This section provides the information and resources that will help ensure all accounting work meets certain standards, and are underpinned by protective legislative requirements established by the Australian Taxation Office.
If there were no framework for preparing financial statements, accounting standards would be developed in a random, arbitrary way to deal with issues as they arise. This would result in standards that are inconsistent with each other or legislation.
The Conceptual Framework for Financial Reporting is a collection of connected objectives and fundamentals that offer guidance in selecting transactions, events, and circumstances to be accounted for and how they should be recognised, measured, summarised, and reported in the financial reports.
Other aspects of the Conceptual Framework flow logically from the objective:
- the qualitative characteristics of useful financial information
- the cost constraint on useful financial information
- a reporting entity
- elements of financial statements
- recognition and derecognition
- measurement
- presentation
- disclosure.
You can download the document for reference. It is also available at the ATO's website.
New Conceptual Framework
The new Conceptual Framework applies to periods beginning on or after 1 January 2020 and includes:
- updated definitions of an ‘asset’ and ‘liability’
- updated recognition criteria for including assets and liabilities in financial statements
- new concepts on measurement, including factors to consider when selecting a measurement basis (e.g. cost vs fair value)
- new concepts on presentation and disclosure, including classifying items as income vs other comprehensive income
- new guidance on derecognition of assets and liabilities.
The new Conceptual Framework applies to:
- For-profit private sector entities that are required by legislation to prepare financial statements that comply with either Australian Accounting Standards or accounting standards
- Other for-profit private sector entities that are required only by their constituting document or another document to prepare financial statements that comply with Australian Accounting Standards, provided that the relevant document was created or amended on or after 1 July 2021
- Other for-profit entities (private sector or public sector) that elect to prepare general purpose financial statements.
Australian corporate laws protect businesses, consumers, and employees with specific regulations designed to ensure everyone gets a fair go. Some standards are set for companies to meet or exceed, and codes of practice provide guardrails for keeping businesses honest and accountable. Following are the most crucial accounting legislative requirements.
Regulations
The Tax Agents Services Act 2009
Roles that relate to managing the finances of a business are often termed accounting or bookkeeping. However, accountants, bookkeepers, BAS agents and tax agents all have different job functions, qualifications and authorities extended to them by the legislation in Australia.
If a business employs a dedicated person to take care of their accounts, they have a bookkeeper. Often bookkeepers have a Certificate IV qualification and are involved in keeping up-to-date financial records and generating monthly, quarterly and end-of-year financial reports.
A bookkeeper can choose to become a BAS or Tax agent. Registered BAS and Tax agents must have the required qualifications and experience as stated in the Tax Agent Services Regulations 2009 (TASR). They must also be registered with the Tax Practitioners Board (TPB).
A BAS agent is qualified to provide a host of services beyond a bookkeeper's capacity. They assess the financial reports and offer advice and certainty around GST and indirect taxes on the BAS and payroll systems. Not all bookkeepers are BAS agents. If a business needs BAS services, the person they engage must be a registered BAS agent to comply with the Tax Agents Services Act 2009.
Registered tax agents can offer tax-related services which involve ascertaining, providing advice and representing a business on income tax matters.
A New Tax System (Goods and Services Tax) Act 1999
Organisations with a turnover of $75 000 or more, or not-for-profit organisations with a minimum turnover of $150 000, must register for the Goods and Services Tax (GST) and apply a 10% tax to goods and services deemed ‘taxable supply’. The tax collected must be reported and remitted to the ATO by the due dates stipulated in the legislation. When an organisation registered for GST incurs GST on its acquisitions, it can claim the GST paid as a tax credit, thereby reducing the amount it owes to the ATO. As bookkeepers are an integral part of the accounting system's recording function, they must apply GST to transactions in accordance with the regulations and keep up to date with changes in GST legislation. The ATO informs registered organisations of changes to the legislation. In addition, the bookkeeper can access up-to-date information relating to the GST by searching for ‘GST’ on the ATO website.
PAYG withholding system
Under the PAYG system, employers must withhold income tax from wages, salaries and payments to employees, directors and others and forward the tax withheld to the ATO. In addition, employers must issue employees with a pay advice for each payment, issue payment summaries, and report to the ATO on withholding payments deducted during the financial year. In some organisations, the bookkeeper is responsible for administering the payroll system. As a result, they must be aware of the employer’s responsibilities under the PAYG system and relevant compliance requirements.
Superannuation guarantee (administration) act 1992
The Superannuation Guarantee (Administration) Act 1992 established compulsory employment-based superannuation under which employers must provide minimum superannuation support for employees who meet certain employment conditions. This is referred to as the Superannuation Guarantee. Employers must contribute 10.5% of earnings towards an employee’s chosen superannuation fund. As a result of this legislation, bookkeepers responsible for maintaining an organisation’s payroll system will need to comply with the recording, disclosure and reporting provisions of the Act.
Privacy act 1988
Bookkeepers have access to sensitive and confidential information, such as bank account numbers, tax file numbers, customers’ and employees’ personal details and other private information. The Privacy Act 1988 regulates how organisations collect, use, store and disclose information. The details of this act can be accessed at https://www.oaic.gov.au. Consequently, when undertaking bookkeeping activities, the professional bookkeeper must ensure that information of a personal nature about the organisation, employees, customers, suppliers and so on is protected and remains confidential. By protecting personal data, the bookkeeper complies with the law and follows ‘good’ business practices. This gains the confidence of the community and ensures their personal integrity.
Australian consumer law
Bookkeepers should also be aware of their obligations under the following:
- Competition and Consumer Act 2010
- Electronic Funds Transfer (EFT) Code of Conduct 16
- Business names legislation for each state and territory
- Australian Securities & Investments Commission (ASIC) – These regulatory documents give guidance to regulated entities by:
- explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)
- explaining how ASIC interprets the law
- describing the principles underlying ASIC's approach
- giving practical guidance (for example, describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Here are two practical examples:
Standards
Organisational accounting systems
Australian Accounting Standards Board (AASB)
An accounting standard is a technical pronouncement that sets out the required accounting for particular types of transactions and events. The accounting requirements affect preparing and presenting a business’s financial statements.
The Australian Accounting Standards Board (AASB) is responsible for setting accounting standards in Australia. The accounting standards apply to all entities regulated by the Corporations Act 2001. This includes public companies and large proprietary companies formed under corporations’ law and managed investment schemes such as unit trusts.
This Act also ensures that the AASB standards have the force of law, for example:
- A company’s directors must ensure that its financial statements comply with accounting standards
- Auditors of companies are required to state whether the accounts have been made out following accounting standards
- Substantial penalties apply to company directors for non-compliance with the law.
Consequently, a bookkeeper employed by an organisation that falls within the definitions of Australian corporations law will need to ensure that the organisation’s financial affairs are accounted for per the requirements and standards of the AASB. This list of standards can assist bookkeepers in maintaining their knowledge of the Australian accounting standards and their developments.
This is a critical resource to stay on top of changing legislation. Here are a few links to get you started.
An Accounting Information System (AIS) is the collection, storage and processing of financial and accounting data decision-makers use. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting statistical reports can be used internally by management or externally by other interested parties, including investors, creditors and tax authorities.
Outline Relevant Organisational Policies, Procedures and Accounting Standards
When a business enterprise presents all the relevant financial information in a structured and easy-to-understand manner, it is called a financial statement. The purpose of financial statements is to provide both business insiders and outsiders with a concise, clear picture of the business's current financial status. Therefore, the people who use the statements must be confident in their accuracy.
Codes of practice
Accounting Policies
Bookkeepers need to ensure that the documents used in the accounting system are retained as evidence that transactions have occurred. These documents may be required by various government bodies when conducting audits into income tax, GST issues and/or the Superannuation Guarantee. The period of retention of financial documents generally ranges from one year to seven years and, in some cases, must be retained for the life of the organisation. Consequently, all organisations should have a document retention and destruction policy to ensure compliance with various legislative requirements.
This policy should:
- identify the documents and records to be retained and the retention period
- determine the method of retention, such as hard copy or electronic copy
- detail the storage, archive and security methods
- detail the document destruction policy.
The ATO website provides assistance in the area of records management, for example:
- A software program titled: ‘Record keeping evaluation tool’ that assists organisations in identifying documents that should be retained
- A document titled ‘Record keeping for small business.’
Institute of Certified Bookkeepers Code of Professional Conduct (ICB)
In society, a bookkeeper has a special role. Trust in the accounts and books of businesses and individuals are dependent on the bookkeeper's truthful, careful and diligent making and keeping of records. The purpose of these rules is to provide standards of conduct for members of the Institute of Certified Bookkeepers which are appropriate to their conduct in their employment and practice and the preservation of the dignity of their profession.The Institute of Certified Bookkeepers
You can view this excellent resource online at their website or download the entire code of conduct as a PDF.
ePayments Code | ASIC - Australian Securities and Investments Commission
The ePayments Code applies to consumer electronic payment transactions, including ATM, EFTPOS and credit card transactions, online payments, internet and mobile banking, and BPAY.
It was formerly known as the Electronic Funds Transfer Code of Conduct (EFT Code) which existed since 1986. Subscribers progressively transitioned to the ePayments Code by 20 March 2013.
ASIC administers the ePayments Code, including monitoring compliance and conducting regular reviews.
Financial Reporting Policy
Here is an example policy for your review. You will also use this for your assessments.
Take a moment and answer the following questions before continuing with the course.
