Financial Systems

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Financial Accounting

 
What is it?

Financial accounting is the production and reporting of general purpose financial reports for external users to make decisions and evaluate the financial health of a company.

In other words, anything an accountant produces that is to be viewed by someone outside the business is known as financial accounting. 

 

General Purpose Financial Reports

General-purpose financial reports are financial reports used by external users that inform on the past financial performance, position and other activities of a company. General-purpose financial reports could include:

  • Statement of Financial Position (Balance Sheet)

  • Statement of Comprehensive Income (Income Statement)

  • Statement of Cash Flows

They are called general purpose financial reports as they do not serve a specific purpose and provide an overview of the company's financial as a whole for a certain period. 

 

External Users

External users are people who rely on general-purpose financial reports to make financial decisions and to evaluate the financial health of the company. External users could include:

  • Investors - used to decide whether to hold, sell or accumulate shares in a company

  • Financial Institutions - used to determine a company's accessibility to a loan

  • Government - The Australian Tax Office (ATO) could use financial information to determine the appropriate level of tax to be paid by the company.

  • Creditors - used to determine the level of risk of the company

 

Frequency

General-purpose financial reports are required to be produced on a periodic basis. Most public companies by law, are required to produce general purpose financial reports once a year but those listed on the ASX are often subject to even tighter regulation with the production of quarterly and half-yearly reports as well as the annual report.

 

Rules and Regulations

The production of general-purpose financial reports is subject to strict rules and regulations. The production of these reports must confine by:

  • AASB Standards

  • Accounting Conceptual Framework

  • Corporations Act 2001

  • ASX Listing Rules (if listed on the ASX)  

The heavy regulation ensures that external users are not misled and that the financial reports represent a true and fair view of the financial health of a company. Most reporting entities are required to have their general purpose financial reports to be checked by an independent accountant known as an external auditor.

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Semi-Finalist | Youth Group Category

Award-nominated in conjunction with Curtin Consulting Group

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