financial Statements
Going Concern
Accrual Basis
The Framework The Framework -- Key Assumptions Key Assumptions (11)(11)
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In preparing the financial statements, how do you determine the quality of the financial statements?
Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (1)(1)
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (2)(2)
In determining whether the financial statements are of good quality or not, we would refer to the qualitative characteristics, which are the attributes that make the information provided in financial statements useful to users.
The four principal qualitative characteristics are understandability, relevance, comparability and reliability.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (3)(3)
Understandability An essential quality of the information provided in financial statements is that it is readily understandable by users.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (4)(4)
Understandability - ExampleRevenue is presented in the income statement with explanatory notes in the notes to the financial statements. The explanatory notes enhance users’understanding in respect of the entity’s revenue through providing recognition criteria, nature and other details of the revenue.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (5)(5)
Understandability However, complex information which is relevant to users’ business decision-making should not be excluded merely because it is too difficult for certain users to understand.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (6)(6)
RelevanceTo be useful, information must be relevant to the decision-making needs of users.
Information has the quality of relevance when it helps users to evaluate past, present or future events or confirming, or correcting their past evaluations.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (7)(7)
Relevance - ExampleEarnings per share is presented in the income statement of a listed entity because the information is important to investors in making an investment decision.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (8)(8)
RelevanceThe relevance of information is affected by its nature and materiality.
Information is material if its omission or misstatement could influence the business decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (9)(9)
ComparabilityUsers must be able to compare the financial statements of:- an entity through time in order to identify trends in its financial position and
performance; and- different entities in order to evaluate their relative financial position,
performance and changes in financial position.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (10)(10)
ComparabilityHence, the accounting treatments for similar transactions and events must be carried out in a consistent way:- throughout an entity; - over time for an entity; and - for different entities.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (11)(11)
Comparability - ExampleAll limited companies incorporated in Hong Kong are required to apply the HKFRSs in preparing their financial statements. Accordingly, the comparability is achieved while different entities, whatever their business nature, would prepare their financial statements under the same accounting base.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (12)(12)
ReliabilityInformation has the quality of reliability when it is free from material error and bias.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (13)(13)
ReliabilityInformation may be relevant but so unreliable in nature or representation that its recognition may be potentially misleading.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Qualitative Characteristics of Qualitative Characteristics of Financial Statements Financial Statements (14)(14)
Reliability - ExampleIn a claim for damages under a legal action, it is inappropriate for the entity to recognise the amount of the claim if the amount is not reliably measured.Alternatively, it is more appropriate to disclose the circumstances of the claim in the notes to the financial statements.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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Recapitulation Recapitulation
Now, you have come to the end of the unit. Now, you have come to the end of the unit.
Let us recapitulate the essential points of the following inLet us recapitulate the essential points of the following inthe next six slides:the next six slides:
•• Regulatory frameworkRegulatory framework
•• Objectives of financial statementsObjectives of financial statements
•• Users of financial statementsUsers of financial statements
•• Key assumptions underlying the preparation of Key assumptions underlying the preparation of financial statementsfinancial statements
•• Principal qualitative characteristics of financial Principal qualitative characteristics of financial statementsstatements
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Recapitulation Recapitulation –– Regulatory FrameworkRegulatory Framework (1)(1)
GAAP is sourced from:
1. Public sector legislation - the Companies Ordinance (CO); and - the Inland Revenue Ordinance (IRO).
2. The private sector regulatory bodies:- professional bodies, like HKICPA; and - advisory committees.
GAAP
Public Section Legislation
Private Sector Regulatory Bodies
Professional Bodies
Advisory Committees
HKSAR Government- Statutes
6969
Recapitulation Recapitulation –– Regulatory FrameworkRegulatory Framework (2)(2)
The HKICPA has issued the following principles which provide the principal private sources of regulation on accounting practices in Hong Kong:
- the Preface to Hong Kong Financial Reporting Standards (Preface);
- the Framework for the Preparation and Presentation of Financial Statements
(Framework); and
- the Hong Kong Financial Reporting Standards (HKFRSs).
HKFRSs
Preface Framework
Principal private sources of regulation on accounting practices in HK
HKFRS InterpretationHKAS
7070
UsersUsers
Financial PositionFinancial Position PerformancePerformance Changes in Changes in Financial PositionFinancial Position
RecapitulationRecapitulation-- Objectives of Financial StatementsObjectives of Financial Statements
According to the Framework, the objective of financial statements is to provide the following information of an entity that is useful to the users in making business decisions:−financial position;−performance; and −changes in financial position.
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Recapitulation Recapitulation -- UsersUsers
The users of financial statements include:-present and potential investors, - employees, -lenders, - suppliers and other trade creditors, -customers, - governments and their agencies, and -the public.
Public
Governments
Customers Suppliers
Lenders
Employees
Investors
Users
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RecapitulationRecapitulation -- Key AssumptionsKey Assumptions
Financial statements are prepared under two key assumptions:- accrual basis; and- going concern.
Financial Statements
Going Concern
Accrual Basis
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RecapitulationRecapitulation -- Qualitative Qualitative CharacteristicsCharacteristics
In determining whether the financial statements are of good quality or not, we would refer to the qualitative characteristics, which are the attributes that make the information provided in financial statements useful to users.
The four principal qualitative characteristics are understandability, relevance, comparability and reliability.
RelevanceRelevance
ComparabilityComparability
ReliabilityReliability
UnderstandabilityUnderstandability
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ReferencesReferences
•• DeloitteDeloitte’’s Implementing s Implementing HKFRSsHKFRSs, Retrieved , Retrieved 30 June 2007 from 30 June 2007 from www.iasplus.com./dttpubs/0508hongkong.pdfwww.iasplus.com./dttpubs/0508hongkong.pdf
•• HKICPA MembersHKICPA Members’’ HandbookHandbook, Retrieved 30 , Retrieved 30 June 2007 fromJune 2007 fromwww.hkicpa.org.hk/ebook/main.phpwww.hkicpa.org.hk/ebook/main.php
•• Hong Kong Master GAAP GuideHong Kong Master GAAP Guide, CCH, 6th , CCH, 6th EditionEdition
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Further ReadingsFurther Readings
• Hui, W. F. and Ng, P. H. (2006),P. H. (2006), Accounting Accounting in Hong Kong in Hong Kong –– Regulatory Framework and Regulatory Framework and Advanced Accounting PracticeAdvanced Accounting Practice, City , City University of Hong Kong, University of Hong Kong, 14th Edition14th Edition..
•• Chow, L., Kan, S., Taylor, D. and Chow, L., Kan, S., Taylor, D. and TsuiTsui C. C. (2006), (2006), Advanced Financial Accounting in Advanced Financial Accounting in Hong KongHong Kong, Longman, 5th Edition., Longman, 5th Edition.
•• CCH (2006), Hong Kong Master GAAP Guide, CCH (2006), Hong Kong Master GAAP Guide, CCH Asia CCH Asia PtePte Ltd, 6th EditionLtd, 6th Edition..
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End of the Unit End of the Unit
This is the end of Unit 1. This is the end of Unit 1. Please go to the Unit Please go to the Unit Assessment before Assessment before attempting the next unit.attempting the next unit.
EndEnd--ofof--unit Assessmentunit Assessment
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Learning Resources CornerLearning Resources Corner
If you would like toIf you would like to(a)(a)learn about details of a summary of learn about details of a summary of major changes of major changes of
some some HKFRSsHKFRSs, and, and(b)(b)understand the current development in understand the current development in Conceptual Conceptual
Framework for Financial ReportingFramework for Financial Reporting, , please go to the please go to the Learning Resources CornerLearning Resources Corner.