Part I
Identification of income and analysis of recognition and measurement requirement
The income statement is the main part of financial statements which is necessary for an investor to be familiar with in order to analyse the profitability and future growth of the company. The income of a company can be ascertained from Profit and Loss account after reducing all business expenditures and operating cost from total revenue of the company (Barth, 2015). As per the provision of GAAP, an item should be recognised in a basic financial statement when it fulfils the following criteria subject to cost-effectiveness and materiality threshold. The four criteria are Definition; Measurability; Relevance and Reliability.
As in the present case, Asia Pacific Data Center Group has measured its revenue at fair value of the consideration received or receivable. The group recognises the revenue only in the case when the amount of revenue can be reliably evaluated, and it is probable that the future economic benefits will flow in future (Christensen, Hail and Leuz, 2013). All these specifications have been met in case of each activity relating to revenue like Rental Income; Interest Income
Part II
Importance of GAAP in financial reporting and business practices in general
GAAP is based on specified concepts which are established by Financial Accounting Foundations-setting Boards and GASB for ascertaining the manner in which financial statements should be prepared. As it based on specified concepts, objectives, standard and convention and provide guidance relating to preparation and presentation of financial statements; thus it plays a pivotal role in providing important and useful information to the investor, lenders and other users of financial statements (Nobes, 2014).
The requirement of relevant, comparable and high-quality financial reporting has increased to a higher level in the present scenario, and the same applies to public companies, private companies and non-profit organisation. The nature of the global economy has been ascertained dynamic as well as unpredictable (Oliver, 2014). Thus it is necessary that retail investors must be able to trust the financial information which is made available publicly. GAAP has been established for accomplishing these needs as the financial statements which are prepared as per GAAP are in accordance with the standard developed through FASB comprehensive and independent process. It plays a crucial role in the decision of allocation of resources is dependent on the credible, concise and understandability of financial information in financial statements (Palepu, Healy and Peek, 2013). The loss and profit on the investment are expected according to data available in the financial statements and if the same are being prepared in accordance with GAAP provisions; they are assumed to provide an appropriate financial picture of the organisation.
Part III
Implementation of GAAP in Asia Pacific Data Center Group
Trade and other receivables
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Figure 1: Notes to accounts relating to trade and other receivables
(Source: Annual Report of Asia Pacific Data Center Group, 2016)
The company initially recognises the trade and other receivables at fair value, and further the same are amortised by applying effective interest method. Trade and other receivable are recognised as a current asset unless collection from is expected for not more than twelve months. At the end of each year, assessment is made for ascertaining the evidence relating to the impairment of the financial asset. Thus; the financial asset is impaired only is case material evidence is recognised by the management.
In present scenario, it can be observed that company has provided all the details relating to the recognition, measurement, presentation and disclosure relating to trade and creditors. The manner in which company has evaluated the figures of trade and other receivables and method of amortisation of same has been appropriately explained in the notes to accounts of financial statements (Wahlen, Baginski and Bradshaw, 2014). GAAP includes principles relating to recognition and measurement according to which the items which have been stated in financial statements; method of their measurement should be appropriately stated so that the same is easily understandable by the user of financial statement and it can make appropriate decision after assessing it. Further, an appropriate disclosure has also been made regarding the manner in which trade and other receivable have been valued and impaired by the company. Thus it can be said that company has implemented GAAP in the financial reporting in case of trade and other receivables.
PART IV
One example when GAAP is not used by Asia Pacific Data Center Group
Provision![]()
Figure 2: Notes to accounts relating to significant accounting policies
(Source: Annual Report of Asia Pacific Data Center Group, 2016)
The group has recognised the provision in case a legal or constructive obligation is present as a result of past events and outflow of resources is probable for settlement of obligation and estimation of liability has been made on a reliable basis. Management has evaluated the present value by application of best estimate in order to settle the obligation at balance date. It has been specified in the annual report that company has complied with International Financial Reporting Standards in order to make judgments, estimations and assumptions which have an impact on the accounting policies and the amount of asset, liabilities income and expenses recognised in the financial statements.
As the company had complied with IFRS instead of GAAP; in the case of provisions recognised in the financial statement. As IFRS comprise updated and more appropriate provisions relating to a provision in comparison to GAAP. Further, due to this, it might be possible that contradictions arise in the case of comparison of financial statements of the company with other companies (Oliver, 2014). However, there will be no significant impact from the perspective of the investor as the company has followed GAAP in major accounts. It has also been analysed that IFRS has been applied in order to provide a more appropriate view of financial statement to the users so that they could take an appropriate decision after analysing the data and fact of the company. Further, the company has continually evaluated estimates, assumptions and historical judgments comprising the expectations relating to future events and all these assumptions are believed to be reasonable in accordance with the circumstances available with management. Thus it could be concluded that non-compliance with GAAP and application of IFRS for provision will not have any significant impact on valuation of the company in perspective of the investor as well as on the performance of the company.
References
Barth, M.E., 2015. Commentary on Prospects for Global Financial Reporting. Accounting Perspectives, 14(3). Pp.154-167.
Christensen, H.B., Hail, L. and Leuz, C., 2013. Mandatory IFRS reporting and changes in enforcement. Journal of Accounting and Economics. 56(2).Pp.147-177.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Oliver, K., 2014. Balance Sheet Presentation under IAS 1 and US GAAP.
Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage Learning.
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.
Annual Report of Asia Pacific Data Center Group. (2016). [PDF]. Available on < https://asiapacificdc.com/wp-content/uploads/2016/09/160921-2016-APDC-Annual-Report.pdf >. [Accessed on 18th May 2017]
