1. PREPARE FINANCIAL REPORTS FOR CORPORATE ENTITIES

2. Introduction to Company Accounting
Chapter 1
Introduction to Company Accounting

3. Definition of a company
1.1
Definition of a company

4. What is a Company?
An entity created by law and separate from the people who own and/or manage the company.
Created under the provisions of the Corporations Act 2001.

5. Characteristics of a Company
Separate legal entity
Management and ownership are usually separated
Limited liability of shareholders
Legal existence and business not affected by change in shareholders

6. 1.2
Types of Businesses

7. Common types of businesses
Sole traders
Partnerships
Limited liability companies

8. Sole Traders Owned by a single person
The proprietor has unlimited liability
The owner takes the profits and bears all losses
The life of a sole trader business ends when the owner either sells or closes the business

9. Partnerships Two or more partners
Not a separate legal entity from its owners
Legally partners are jointly liable for all debts
Partners share all profits and bear all losses according to an agreed ratio.
Terminates any time the ownership changes through retirement, death etc or a partner.

10. Limited Liability Company
Limited liability means that shareholders are liable only to the value of their shareholding
Directors and management are appointed by shareholders

11. Characteristics of a Company
Perpetual succession
Easier access to finance
Subject to government control
Higher establishment costs

12. Sole Trader
Owner is manager Owner keeps all profits Minimal government controls
Advantages
Unlimited liability Unsecured finance may be difficult to obtain
Disadvantages

13. Partnerships Disadvantages
Partners share profits Combined expertise Greater access to capital Fewer gov’t controls than companies
Advantages
Some establishment costs Unlimited liability disputes between partners Cessation when composition of partners changes
Disadvantages

14. Limited Liability Companies
Limited liability Perpetual succession Easier access to finance
Advantages
Establishment costs Controls via the Corporations Act
Disadvantages

15. 1.3
Types of Companies

16. Proprietary Limited – Pty Ltd
A proprietary limited company is:
Limited by shares with each shareholder having limited liability or
An unlimited company with a share capital

17. Proprietary Limited – Pty Ltd
Minimum of 1 member and maximum of 50 non-employee shareholders
Minimum of 1 director
Cannot raise capital from the public
Must have either Proprietary as part of its name or Pty Ltd
Not required to hold an AGM

18. Public Company Limited - Ltd
Minimum of 1 member – no maximum
Must have at least 3 directors
May raise funds from the public with the issue of a prospectus

19. Mining is a force for economic growth in Australia
No Liability Company
Mining is a force for economic growth in Australia
Public companies – mining only
Must have the words No Liability or NL after their name
Have share capital but no right to force shareholders to pay a call.
If the shareholder does not pay a call, the shares are automatically forfeited

20. Limited by Guarantee Public company No share capital
Members guarantee to contribute in the event of liquidation

21. Unlimited Liability Companies
No limit placed on the amount members may be required to pay.

22. Small and Large Proprietary Companies
1.4
Small and Large Proprietary Companies

23. Corporation Act
The Corporations Act applies different levels of standards depending on whether a company is classified as small or large.

24. Large Proprietary Companies
Defined as satisfying 2 of the following for the company and its controlled entities:
Consolidated gross operating revenue > $10m for the financial year
Consolidated gross assets > $5m
Combined entities have at least 50 employees at the end of the financial year.

25. Large Proprietary Companies
Must prepare accounts, have them audited and sent to shareholders and ASIC.

26. Small Proprietary Companies
Not required to prepare formal financial statements
Must maintain sufficient accounting records to allow annual accounts to be prepared and audited

27. Financial Reports
GENERAL PURPOSE FINANCIAL REPORTS (GPFR) are required to be prepared according to the Accounting Standards to meet needs of a range of users eg shareholders, suppliers, customers
SPECIAL PURPOSE FINANCIAL REPORTS (SPFR) are prepared to meet needs of a specific group who can command reports ot meet their needs eg. financiers

28. 1.5
Registration

29. Choose a name and decide the type of company required.
Prepare a constitution or adopt the Replaceable Rules.
Allocate shares to founders, directors and company secretary. Establish the registers and minute book
To register with ASIC

30. To Register with ASIC Lodge the application in writing.
ASIC grants registration and issues a certificate of registration.

31. 1.6
Company Constitution

32. Replaceable Rules
These govern the internal management and dealings with shareholders.

33. 1.7
Regulatory Bodies

34. Role of regulators
Create and enforce rules so that the public have confidence in the financial markets.
Stay abreast of new developments and adjust the rules accordingly.

35. Regulatory bodies
ASIC
ASX
AASB
FRC

36. Australian Securities and Investment Commission: ASIC
Administers and enforces a range of legislative provisions relating to the financial sector.
Aims to protect markets and consumers from manipulation, deception and unfair practices.

37. Additional roles of ASIC
Develops policy and guidance.
Monitors compliance.
Provides comprehensive and accurate information of companies.
Also monitors various banking codes of practice.

38. Australian Stock Exchange
Provides a market place for shares.
Applies listing rules to all companies listed on the exchange.

39. Australian Accounting Standards Board: AASB
Approves or rejects accounting standards submitted to the Board.
An approved accounting standard has the force of law.

40. Financial Reporting Council: FRC
Oversees the standard setting process and acts as advisor to the AASB.
Members are appointed by the Treasurer.

41. 1.8
Accounting Standards

42. Accounting Standards
The Australian Constitution allows the federal government to legislate for companies only.
Approved AASB standards are now mandatory for companies under the Corporations law.

43. Accounting Conceptual Framework
Accounting Standards
The conceptual framework for accounting defines the nature, subject, purposes and broad content of accounting reports.
A concept is developed, then a standard is produced to satisfy the need seen in the concept.
Accounting Conceptual Framework
Accounting Concept
Accounting Standard
Company Reports

44. International Accounting
With increased globalisation, the pressure for a common set of global accounting standards has increased.
International standards are issued by the International Accounting Standards Board (IASB)

45. Benefits of adopting IASB standards
Assist cross-boarder comparisons by investors
Reduce cost of capital
Assist raising finance
Assist listing on overseas markets

46. AASB series
AASB 1-99: AASB equivalents to the International Financial Reporting Standards (same numbers)
AASB : AASB equivalents to the former International Accounting Standards.
AASB 1001 – 1099: Australian accounting standards with no international equivalent (eg. AASB 1031 Materiality).

47. 1.9
Financial Records

48. Financial Records
Under the Corporations Law a registered business must comply with provisions dealing with keeping of company records:
Official statements are true and fair
Financial statements to be audited
Records kept for 7 years

49. 1.10
Company Registers

50. Company Registers
Registers required to be kept under the Corporations Act and made available to the public.