26/03/2020

ACCT6001
Intermediate Financial
Reporting
Skills Workshop 1: Reading &
Understanding Accounting
Standards

The University of Sydney Page 1

Introduction

THE FOCUS OF ACCT6001

1. Applying specific accounting standards:
– interpreting (reading & understanding)
– technical skills (calculations, journal entries, presentation in
financial statements)
– recognition and disclosure
2. Evaluating specific accounting standards in relation to:
– accounting concepts
– other accounting standards and future developments
– accounting theory
– public interest

As an indicator - approximately 60% application, 40% evaluation

The University of Sydney Page 2

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Introduction
Before we start let’s discuss some important questions:
– Is the Framework an accounting standard?

– Is compliance with the Framework required?

– What is the expected role of the Framework?

– Also, before we start, recall the Topic 1 in-class exercise when

you were asked to try to identify from the list of accounting
standards which ones might address particular accounting
transactions and arrangements.
The University of Sydney Page 3

Structure of Accounting Standards

Typical features are of accounting standard are:

– Objective of standard
– Scope
– Definitions
– Requirements (This is where the accounting rules are for each
accounting choice)
– Disclosure
– Transitional provisions (if any) Australian Accounting
standards available at:
– Effective date http://www.aasb.gov.au/Home
– Appendices .aspx
Look under Quick Links/Table
– Australian implementation guidance of Standards
As an example look at the AASB 116 contents page on the next
slide.

The University of Sydney Page 4

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 26/03/2020

Structure of Accounting Standards

This is at the start of the accounting standard

The University of Sydney Page 5

Objective

Objective of AASB 116 (Refer to AASB 116 paragraph 1):

– Prescribes acceptable accounting treatments for PPE so
financial statement users can understand information about an
entity's investment in its PPE.
– Main accounting requirements AASB 116 covers are:
– Recognition of assets
– Measurement after recognition
– Depreciation
– Impairment

As a practical example refer to an extract from Qantas 2019

financial statements on the next slide.

The University of Sydney Page 6

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 26/03/2020

Objective

Identify 2 items of information in the Qantas PPE note that may be

useful to financial statement users.
The University of Sydney Page 7

Scope
– Before applying any accounting standard you need to first look at
AASB 1057 to decide whether Australian Accounting Standards
apply to the entity’s financial statements.
Refer to In Class Student Practice Question 1
Scope:
– Applies to PPE except when another standard requires or permits
different treatment.
– Does not apply to:
– PP&E held for sale (see AASB5: Non-current Assets Held for Sale and
Discontinued Operation).
– Biological assets (see AASB141: Agriculture).
– Exploration and evaluation assets (see AASB6: Exploration for and
Evaluation of Mineral Resources).
– Mineral rights and reserves.
– Investment properties (see AASB140: Investment properties).

The University of Sydney Page 8

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 26/03/2020

Definitions

Specifies the meaning of key words as used in accounting

standards.
– Important because:
– Definitions in the accounting standards are not necessarily
the same as common understandings or dictionary
definitions of words.
– Particular words as defined in one standard may be
defined differently in another standard.
– This is why we mention key definitions in each class.
– You do not need to memorise these definitions. You need to
have a clear understanding of their meaning and how they are
applied in the standard.

Refer to AASB 116 paragraph 6 definitions and find the definition

of Carrying amount and Depreciation.
The University of Sydney Page 9

Requirements

AASB 116 Requirements include:

– Recognition of assets – List two (2) types of recognition costs.

– Measurement after recognition – List two (2) models.

– Measurement at recognition
– Depreciation
– Impairment
– Compensation for impairment
– Derecognition
The University of Sydney Page 10

10

5
 26/03/2020

Disclosure
Disclosure requirements:
– Identifies what is required to be disclosed in notes to financial
statements.
– Useful information for financial statement users for movements in account
balances, unique transactions and extent of management judgements.
– AASB 116 disclosure (See AASB 116 paragraphs 73 to 79) for
example:
– Measurement bases;
– Depreciation methods;
– Useful lives or depreciation rates;
– Gross carrying amount and accumulated depreciation at beginning and
end of period, with a detailed reconciliation;
– Any restrictions on title to assets;
– Expenditure on assets under construction;
– Contractual commitments to acquire PPE; and
– Compensation from third parties for items lost or impaired.

The University of Sydney Page 11

11

Conclusion

– Accounting standards are NOT easy to read let alone

understand or apply.
– In assignment questions, if required, include the full reference to
the applicable accounting standard. Page numbers in
accounting standards are not specific enough.
– For an example of correct technical referencing, refer to
Student Practice Question 1.
– You must learn how to use them.

The University of Sydney Page 12

12

6
 26/03/2020

ACCT6001
Intermediate Financial
Reporting
Skills Workshop 1: Reading &
Understanding Accounting
Standards

The University of Sydney Page 1

Introduction

THE FOCUS OF ACCT6001

1. Applying specific accounting standards:
– interpreting (reading & understanding)
– technical skills (calculations, journal entries, presentation in
financial statements)
– recognition and disclosure
2. Evaluating specific accounting standards in relation to:
– accounting concepts
– other accounting standards and future developments
– accounting theory
– public interest

As an indicator - approximately 60% application, 40% evaluation

The University of Sydney Page 2

Introduction
Before we start let’s discuss some important questions:
– Is the Framework an accounting standard?

– Is compliance with the Framework required?

– What is the expected role of the Framework?

– Also, before we start, recall the Topic 1 in-class exercise when

you were asked to try to identify from the list of accounting
standards which ones might address particular accounting
transactions and arrangements.
The University of Sydney Page 3

1
 26/03/2020

Structure of Accounting Standards

Typical features are of accounting standard are:

– Objective of standard
– Scope
– Definitions
– Requirements (This is where the accounting rules are for each
accounting choice)
– Disclosure
– Transitional provisions (if any) Australian Accounting
standards available at:
– Effective date http://www.aasb.gov.au/Home
– Appendices .aspx
Look under Quick Links/Table
– Australian implementation guidance of Standards
As an example look at the AASB 116 contents page on the next
slide.

The University of Sydney Page 4

Structure of Accounting Standards

This is at the start of the accounting standard

The University of Sydney Page 5

Objective

Objective of AASB 116 (Refer to AASB 116 paragraph 1):

– Prescribes acceptable accounting treatments for PPE so
financial statement users can understand information about an
entity's investment in its PPE.
– Main accounting requirements AASB 116 covers are:
– Recognition of assets
– Measurement after recognition
– Depreciation
– Impairment

As a practical example refer to an extract from Qantas 2019

financial statements on the next slide.

The University of Sydney Page 6

2
 26/03/2020

Objective

Identify 2 items of information in the Qantas PPE note that may be

useful to financial statement users.
The University of Sydney Page 7

Scope
– Before applying any accounting standard you need to first look at
AASB 1057 to decide whether Australian Accounting Standards
apply to the entity’s financial statements.
Refer to In Class Student Practice Question 1
Scope:
– Applies to PPE except when another standard requires or permits
different treatment.
– Does not apply to:
– PP&E held for sale (see AASB5: Non-current Assets Held for Sale and
Discontinued Operation).
– Biological assets (see AASB141: Agriculture).
– Exploration and evaluation assets (see AASB6: Exploration for and
Evaluation of Mineral Resources).
– Mineral rights and reserves.
– Investment properties (see AASB140: Investment properties).

The University of Sydney Page 8

Definitions

Specifies the meaning of key words as used in accounting

standards.
– Important because:
– Definitions in the accounting standards are not necessarily
the same as common understandings or dictionary
definitions of words.
– Particular words as defined in one standard may be
defined differently in another standard.
– This is why we mention key definitions in each class.
– You do not need to memorise these definitions. You need to
have a clear understanding of their meaning and how they are
applied in the standard.

Refer to AASB 116 paragraph 6 definitions and find the definition

of Carrying amount and Depreciation.
The University of Sydney Page 9

3
 26/03/2020

Requirements

AASB 116 Requirements include:

– Recognition of assets – List two (2) types of recognition costs.

– Measurement after recognition – List two (2) models.

– Measurement at recognition
– Depreciation
– Impairment
– Compensation for impairment
– Derecognition
The University of Sydney Page 10

10

Disclosure
Disclosure requirements:
– Identifies what is required to be disclosed in notes to financial
statements.
– Useful information for financial statement users for movements in account
balances, unique transactions and extent of management judgements.
– AASB 116 disclosure (See AASB 116 paragraphs 73 to 79) for
example:
– Measurement bases;
– Depreciation methods;
– Useful lives or depreciation rates;
– Gross carrying amount and accumulated depreciation at beginning and
end of period, with a detailed reconciliation;
– Any restrictions on title to assets;
– Expenditure on assets under construction;
– Contractual commitments to acquire PPE; and
– Compensation from third parties for items lost or impaired.

The University of Sydney Page 11

11

Conclusion

– Accounting standards are NOT easy to read let alone

understand or apply.
– In assignment questions, if required, include the full reference to
the applicable accounting standard. Page numbers in
accounting standards are not specific enough.
– For an example of correct technical referencing, refer to
Student Practice Question 1.
– You must learn how to use them.

The University of Sydney Page 12

12

4
 26/03/2020

Introduction

THE FOCUS OF ACCT6001

1. Applying specific accounting standards:
ACCT6001 – interpreting (reading & understanding)
Intermediate Financial – technical skills (calculations, journal entries, presentation in
Reporting financial statements)
– recognition and disclosure
Skills Workshop 1: Reading & 2. Evaluating specific accounting standards in relation to:
Understanding Accounting – accounting concepts
Standards
– other accounting standards and future developments
– accounting theory
– public interest

As an indicator - approximately 60% application, 40% evaluation

The University of Sydney Page 1 The University of Sydney Page 2

1 2

Introduction Structure of Accounting Standards

Before we start let’s discuss some important questions:
Typical features are of accounting standard are:
– Is the Framework an accounting standard?
– Objective of standard
– Scope
– Definitions
– Is compliance with the Framework required? – Requirements (This is where the accounting rules are for each
accounting choice)
– Disclosure
– What is the expected role of the Framework? – Transitional provisions (if any) Australian Accounting
standards available at:
– Effective date http://www.aasb.gov.au/Home
– Appendices .aspx
Look under Quick Links/Table
– Australian implementation guidance of Standards
– Also, before we start, recall the Topic 1 in-class exercise when As an example look at the AASB 116 contents page on the next
you were asked to try to identify from the list of accounting slide.
standards which ones might address particular accounting
transactions and arrangements.
The University of Sydney Page 3 The University of Sydney Page 4

3 4

Structure of Accounting Standards Objective

Objective of AASB 116 (Refer to AASB 116 paragraph 1):

– Prescribes acceptable accounting treatments for PPE so
financial statement users can understand information about an
entity's investment in its PPE.
– Main accounting requirements AASB 116 covers are:
– Recognition of assets
– Measurement after recognition
– Depreciation
– Impairment

As a practical example refer to an extract from Qantas 2019

financial statements on the next slide.
This is at the start of the accounting standard
The University of Sydney Page 5 The University of Sydney Page 6

5 6

1
 26/03/2020

Objective Scope
– Before applying any accounting standard you need to first look at
AASB 1057 to decide whether Australian Accounting Standards
apply to the entity’s financial statements.
Refer to In Class Student Practice Question 1
Scope:
– Applies to PPE except when another standard requires or permits
different treatment.
– Does not apply to:
– PP&E held for sale (see AASB5: Non-current Assets Held for Sale and
Discontinued Operation).
– Biological assets (see AASB141: Agriculture).
– Exploration and evaluation assets (see AASB6: Exploration for and
Evaluation of Mineral Resources).
– Mineral rights and reserves.
– Investment properties (see AASB140: Investment properties).
Identify 2 items of information in the Qantas PPE note that may be
useful to financial statement users.
The University of Sydney Page 7 The University of Sydney Page 8

7 8

Definitions Requirements

Specifies the meaning of key words as used in accounting AASB 116 Requirements include:
standards. – Recognition of assets – List two (2) types of recognition costs.
– Important because:
– Definitions in the accounting standards are not necessarily
the same as common understandings or dictionary
definitions of words.
– Particular words as defined in one standard may be – Measurement after recognition – List two (2) models.
defined differently in another standard.
– This is why we mention key definitions in each class.
– You do not need to memorise these definitions. You need to – Measurement at recognition
have a clear understanding of their meaning and how they are – Depreciation
applied in the standard.
– Impairment
Refer to AASB 116 paragraph 6 definitions and find the definition – Compensation for impairment
of Carrying amount and Depreciation. – Derecognition
The University of Sydney Page 9 The University of Sydney Page 10

9 10

Disclosure Conclusion
Disclosure requirements:
– Identifies what is required to be disclosed in notes to financial – Accounting standards are NOT easy to read let alone
statements. understand or apply.
– Useful information for financial statement users for movements in account – In assignment questions, if required, include the full reference to
balances, unique transactions and extent of management judgements.
– AASB 116 disclosure (See AASB 116 paragraphs 73 to 79) for the applicable accounting standard. Page numbers in
example: accounting standards are not specific enough.
– Measurement bases; – For an example of correct technical referencing, refer to
– Depreciation methods; Student Practice Question 1.
– Useful lives or depreciation rates;
– You must learn how to use them.
– Gross carrying amount and accumulated depreciation at beginning and
end of period, with a detailed reconciliation;
– Any restrictions on title to assets;
– Expenditure on assets under construction;
– Contractual commitments to acquire PPE; and
– Compensation from third parties for items lost or impaired.

The University of Sydney Page 11 The University of Sydney Page 12

11 12