Chapter 1 Introduction to accounting Review questions 1 a To help control the level of expenditure, to assist in planning future levels of expenditure, to help raise additional finance (e.g. mortgages, hire-purchase and so on) and to help decide the best way to spend their money. b To control the activities of the organisation, to plan future activities, to assist in raising finance and to report upon the activities and performance of the entity to interested parties. 2 Numerous examples are acceptable. Ideas such as exclusion of certain items (e.g. good reputation, brand names, technical know-how) and how accounting reflects the past can be used to provoke discussion. Problems for discussion and analysis 1 a The name of the auditing firm is Deloitte. b From note 1P (iv) it is reported that Woolworths does provide share based payments to employees. It operates an ESP where employees receive an interest-free loan that can be used to buy shares in Woolworths. c Yes, the same note states that the cost of equity settled share based payment plans are recognised as an expense over the vesting period. 2 In general, students will need to be aware of the contents of the AASB Framework and the more recent IASB Conceptual Framework. Accordingly, responses should include at least the following points: a Employees are interested in the generation of cash flows and whether the entity is achieving its objectives. This information is available from general purpose financial reports (GPFRs) which also contain non-financial information on the future direction of the entity. b Investors are interested in the amount and timing of profitability, the generation of cash flows, whether the company is achieving its objectives and its future direction. This information is available from GPFRs, ASX extracts and media releases. c Regulators are interested in whether the reporting entity is operating in the interests of its members, whether the entity is achieving its objectives, and if it is operating economically and efficiently. They are also interested in ensuring that reporting entities are complying with various rules and regulations, i.e. AAS, AASB, Corporations Act 2001, ASX. Additionally, regulators are concerned with the efficiency of the law and will therefore monitor reports to ensure that regulation complies with public expectation. This information is available from GPFRs and other reports to meet specific regulatory requirements, i.e., Corporations Act 2001, ASX. d Suppliers of goods and services are primarily interested in whether the entity is solvent. In addition, they are concerned with profitability and cash flows, and whether the entity is achieving its objectives. This information is available from the statement of comprehensive income and the balance sheet. e Customers are interested in the ability of the entity to continue a future supply of goods and services, the level at which they will be provided and the likely cost of provision. Ongoing supply depends on profitability and cash flows. In addition, they may be