Chapter 2
KCQ #1 – Financial statements going from private to public.
I found this quite interesting because like mentioned in the Study Guide, we do not often flaunt our own personal financial position, so why do firms flaunt their financial position now. I think it does provide transparency for the company and for those interested in investing shares, it does help provide an idea of the company’s value. However, if the company has an unsuccessful year and this is portrayed to the public, it does provide the opportunity for the media to get involved and potentially paint the company in a negative light. Although, it could also be used as a learning curve and will allow the company to make adjustments and improvements to their operation, and to ensure the public know they are trying. With that said, I feel like financials are a sensitive topic of a business and to some extent, some things need to be kept within the firm.
KCQ #2 – there is a difference in rules from providing financial information to people within the firm and to people outside the firm.
Financial accounting and management accounting are two terms that I would have thought were synonyms. However, financial accounting is concerned with external sources and management accounting is about internal accounting. After reading this chapter, it makes sense because the management of the firm should be able to have full access to the firm’s financial statements which is why management accounting is different to financial accounting. But what is provided for financial accounting should be restricted because external sources do not usually need as much detail, all they are concerned about is whether loaning money to the firm a good idea or not.
KCQ #3 – Equity investors as the main external interested party.
Equity investors are the ones wanting to invest their money in a firm. Therefore, them having access to the firm’s financial statements is critical to ensure it is worthwhile for them. However, providing information to equity investors is considered under financial accounting because they do not have full access like managers of the firm do. But who else would be as interested in a firm’s financial statements? Why would they post the firm’s financial statements in annual reports when they could simply email a copy of the statements to the interested parties – is this a law that they have too?
KCQ #4 – Rules for financial accounting.
I find it interesting that there are specific rules for specific accounting sectors, since GAAP only apply to financial accounting. However, this does make sense because the rules would be less strict within the company due to the confidentiality that the firms’ mangers would have to oblige by. Once providing this information to one external source, it does protrude the firm’s safety net to some extent as now someone else has access to that ‘personal’ information, and often the firm would not know that external source, so not know if they are trustworthy. For example, making the statements readily available in the Annual report is in a sense providing accounting information to an external source as everyone can access them. Therefore, what they put in there is easily available for anyone to read and use at their discretion.
KCQ #5 – Laws of Accounting
Who thought that you could get in trouble if you do not do your accounting correctly?! The laws and regulations in the Corporations Act and IFRS hold firm’s accountable and ensure a high standard is met. However, having these in place, would ensure a standardisation across the country. So while these ensure that each firm do their accounting in the correct manner, with the correct figures, it does help provide a standardised format and therefore makes it easier for shareholders to interpret many firm’s financial statements. I think overall it is important for it to be regulated to ensure each firm is held accountable, so then they do not think that they can skip parts or not include certain parts because it can make their company “look bad”.
KCQ #6 – Firms only need to comply with GAAP when they produce general purpose financial statements.
Not all businesses and firms have to follow the accounting rules. Just after reading about how many rules there are and how strict the government is with firm’s following them, I thought all businesses would have to abide by them. But after reading further, the rules and regulations for accounting only apply to those that are releasing financial statements to the public. Although, this does make sense because the government would want to ensure they are releasing accurate and unbiased information, not just the data that the company wants the public to see. And if the firm doesn’t produce any statements to the public, then they do not have to be concerned to whether they have abided by the rules or not.
KCQ #7 – Learning accounting.
Coming into this course, I thought we were going to get many equations and rules thrown at us and expected to remember and recite them in an exam because that is what accounting is about right? However, my knowledge and understanding has already started to expand and not view accounting as scary as it initially seemed. It is not just rule after rule after rule. Rather it can be used in my professional life and also personal life.
KCQ #8 – Conceptual framework vs accounting standards.
I feel like you cannot having the accounting standards without the conceptual framework and vice versa. While the accounting standards list all the rules that must be adhered too, applying them in a real-world environment is much harder. This is when the conceptual framework helps by providing assistance with how to use or apply these rules that have been written. They want the firm’s to be able to provide financial statements that are helpful for the external source using/reading them.
KCQ #9 – Accrual accounting, why are there so many types of accounting?
Another type of accounting, how can there be so many types? Accrual accounting on the other hand, is quite an easy concept to grasp. It reminds me of Afterpay. When someone buys something using Afterpay, they are not actually handing the money over at that time. It is not until they start to make a repayment that the transaction actually occurs which is what accrual accounting is concerned with – when the actual money is handed/exchanged to the seller for a good/service.
KCQ #10 – Accounting can be quite subjective and based on opinions.
Choosing what to include in statements based on materiality can lead to a lot of subjectivity and opinion-based decisions. This surprises me because I thought accounting was very objective and had very strict views on how to do things. However, it appears that what one person deems materialistic may not be materialistic to someone else. This means one financial statement could have one particular piece of information while another firm does not even discuss it.
KCQ #11 – Relevance and faithful representation of financial statements.
Without the financial statement being relevant, it is no use. If the reader, often an external source, cannot find the information they need to make a decision, like whether to invest in that firm, then that financial statement is not relevant and therefore not useful. This will most likely deter that investor away.
On the other hand, even if the data is relevant, if it is not accurate or the firm has only included some years and not others, then it is not a faithful and credible representation. This is simply manipulating the data to portray an image that the firm wants to portray. This is not fair to the reader because they are not getting an accurate or ‘faithful’ depiction of the firm.
Chapter 3.1
KCQ #1 – Annual report as a marketing tool.
The financial statements were the hardest thing to find the annual reports. They were buried so deep in the multitude of pages. It almost appears like they are trying to hide the evidence in case it shows something bad, like them making a loss, but they also need to meet the standards and be transparent. The first few pages of the annual report were just full of pictures and quotes from either customers or managers which shed a positive light on the company.
KCQ #2 – A balance sheet for one day?
How can a balance sheet for just one day be helpful? Don’t we want to see how the company is doing over the financial year? The balance sheet only shows the company’s assets, liabilities and equity on a particular day. I guess it would be hard to depict all these elements every day as each would change as products or services are sold. Therefore firms, particularly RANK Group which is my firm, show it at the end of the financial year each year, which enables the reader to compare and see how the firm went, as a whole, over the past year.
I find balance sheets the easiest to understand out of all financial statements purely because it breaks down the firm’s financials at a particular time which is much easier to grasp, then trying to understand the firm’s financial position over time.
Chapter 3.2
KCQ #1 – Is the firm making a profit?
Making a profit would be one of the most important things that someone would want to see before investing in a firm. This is what an income statement is for. Income statement clearly shows whether the expenses outweigh the revenue which depicts if a profit is being made or not.
KCQ #2 – What exactly does Statement of Changes in Equity?
While I understand equity is assets minus the liabilities, what does the term equity actually mean? I guess if it is a positive number, the company has more assets than it does liabilities and therefore is in a positive financial position. But is equity like profit or revenue? Is it a measurement of success in a firm?
コメント