externalities: An impact that an entity has on parties external to the organisation. Externalities can be viewed as positive (benefits) or negative (costs).

extractive industries: Firms in the extractive industries engage in the search for and extraction from the ground of natural substances of commercial value.

fair value: The amount for which an asset could be exchanged, a liability settled or an equity instrument granted between knowledgeable, willing parties in an arm's length transaction.

f.o.b. destination: An agreement whereby the price of a purchase typically includes the costs necessary to get the item to a certain destination, at which place title to the goods passes to the buyer.

f.o.b. shipping point: An agreement whereby the price of a purchase typically includes the costs necessary to get the item to a certain transportation point, at which point title passes to the buyer.

finance lease: Lease in which the terms of the lease agreement transfer the risks and rewards of ownership from the lessor to the lessee.

financial asset: Any asset that is cash, or a contractual right to receive cash or another financial asset from another entity or to exchange financial instruments with another entity, or an equity instrument of another entity.

financial instrument: Any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

financial liability: Any liability that is a contractual obligation to deliver cash or another financial asset to or exchange financial assets or liabilities with another entity, or a contract that is a derivative or a non-derivative.

Financial Reporting Council (FRC): Body that oversees the activities of the AASB and the AUASB.

financial structure: Refers to how the resources of the entity have been funded, for example how much debt there is relative to equity. Financial structure information can also describe the types of debt and types of equity in existence.

financing activities: Activities that relate to changing the size and/or composition of the financial structure of the entity.

first-in, first-out cost-flow method (FIFO): Method of assigning costs to inventory where it is assumed that the first inventory that enters an organisation's stock is the first inventory to be sold.

fixed costs: See fixed production costs .

fixed production costs: Costs of production that are not expected to fluctuate (at least in the short term) as levels of production/activity change.

foreign currency swap: Agreement under which an obligation relating to a loan denominated in one currency is swapped for a loan denominated in another currency.

forfeited shares account: An account reflecting the amounts paid by investors for partly paid shares and where those shares have been cancelled owing to failure of investors to pay all amounts due.

forfeited shares reserve: A reserve for non-refundable amounts paid by defaulting shareholders, shown as part of shareholders' funds of the company.

forgiveness of a debt: Where a debt that is payable is cancelled so that the debtor no longer has to pay the amount that was due.

forward rate: The exchange rate that is currently offered for the future acquisition or sale of a specific currency.

full-cost method: Regarding the extractive industries, this method requires all exploration and evaluation costs incurred by an entity to be matched against revenue from the total economically recoverable reserves discovered by the entity across all sites.

functional currency: The currency of the primary economic environment in which the entity operates, reflecting the underlying transactions, events and conditions that are relevant to that currency. See presentation currency .

future economic benefits: The scarce capacity of assets to provide benefits to the entities that use them—common to all assets irrespective of their physical or other form.

futures contract: A contract to buy or sell an agreed quantity of a particular item at an agreed price on a specific date.

gains: A class of income representing other items that meet the definition of income but need not relate to the ordinary activities of an entity.

general reserves: Reserves that are part of shareholders' funds and are created for various reasons, sometimes as a means of transferring profits out of retained earnings for future expansion plans.

generally accepted accounting principles: Body of conventions, rules and procedures that are generally applied by accountants.

general-purpose financial report: Reports that comply with conceptual framework requirements and accounting standards and meet the information needs common to users who are unable to command the preparation of reports tailored to satisfy, specifically, all their information needs.

goodwill: Unidentifiable intangible asset representing the future economic benefits associated with an existing customer base, efficient management, reliable suppliers and the like.

grant date: Date at which the entity and the counterparty agree to a share-based payment arrangement, being when the parties reach a shared understanding of the terms and conditions of the arrangement.

gross method: The lease receivable is recorded at the sum of the undiscounted minimum lease payments and the unguaranteed residual.

group: Typically, a group of entities, comprising the parent entity and each of its subsidiaries.

hedge contract: Arrangement with another party in which that party accepts the risks associated with changing commodity prices or exchange rates.

hedge of a specific commitment: A hedge relating to the establishment of the price of particular goods or services to be purchased or sold.

hedge/hedging: An action taken with the object of avoiding or minimising the possible adverse effects of movements in exchange rates or market prices.

heritage asset: An asset with historic, artistic, scientific, technological, geophysical or environmental qualities that is held and maintained principally for its contribution to knowledge and culture and this purpose is central to the objectives of the entity holding it.

historical-cost accounting: System of accounting that bases asset values and expenses on the actual prices paid, rather than on market valuations or present values.

hybrid securities: Securities exhibiting both debt and equity characteristics.

identifiable intangible assets: Include patents, brand names, trademarks and copyrights. May be considered identifiable as a specific value can be placed on each asset and they can be separately identified and sold.

implicit interest rate: The discount rate that causes the aggregate present value of the minimum lease payments plus any unguaranteed residual to be equal to the fair value of the leased property at the inception of the lease.

income: Element of accounting defined in the AASB Framework as ‘increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants'. See revenues and gains .

incremental borrowing rate: Rate of interest the lessee would have to pay on a similar lease or the rate that the lessee would incur to borrow the funds to purchase the asset.

independent valuations: For non-current assets, a valuation made by an expert in valuations of that class of assets whose pecuniary or other interests could not be capable of affecting that person's ability to give an unbiased opinion on that valuation.

information asymmetry: Where some individuals have access to certain information that is not available to others.

initial direct costs: Costs that are directly associated with negotiating and executing a lease agreement.

Institutional Theory: Theory that considers the forms organisations assume and explains why organisations within particular ‘organisational fields' tend to take on similar characteristics and forms.

insubstance debt defeasance: Where the debtor achieves release from the primary obligation for a debt by placing in trust assets adequate to service the debt or by having a suitable entity assume responsibility for servicing the debt.

intangible assets: Non-monetary assets without physical substance. Common forms of intangible assets include patents, goodwill, brand names and trademarks.

interest revenue: Revenue derived as a result of lending resources to another entity.

internally generated goodwill: Goodwill that is generated by the reporting entity itself, not purchased from an external entity.

Interpretations Agenda Committee: Body replacing the Urgent Issues Group that identifies and assesses issues for inclusion in the AASB's work program.

intragroup transaction: Transaction undertaken between separate legal entities within an economic entity.

inventory: Goods, other property and services held for sale in the ordinary course of business; or in the process of production,

preparation or conversion for such sale; or in the form of materials or supplies to be consumed in the production of goods or services available for sale.

inverted sum-of-years-digits approach: A method of depreciation/amortisation that is applied on the assumption that greater benefits are derived in future years than earlier years. Derived using the formula n ( n + 1)/2.

investee: An entity in which another party (the investor) has an ownership interest.

investing activities: Activities that relate to the acquisition and/or disposal of non-current assets.

investor: An entity/person that has an ownership interest in another entity (the investee).

joint venture: A contractual arrangement between two or more parties to undertake an economic activity that is subject to joint control.

jointly controlled assets: Assets within joint ventures that involve joint control and often joint ownership by the venturers of assets contributed to or acquired for the purpose of the joint venture and dedicated to the purposes of the joint venture.

jointly controlled entity: A joint venture that involves the establishment of an entity in which each venturer has an interest, operating like other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

jointly controlled operation: A joint venture that involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves.

key management personnel: Persons having authority and responsibility for planning, directing and controlling the activities of an entity, including any director of the entity.

last-in, first-out cost-flow method (LIFO): Method of assigning costs to inventory where it is assumed that the last inventory item that enters an organisation's stock is the first inventory to be sold.

lease: An agreement conveying the right from a lessor to a lessee to use an asset for a stated period in return for a series of payments.

lease incentives: Incentives given to prospective lessees to encourage them to sign a lease.

lease receivable: A receivable recorded in the books of a lessor; for a finance lease it is the present value of the minimum lease payments plus the present value of any unguaranteed residual.

legal defeasance: A defeasance in which the release of the debtor from the primary obligation is formally acknowledged by the creditor or a trustee of the creditor or by legal judgment.

legal entity: An entity that exists in its own right, such as individual companies and trusts. Legal entities often combine to form an economic entity.

Legitimacy Theory: Theory that proposes that organisations always seek to ensure that they operate within the bounds and norms of their societies.

leverage (gearing): Measure of the amount of debt issued by an entity. The greater the use of debt the greater the gearing.

liability: Defined in the AASB Framework as ‘a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits'.

long-service leave: Leave in addition to annual leave granted if an employee stays with an employer for a minimum number of periods.

lower of cost and net realisable value: Cost is the aggregate of costs such as purchase and conversion; net realisable value is the estimated proceeds of sale less costs to completion and costs to sell.

mark to market: Valuing assets according to their market prices.

market capitalisation: The total value of a firm's securities computed by multiplying the current market value of each security by the number of securities issued by the entity.

market rate of return: The rate of return that the market, typically the capital market, requires from a particular investment.

marketable securities: Typically, debentures, shares, options or bonds that can be readily sold at reasonably short notice.

market-value accounting: Where the entity's assets are recorded at their net market value, with any change in value from the previous period or since acquisition date being treated as part of the profit or loss for the financial period.

materiality: A threshold concept concerning the relevance of an event or transaction to financial statement users.

minimum lease payments: Rental payments over the lease term including the amount of any bargain purchase option, premium and any guaranteed residual value and excluding any rental relating to costs to be met by the lessor and any contingent rentals.

minority interest: That portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the parent.

monitoring cost: Cost incurred monitoring the performance of others.

net method: The lease receivable is recorded at the present value of the minimum lease payments plus the present value of any unguaranteed residual value and initial direct costs.

net present value: The difference between the present value of the future cash inflows and the present value of the future cash outflows relating to a particular project or object.

net selling price: The selling price of an item, less costs incidental in making the sale.

non-current liability: Any liability that does not pass the test provided within AASB 101 for a current liability. See current liability .

normative accounting theories: Accounting theories that seek to guide individuals in selecting the most appropriate accounting policies.

notes to the financial statements: Further information or explanation relating to items appearing in financial statements.

on-costs: Costs other than salaries and wages incurred by an employer as a result of employing individuals.

operating activities: Activities that relate to the provision of goods and services and other activities that are neither investing nor financing activities.

operating lease: Lease in which the risks and rewards of ownership sta with the lessor.

operating segment: A component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker and for which discrete financial information is available.

option: A commonly used form of derivative financial instrument entitling the holder to buy assets at a future time at a prespecified price. See put option and call option .

ordinary shares: Shares that provide a claim against the entity that ranks behind the claims of creditors and some preference shareholders.

owners' equity: The owners' share of the business calculated by subtracting the liabilities of the entity from its assets.

par (or face) value: The amount debenture holders receive on maturity of debentures.

parent entity: An entity that controls another legal entity (the parent entity's subsidiary).

percentage-of-completion method: Where profits are recognised each period based upon the progress made with construction. Also referred to as the stage-of-completion method.

period costs: Costs that are written off in the period in which they are incurred since they are not expected to provide economic benefits beyond the end of the current financial period.

periodic inventory system: Also known as the ‘physical inventory method', a method of accounting for inventory where inventory is counted periodically and then priced.

perpetual inventory system: Also known as the continuous method, a method of accounting for inventory where a running total is kept of the units on hand by recording all increases and decreases as they occur.

perquisite consumption: Consumption by employees of non-salary benefits.

political costs: Costs that groups external to the firm might be able to impose on the firm as a result of political actions.

Positive Accounting Theory: Seeks to explain and predict accounting practice.

potential ordinary shares: Issued securities that potentially convert into ordinary shares or result in the calling in of or subscription for ordinary share capital.

pre-acquisition shareholders' funds: Shareholders' funds that were in existence within an organisation before an entity acquired an ownership interest in that organisation.

preference shares: Shares that receive preferential treatment—often with regard to the receipt of dividends or the order of ranking for asset distributions—compared with ordinary shares.

premium: The amount paid for a security in excess of the par or face value.

present value: The value of an item to be received or paid for in the future expressed in terms of its value today.

presentation currency: The currency in which the financial report is presented. An entity may present its financial report in any currency/ies. If the presentation currency differs from the entity's functional currency, it translates its results and financial position into the presentation currency.

present-value accounting: An approach to accounting that values assets and liabilities on the basis of their net present values.

probable: More likely than less likely.

property investment Land or a building—or part of a building—or: both held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or for both.

provision for doubtful debts: Account that provides an estimate of the amount of the accounts receivable that will ultimately not be received.

purchased goodwill: Goodwill that has been acquired through a transaction with an external party as opposed to goodwill that is generated by the reporting entity itself. In Australia purchased goodwill must be shown as an asset of the reporting entity. See internally generated goodwill .

put option: Gives its holder of the option the right to sell an asset, at a specified exercise price, on or before a specified date.

qualifying asset: An asset under construction or otherwise being made ready for future productive use of the company or for the use of another entity under a contract.

rational economic person assumption: Assumption that all actions by individuals are driven by self-interest, the prime such interest being to maximise personal wealth.

recoverable amount: The net amount expected to be recovered through the cash inflows and outflows arising from the continued use and subsequent disposal of an item. The higher of an asset's net selling price and its value in use.

related parties: Parties are related if one has the ability to significantly influence or control the activities of the other or if both parties are under the common influence of another party.

related-party transactions: Transfers of resources, services or obligations between related parties, regardless of whether a price is charged.

reportable segment: An operating segment for which segment information is required to be disclosed by the standard.

reporting date: Often referred to as ‘balance date'. The end of the financial period (typically 12 months). In Australia most companies have a reporting date of 30 June.

reporting entity: When users are said to exist who do not have access to information relevant to decision making and who are judged to be dependent on general-purpose financial reports, the entity is deemed to be a reporting entity.

revaluation increment: When an asset is revalued upwards, the revaluation increment represents the difference between the carrying amount of the asset and the amount based on its fair value.

revenues: A class of income relating typically to the ordinary activities of an entity.

right of set-off: A right that allows an entity to offset the amount owed to one entity against the amount owed by that or another entity and is recognised in law or in equity.

rights issue: An entitlement provided to shareholders giving them the right or option to buy shares in the entity at a future time at a specific price.

risks and rewards of ownership: Risks include those associated with idle capacity and obsolescence and rewards include gains in realisable value.

sale and leaseback transaction: In which an entity sells an asset and immediately leases it back from the purchaser/lessor (the legal owner). The seller/lessee does not lose control of the asset if the ensuing lease is a finance lease.

sales-type lease: Finance lease in which the fair value of the property at the inception of the lease differs from its cost to the lessor.

salvage value: The same as residual value—the actual or estimated net realisable value of a depreciable asset at the end of its useful life.

segment: A defined portion of a business. See geographical segment and business segment .

segment assets: Assets that are employed by a segment in its operating activities and that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis.

segment expense: Expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant portion of an expense that can reasonably be allocated to the segment, including expenses relating to sales to external customers and to transactions with other segments of the same entity.

segment liabilities: Liabilities that result from the operating activities of a segment and that are either directly attributable to the segment or can reasonably be allocated to the segment.

segment result: Segment revenues less segment expenses, determined before any adjustments for minority interests.

segment revenues: Revenue reported in the entity's income statement that is directly attributable to a segment and the relevant portion of entity revenue that can reasonably be allocated to a segment, whether from sales to external customers or from transactions with other segments of the same entity.

set-off: The reduction of an asset by a liability or of a liability by an asset in the presentation of the balance sheet so that the net amount only is presented.

SGARAs: Non-human-related living assets, including trees and animals.

share appreciation rights (SARs): Rights entitling employees, generally as part of their remuneration package, to future cash payments based on prespecified increases in the entity's share price.

share-based payment transaction with cash alternatives: Transaction in which the entity acquires goods or services on terms that provide either the entity or the supplier of those goods or services with the choice as to whether the entity settles the transaction in cash or issuing equity instruments.

share capital: The balance of owners' equity within a company, which constitutes the capital contributions made by the owners.

share option: Entitlement that gives the holder the right to buy shares at or before a future date at a specified price.

share premium: The difference between the issue price of a share and the par value of that share.

share split: The subdivision of the company's shares into shares of a smaller face value, resulting in no change to owners' equity.

shareholders' funds: In a company, shareholders' funds represent the difference between total assets and total liabilities.

sick leave: Paid leave entitlement per year for when an employee is not fit for duties.

significant influence: Capacity of an entity to affect substantially but not control either or both the financial and operating policy decisions of another entity.

social accounting: Aims to provide information on and assess the impact of an entity on people both inside and outside the organisation, covering issues such as community relations, product safety and education and training initiatives.

social auditing: A process whereby an enterprise can account for its performance against its social objectives and report on that performance to evaluate its observance of the principles of accountability.

social benefits: Benefits generated by an entity for society, or a segment thereof, such as provision of education, clean water, safe products and health care.

social contract: Concept used to describe the right to exist accorded organisations by society as long as they meet the various implicit and explicit expectations society has about how an organisation should conduct its operations.

social costs: Costs imposed on society as a result of the operations or activities of a particular entity. Often referred to as ‘externalities' and typically ignored by conventional accounting procedures.

social-responsibility disclosures: Disclosures of information on the interaction of an organisation with its physical and social environment.

social-responsibility reporting: The provision of information about the performance of an organisation with regard to its interaction with its physical and social environment.

special-purpose financial report: Designed to meet the needs of a specific group or to satisfy a specific purpose. See general-purpose financial report .

specific-identification method: Method of accounting for the cost flow of inventory. Significant dollar value items are often accounted for this way, particularly where they have a unique characteristic such as a unique product number.

spot rate: The exchange rate for immediate delivery of currencies to be exchanged.

stakeholder: Any group or individual who can affect or is affected by the achievement of a firm's objectives.

Stakeholder Theory: Perspective that considers the importance for an organisation's survival of satisfying the demands of its various stakeholders.

standard costs: Used to assign costs to inventory, they are predetermined product costs established on the basis of planned products and/or operations, planned cost and efficiency levels and expected capacity utilisation.

straight-line method: Method of amortisation or depreciation where the cost or revalued amount of an asset, less its expected salvage cost, is uniformly depreciated over the asset's expected useful life.

substance over form: Events are accounted for and displayed in accordance with their economic substances rather than their legal form.

successful-efforts method: Method of accounting used in the extractive industries under which only exploration and evaluation costs resulting directly in the discovery of economically recoverable reserves are carried forward, all others being written off as incurred.

sum-of-digits method: Method of depreciation that allocates a greater amount of depreciation in the early years of an asset's life.

superannuation: Payments made to employees after their retirement, in a stream of periodic payments or a lump sum on termination.

superannuation plan: Arrangement between trustees and employers, employees or self-employed persons that benefits will be provided upon the retirement (or other specified events) of plan members.

sustainable development: Development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.

swap agreement: Agreement between borrowers to exchange aspects of their respective loan obligations.

systems-oriented theories: Theories that explain the role of information and disclosure in managing the relationship between an organisation and the communities with which it interacts.

target-based reporting: Common approach to environmental performance reporting that reports progress against prespecified

targets.

taxable profit: The profit for a period determined in accordance with rules established by the taxation authorities, upon which income taxes are payable.

taxes payable method: A method whereby the amount that is payable to the Australian Taxation Office (ATO) is also treated as the tax expense of the organisation.

technical default: When a borrowing entity has failed to comply with certain restrictive covenants that have been negotiated with lenders.

theory: Coherent set of hypothetical, conceptual and pragmatic principles forming the frame of reference for a field of inquiry.

total market capitalisation: Calculated by multiplying the number of issued shares in a company by their latest market price.

traditional financial accounting practices: Practices that have been applied for a long time and are considered to be generally accepted by the majority of accountants. Such practices would emphasise measures associated with historical costs.

translation of foreign currency transactions: Translation of transactions denominated or requiring settlement in a currency other than the functional currency of the entity.

travel-cost method (TCM): Method often used in valuing heritage assets that relies on collecting data about the costs incurred by individuals who visit a particular location. These costs are used to determine what individuals are paying to use that resource.

triple-bottom-line reporting: Reporting that provides information about the economic, environmental and social performance of an entity.

true and fair: Disclosures are regarded as giving a true and fair view if they provide all relevant information and comply with applicable standards.

unclosed business: In the insurance industry, business written close to the balance date for which the date of attachment of the risk precedes the balance date.

unearned revenue: When assets, treated as liabilities, are received by a business for services to be performed at a future date.

unidentifiable intangible assets: Intangible assets that cannot be separately sold, such as loyal customers and established reputation. Cannot be individually measured with acceptable levels of reliability.

useful life: Estimated period over which future economic benefits embodied in a depreciable asset are expected to be consumed by the entity, or the estimated total service to be obtained from the asset by the entity.

voting power: Determined by considering the voting rights attaching to equity interests in an investee, excluding contingent voting rights.

weighted-average approach: An average cost is determined for inventory based on beginning inventory and items purchased during the period. The costs of the individual units are weighted by the number of units acquired or manufactured at a particular price. The units in ending inventory and units sold are costed at this average cost.

weighted-average number of shares: The weighted-average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor.

write-down: Reduction in the carrying value of an asset.