What are accounting standards?

Section 334 of the Corporations Act 2001 gives the AASB the power to make accounting standards, by legislative instrument, for the purposes of that Act or the ASIC Act, and says the standards must not be inconsistent with those Acts or the regulations. Section 9 defines an accounting standard as an instrument in force under section 334, or a provision of one. Under section 334, a standard applies to periods ending after it commences, or to periods ending or starting on or after a later date the standard sets, and the entities the section names can elect, in writing by their directors, to apply a standard to an earlier period unless it says otherwise.

Section 292 lists who must prepare a financial report and a directors' report for each financial year, including public companies, large proprietary companies, registered schemes and, if incorporated or formed in Australia, disclosing entities. A small proprietary company has to prepare them only in the cases the section sets out, such as when it is directed to, and a small company limited by guarantee only when it is directed to. Section 296 then says the financial report for a financial year must comply with the accounting standards. A small proprietary company reporting in response to a shareholder direction, or a small company limited by guarantee reporting in response to a member direction, need not comply with particular standards if the direction says so, subject to the other conditions in that section.

The Australian Charities and Not-for-profits Commission (ACNC), in guidance written for charities, describes the AASB as the Australian Government agency that writes, issues and keeps accounting standards up to date, and says the standards prescribe how particular kinds of transactions and events must be accounted for. It notes there are also accounting interpretations, which spell out how a standard's requirements apply to particular transactions or events. In its guidance on annual financial reports, the ACNC says a charity's report generally has to meet ACNC requirements, follow the Australian Accounting Standards made by the AASB, and present a true and fair view of how the charity has performed and where it stands financially. Medium and large charities, other than Basic Religious Charities, must submit an annual financial report, while for small charities it is optional unless their own governing document requires one.

• Treating a monthly report produced from the books as if it were a financial report prepared under the accounting standards.
• Assuming a standard from an earlier year still applies unchanged, when standards are amended from time to time and apply by period.
• Reading guidance written for charities as if it set the rules for every business.
• Deciding without your accountant whether the business's statements need to follow the standards.