The following report has been prepared to demonstrate the concept of accounting standard used by companies present in Australia. Thus, it focused on current framework and approaches used by companies to evaluate by which way the financial reports satisfied the users of financial data. In addition to this it also stressed upon prudence of reports to address the disparity in reports produced by corporate companies. In Australia, every company needs to comply with conceptual framework developed by AASB or Australian Accounting Standard Boards. Conceptual framework in financial terms means accounting theory produced by AASB which deals with issues present in financial reports of company to reveal true financial position of company in market. In the following report two companies of Australia such as Wesfarmers Limited and Telstra Corporation Limited has been selected, these are listed under ASX or Australian Stock Exchange to evaluate if the company has met the AASB standards or not. The problem statement of this report is to evaluate necessity of conceptual framework to reveal true position of company in market and its prudency.
Overview of the Companies
Wesfarmers Limited: Wesfarmers belongs from Conglomerate industry and has headquarters in Perth in Western Australia (www.wesfarmers.com.au). The company was established on 1914 as a co-operative sector to provide services to farmers of Western Australia. This is one of the largest private company of Australia and has nearly hold 5, 30, 000 shares (Henderson et al. 2015). The financial reports of the company reveal that long-term success of company has been possible due to strong governance and excellent employees present in company which has motivate them to create value for every stakeholder.
Telstra Corporation Limited: Telstra belongs from telecommunication industry of Australia; it has headquartered in Melbourne and was established on 1901. This company has become one of the leading telecommunication companies in Australia by serving 17.4 million people will mobile services approximately (www.telstra.com.au). In addition to this the company provides broadband services to approximately 3.5 million retail companies.
Thus, the above two companies are listed under top twenty companies of Australia under ASX and complies with conceptual framework produced by AASB and IFRS or International Financial Reporting standards (Horngren et al. 2015).
In this section of report the requirement of ASSB standards has been discussed first to demonstrate the prescribed format of financial reports. Apart from this annual report of two selected companies has been evaluated considering corporate reporting requirements. In this part relevant section of annual report of both the companies has been analyzed to discuss disparity and relevance with current conceptual framework.
Conceptual Framework and AASB Standards
AASB is a government agency of Australia which works under Australian Securities and Investment Commission Act 2001 to deal with statutory framework to be followed by Australian companies to reflect their true and clear financial position in market. The main aim of this agency is to develop reporting standard based on principles for Australian companies which will meet the demands of users (Ryan et al. 2014, p.120). Apart from this the agency also stressed upon international reporting standards developments for enhancing the quality of report produced by companies all over the world. The ASIC plays an important role for the enforcement and regulation of the company along with financial services. In addition to all this the organization also aims to protect consumers, creditors and investors.
Apart from all this AASB uses conceptual framework in order to create and analysis the accounting standards (Kober et al. 2013, p.490). The organizations follow some strict rule for maintaining the accounting standards such as it follows Corporation act 2001 in order to prepare financial report. Some of the used conceptual framework that AASB follows is:
- Focus on supply of common premises for the discussion
- Supply of terminologies
- Encourage other to raise question related to the financial issues
- Supports in solving the issues so that conflicts could be reduced
- Implement intellectual discipline so that function could be in smooth process
Compliance of Annual Reports of Wesfarmers Limited with Current Framework
In the year the organization under consideration had to notice various ups and downs. The company had to adopt various types of strategies in order to fulfill those drawbacks. The organization has some core values such as integrity, openness, accountability, and boldness (Walker and Jones, 2012, p.98). Each of this core value helps the organization ton achieve its organizational objectives.
Figure 1: Current framework
(Source: Carey et al. 2014, p.110)
In the following report two companies of Australia such as Wesfarmers Limited and Telstra Corporation Limited has been selected, these are listed under ASX or Australian Stock Exchange to evaluate if the company has met the AASB standards or not. The problem statement of this report is to evaluate necessity of conceptual framework to reveal true position of company in market and its prudency (Carey et al. 2014, p.110). The last five-year net profit after tax annual report is been presented in the figure number (3). The total net profit of Wesfarmers Limited of last four years is $2,353 million. In further details the profits was earned in 5 years such as 2,126 in the year 2012, 2,261 in the year 2013 and for the year 2014 it earned 2,689. The last two years of net profit was 2,440 and 2,353 respectively. The organization does not have smooth records as compared to other company. It has to noticed various ups and down in it financial report over past five years. In concern with the current framework of AASB is that organization always focuses on solving the conflicts in the internal factors of the organization. In addition to all this it also had to implement intellectual discipline into the system of Wesfarmers. The earnings per share over past 5 years states that organization lacks strategic planning (Jackling, 2012, p.117). As the earnings report of the organization do not have much progress towards the success of the organization. The continuity in the progress of the organization is lacking as company had to notice downfall in the year 2015 and 2016. In the year 2012 the earning per share was 184.2 million, 195.9 in the year 2013 and 234.6 million in the year 2014 (Biondi and Lapsley, 2014, p.98). Whereas the last two years had a fall in the earning as 216.1 in 2015 and 209.5 in the year 2016. The return on equity annual report states that company had best annual report in the year 2014 as it noticed enhancement as compared to other. In the year 2012 the organization has 8.4 % return on equity, 8.9% in 2013 and 10.5% in the year 2014. However, in the year 2015 and 2016 the organization under consideration had faced degradation in the return of equity. The conceptual framework of AASB focused on maintaining some rules and strategies regarding financial functioning of the company. Based on the current framework of the company it states that company y needs to have some strategic planning in order to maintain a sustainable growth in the annual report.
Figure 2: Annual report
(Source: Wesfarmers.com.au, 2017)
The yearly revenue of Wesfarmers limited states that organizations have progressed in the revenue over past 5 years. In the year 2012 the organization earned revenue of 34,117, in year 2013 company earned 35,780 and 37,391 in the year 2014. Over last two years the organization even noticed more development in earning revenue such as 38,242 and 38,247 respectively. In grand total revenue of the Wesfarmer Limited over past 5 years were $39,242 million.
Figure 3: revenue
(Source: Wesfarmers.com.au, 2017)
Compliance of Annual Reports of Telstra Corporation Limited with Current Framework
The annual report of Telstra corporation limited has been presented in the figure and the company had to notice a vast difference in the yearly income between 2015 and 2016. In the year 2016 the organization under consideration had earned revenue of $25911 million and in $25528 million in year 2015. In fact, the income of the company has improved as compared to its previous year as it earned $1139 in 2016 and $584 million in 2015. In addition to all this the organization had also noticed certain enhancement in the yearly expense (www.aasb.gov.au). The company had noticed $5041 in 2016, the expense increased with every change in year. This is the reason the year profit of the organization reduced. The income of company from internet and tax also reduced as it expenses increased. This could be the reason why the profit before income tax expense reduced as compared to 2015. Providing attention towards the conceptual framework of AASB it states that giving less importance to the expense result in degradation of annual revenue.
The annual assets report of Telstra group states that it had improvement in the assets as compared to its previous year’s record. In the year 2015 the organization was holding $1396 million assets where as in the year 2016 its assets increased to $3550. In grand total, the assets of company in year 2015 was $6970 million and in 2016 its assets were $9340 million. In the accounts of its liabilities the organization has $9188 million liabilities (Kober, 2012, p.95). The annual report of Telstra group gives more attention towards the improvement and development. Apart from this it also gives stress towards following the procedure of AASB. This is the main reason for its development and improvement.
Prudence Incorporation in Conceptual Framework For Addressing Disparity in Corporate Reporting
Sometime the incorporation in the conceptual framework lead to disparity in the corporate bodies. In further details, it could also be stated that the organization which is under consideration had to face various types of issues. Sometime the lack of proper accounting practice could impact on the success of the organization. It is very important for the organization to think about some strategic accounting management process (Zhang and Andrew, 2014, p.150). In addition to all this the organization needs to have some strong planning for the development. This planning will lead to reduce the prudence incorporation in the conceptual framework. The two organization under consideration should focuses on the development and on the accounts. Focusing on these two sectors would help the firm to perform well along with enhancing the financial report. The main aim of this agency is to develop reporting standard based on principles for Australian companies which will meet the demands of users. The company had noticed $5041 in 2016, the expense increased with every change in year. This is the reason the year profit of the organization reduced. The income of company from internet and tax also reduced as it expenses increased. The above analyzed portion of the report states that both the organization had good financial report in the year 2014. There could be various reasons for the good outcome of the report. The very reason could be that the organization had given their best attention towards controlling the finance rather than any other area. However, this success rate was not seen in the further year. Slowly the financial report of the company under consideration degraded as thus the company had to incurred loss. The disparity in the organization could be for lack of management and also for not following the procedure of AASB. Apart from all this the noncurrent liabilities of the country are very high than the current liabilities. The company under consideration gives maximum focus maintaining the credits and debits rather than assets. However, it is equally important for an organization to manage is assets wisely (Bond et al. 2014, p.220). The assets are considered to be the future protector of a company. The organization under consideration needs to use its man power wisely and as per the requirement of the organization. Thus, the main outcome of the analyze is on the prudence incorporation is that it had to face the disparity between the organization. The disparity always increases the inner conflicts between the organizations. Ultimately the organization had to incur inner fight and competence among themselves.
Comparing Annual Reports of Wesfarmers Limited and Telstra Corporation Limited
The mentioned figures represent about the annual reports of Wesfarmers and Telstra over past 5 years. In contrast with the report it could be state that the annual report of Telstra is better than Wesfarmers. However, some of the report also states that Telstra had some downfall due to lack of strategic planning. The year 2014 was proved to be the most positive for Telstra as it notices economic growth in respect to income, benefits, assets, and liabilities. In addition to all this the main reason for the improvement was the proper use of AASB.
The yearly revenue of Wesfarmers is far better than Telstra as it had earned $39242 in 2016 where as Telstra earned $27050. In this respect Wesfarmers is noted to have good financial position than Telstra. The expense report of Telstra is considered to be more than Wesfarmers. This is the reason why the company earns more revenue and profit. Some of the other reason for being Telstra better than Wesfarmers could be lack of proper management. Apart from this the agency also stressed upon international reporting standards developments for enhancing the quality of report produced by companies all over the world. The ASIC plays an important role for the enforcement and regulation of the company along with financial services. The team work is considered as other important factors for the success of an organization. The employees of Telstra are more serious to their work rather than Wesfarmer. In fact, the financial management of Telstra is far better than Wesfarmer and their report proves that. In addition to all this it could also be stated that com ordination among the employees could be another reason for the poor performance. The poor performance leads to have poor annual financial report.
Conclusion and Recommendation
The researcher has focused on the reports that has been prepared to demonstrate the concept of accounting standard used by companies present in Australia. Efforts have also been made to the problem statement of the annual report to evaluate necessity of conceptual framework to reveal true position of company in market and its prudency. Thus, based on the evaluation of the study it can be concluded that the yearly revenue of Wesfarmers is far better than Telstra as it had earned $39242 in 2016 where as Telstra earned $27050. In this respect Wesfarmers is noted to have good financial position than Telstra.
The report could be concluded as that AASB plays a key role for the accounting management of an organization. The analysis which was conducted between the two companies states that annual report keeps on changing as per the accounting planning. The report which was collected also states that revenues of an organization could play a key role for the development. The year of 2014 is considered as the positive year for both the company.
The primary recommendation that could be provided to the organization is based on the accounts management. The company should give maximum attention towards controlling the expenses along with reducing the debts. In the same time organization need to implement some strategic planning for accounts management. In addition to all this the organizations needs to stress upon enhancing the assets son that in future it could support the company.
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