1. Discuss three types of users making economic decisions based on an entitys GPFR.

Describe which components of the GPFR and the information contained within those components would best suit each type of user. GPFRs are used by the below: a. Government & their agencies b. Investors & lenders c. Employees & Customers The GPFR consists of the income statement, balance sheet, statement of changes in equity, cash-flow statement and notes to financial statements. Income statement - Government & its agencies would use the income statement to derive the entitys tax shields and to assess the entitys profitability. - Investors & lenders would use income statement to derive the companys sales figures, operating expenses and profitability of the entity. - Employees & customers would use the income statement to assess the entitys sales volumes, operating expenses and profitability of the entity. Balance Sheet - Government and its agencies would use the balance sheet to evaluate the entitys stability, liquidity and solvency position. - Investors & lenders would use the balance sheet to evaluate the entitys liquidity and solvency position. Also, to assess the assets held by the company. - Employees & customers would use the balance sheet to assess the long term sustainability of the entity. Statement of changes in equity - Government and its agencies would use the Statement of changes in equity to assess the entitys equity shareholder base and to ensure that the entitys equity is held by a diverse group. - Investors and lenders would use the Statement of changes in equity to know more about the other investor class that are investing in the entity. Cash Flow statement - Government and its agencies would use the cash flow statement to assess the sources of funds the entity has employed. - Investors and lenders would use the cash flow statement to assess the entitys cash generating capability. Notes to financial statements - All the users of GPFR would use the Notes to financial statements for items requiring clarification and explanation.

2.

Accounting Standards come from the AASB, many of them are based on the standards of the IASB, and Accounting Standards are but one part of the Regulatory Environment. Describe the other parts of the Regulatory Environment.

The three components of the Australian Regulatory environment include: a. Company Legislation b. AASB (Australian Accounting Standards Board) c. Australian Stock Exchange - Company Legislation- the Corporations Act 2001 regulates the entitys activities by requiring the entity to prepare the GPFR in accordance with the accounting standards issued by AASB. The Corporations Act also requires the entitys GPFR to be audited and accompanied by the directors statement. - Australian Stock Exchange (ASX)- the ASX imposes a few requirements to any organisation which intends to be listed in the Australian Stock Exchange. The ASX requirements are in place to provide a fair market and to protect the users of financial statements.
3.

You are a User of financial information and are reading the Income Statement, Balance Sheet, Statement of Changes in Equity, and Cash-Flow Statement of an entity. As a User and knowing that these GPFR are the only sources of information given to you by the entity itself, what extra information might you go seeking for and where might you discover such extra information in order to make an informed economic decision?

The GPFR consists of Income Statement, Balance Sheet, Statement of Changes in Equity, Cash-Flow Statement and the Notes to financial statements. One can get additional relevant information by reviewing the Notes to financial statements. The Notes to financial statements provide supporting explanation to any unqualified items in the GPFR. Also, the Notes to the financial statements help us clarify our doubts on the functioning of the entity. 4. Can a legal entity also be an accounting entity? How? An accounting entity is an institute which carries out economic activities. An institute includes an individual or group of individuals. A legal entity has a separate identity in the eyes of the law. This allows it to have its own rights i.e., entering into contracts, being able to take legal action against other defaulting legal entities, being able to be sued. A company is a separate legal entity and an individual is a separate legal entity. A legal entity is an institute which carries out economic activities and any institute which carries out economic activities is an accounting entity. Hence we can say that a legal entity can also be an accounting entity.