Questions / KCQ’s – Chapter 2 and 3.1 – 3.2 Reflection
I have started this unit with an open mind, however, consciously knowing I will struggle with this unit as I do not understand accounting and felt very overwhelmed with how much there is to do. I am reading through chapter 2, my first thought is how can accounting be a game? Is there really more to it than recording numbers and finances? My understanding of accounting is the recordings of financial transactions of a business. It is interesting thinking of it as a ‘game to be played’, especially having to learn the ‘rules of the game’.
As I am reading through Chapter 2, I can see that it is focussing on the regulations imposed on firms in Australia when they provide financial information generally to people outside of firms, especially different investors, owners and equity owners. It is also considering the accounting concepts in relation to Financial Statements.
I did take away some useful information, which going into reading the chapter, could not understand what ‘rules of the game’ would apply to. The game is to use a firms financial statements to better understand a firms economic and business realities and understanding the rules of the game assists with making sense of the accounts provided by managers to parties outside the firm, especially equity investors – make this your closing statement
It is interesting that at first, a firms financial statement was only for the firms itself eyes to see. I suppose they did eventually have to provide some sort of document to customers or investors outside the firm, at any point in time. To be honest, it did not surprise me that banks had something to do with the rise in the need to supply financial documents. After all, mostly everyone’s money is with a bank. In relation to firms and business’s, banks need to investigate and analyse their finances before approving loans or extend credit etc.
At first, I was confused with the separation of management of firms from the equity of ownership. Then from some research, I learned this meant the separation of the management from the right to have beneficial interest in a company’s assets. But what extent would that go to?
Equity = the values of shares issued by a company
There was sections throughout the chapter that surprised me. I did not think that ‘financial accounting’ referred to providing accounting information to people outside a firm. I assumed this was just another form of accounting and found this concept interesting. I also did not think that firms only had one set of accounting information. Accounting at first seems to be really complicated and has a lot of rules and regulations, however, can be simplified by remembering there is only one set of accounting for all firms. It took me back on how little I know about accounting. I am hoping by the end of this unit, I have a better idea and grasped some concepts of accounting.
I was happily surprised how quickly I understood what GAAP meant, however, found it confusing that its purpose is to be generally only used for following the rules of creating financial statements for parties outside the firm, but some accountants use it within a firm and follow the same rules as it is convenient. How could anyone remember these rules? Basically, my understanding is it is used to make judgements and compare financial data within a firm. This concept can be quite confusing when you think about the multiple number of rules that apply to accounting and how much they change. It was actually interesting to know now all Businesses are required to produce financial statements that are conformed by GAAP. My first initial thought was how does the government determine who does and doesn’t have to report? As I read my way through, it was understood that only companies that need to actually issue general-purpose financial statements need to comply with the accounting rules. But this then lead to why don’t all businesses need to produce this document? I found this concept quite confusing. My understanding of this concept is that general-purpose financial statements are only issued by companies that have outside parties to consider. In thinking this, I guess it would be hard for small businesses to comply with these GAAP standards as they may seem irrelevant. I also found some useful information here: https://www.cancapital.com/resources/should-small-businesses-worry-about-gaap-new-private-company-proposals/
When thinking about the Accounting Standards set by the Australian Accounting Standards Board (AASB) and the International impact some countries and their own reporting standards have on Australia, my first thought is how does this affect Australian Businesses? How hard would it be to stick to and obliged to these standards? I did some more research into what the standards actually entail on the Australian Government website, and found some useful information here: https://www.aasb.gov.au/Pronouncements/Current-standards.aspx. These standards and this concept can be quite confusing and ery complicated. Especially taking into account that it can change and a lot of businesses are relying on this to assist with preparing and recording financial documents and data, and that’s not even bringing the legislation side of things into it! This concept can be confusing if you have no idea about legislation and how it works. I did study law in school and did some units in university involving law, so I did find this helpful to grasp the idea of all different kinds of legislation that would come into account.
I found the concept of reporting an entity quite confusing. What is an entity? I needed to read over the first paragraph a few times for it to sink in. I am quickly understanding that there are many things that businesses need to take into account in terms of how they record all financial activities. I can understand though, that firms are required to prepare and issue general-purpose financial statements and comply with these rules if they are reporting entities. After reading through section, I quickly came to realise that an entity refers to the types of users that require the general-purpose financial statements from a firm so they can allocate to their own resources. I was a bit taken back from this concept. Why do businesses need to report entity’s and what they do with the statements? However, I quickly realised that a firm NEEDS to report an entity, so they are aware of who needs as general-purpose financial statement and how they will comply with all the accounting ‘rules’.
You know accounting is confusing when there literally cannot be a written rule for most things. This made me reflect on how even more confusing it may be to the members of a firm who actually are producing the financial statements and gathering all the appropriate information, while complying with the rules. While reading though this chapter, it is evident that having knowledge in accounting builds up over time and we learn for understanding and developing everyday. It is clear, accounting does not have clear cut rules
Have learnt through reading this study guide how important it is to connect to peers to acquire further knowledge and bring our own experience. I haven’t been posting as much on Peerwise etc but will definitely try to make more of an effort. Interacting with peers within the unit is definitely not something I am not use and it has changed how I am learning, which will be very beneficial
It is interesting to read how a firm’s financial statement can set out to view the economic and business realities of a firm for people within the firm, but what about people outside the firm? As the AASB provide the AASB F Framework for the Preparation and Presentation of Financial Statements framework to guide its development of accounting standards, does this help outsiders of a firm also? Especially if they are always changing. However, I can see how it would be useful for accountants to refer to this framework to prepare documents. It is confusing to me how businesses outside of Australia can affect the accounting standards, I initially would think Australia had different ‘rules’ to go and not take International interest.
One section I found I could understand was accrual accounting. This concept came easy to me, especially when you refer to paying your phone, water or electrical bill… you receive the service, then pay for it later. I was a bit confused how this would affect financial statements, but I myself have not had much to do with them, however, soon realised after further reading that accrual accounting matters when looking at the economic side of a business, in relation to its financial position. It was interesting to read that accrual accounting is used for financial statements I found this concept easier to grasp than others as it was easier for me to understand.
I concept of materiality accounting did confuse me. I was attempting to think of the idea as something that can affect the economic decisions of the financial statement including negatively, positively or particularly adversely and can be of different qualities of information. It is evident that while preparing financial statements, management need to be prepared to make several judgements when producing the document.
Chapter 3.1 and 3.2 (still currently working to finish this section)
I was hesitant and worried to read chapter 3 regarding the financial statements as I was expecting it to be confusing and felt a bit overwhelmed. While reading through the introduction, I attempted to grasped the concept of getting to know the ideas and concepts about financial statements to fully understand what they mean.
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