1. Discuss the Accounting Requirements in detail
2. Discuss the theory, what is appropriate in your case firm and the accounting problems that you have identified.
3. Discuss the main theme of the theory (Chapter 3)
4. What changes/ suggestions to improve accounting practices, disclosures and reporting.
Accounting refers to the process that must be followed by the entities to record the business transactions, present them in a fair and transparent manner and thereby enabling the various stakeholders to form informed judgements about the financial and overall performance (Chand, Patel and White, 2015). The regulatory bodies prescribe a framework comprising of the guidelines, policies, and procedures that must be adhered to while preparing and presenting the financial statements. The report will study the applicable accounting framework on the company James Hardie Australia Pty Ltd. In addition, the report is aimed at analysing how well the company has taken into account the said framework and thus will evaluate the financial reports of the entity. The evaluation will be done with the aid of the comparison of the financial data of similar company belonging to the same industry. The report will conclude whether the information presented was enough to enable the users of the financial statements to make the relevant decisions.
The company chosen for the evaluation is James Hardie Australia Pty Ltd., which is listed on the Australian Stock Exchange, while the headquarters are situated at Ireland. The company is a producer of the industrial building materials, together with the technologies to enable such production. The company was in news for one of its products namely the Asbestos cement. The product negatively influenced the life of the workers and families engaged in the production of the asbestos cement, the first incidence was shown up in the year 1978 in the form of the asbestos related diseases. Because of which the company and its entity have been paying the affected people the claims since the year 1980s. The company and its management have been charged with the range of breaches by the various regulators for the non-fulfilment of the duties on the part of the senior management and the directors. As the company “James Hardie Australia Pty Ltd” is a member of the group, the financial statements are prepared as per the US GAAP applicability and accordingly the analysis is done in the following report.
The different concepts or purposes constitute the conceptual framework which makes the businesses to set the standards which are essential for the formulation of the effective report, as prescribed by the Australian Accounting Standards Board (AASB). This framework helps in offering the guidelines to company which helps them to prepare the comparable and trustworthy reports (AASB, 2015). It supports the stakeholders to attain the better knowledge of annual report which offer them a convenient way and this offers them a way to compare company’s report with the opponent which is must to attain the conclusion. In the case of James Hardie Australia Pty Ltd, the focus is on the conceptual framework which helps in analysing the annual report of the corporation. The company must abide by the strict guidelines of the applicable framework which are used by them with the purpose of accumulating, recognise and to evaluate the financial performance of the entity (Deegan, 2014).
Critical Analysis of the Annual Report
In addition, AASB majorly elaborates the conceptual framework in the form of the practical tool which provides the assistance which can help in generating the awareness and understanding standards. As stated above, the entity prepares its group financial statements according to the guidelines prescribed by the US GAAP. Conceptual guidelines support the company while forming the financial statement and accounting. Along with the financial statement, the company includes the financial notes that contribute in developing the understanding of stakeholders related to financial aspects so that they can show their interest. The company reflects that each and every transaction is verified and stated according to the US GAAP and the AASB rules as well. Further the conceptual framework states to keep the consistency with respect to the methods adopted and the enactment related to the companies, the same has been followed as well. In addition, the major conceptual framework has been analysed on the basis of the relevancy and fair presentation aspects that are linked with the company.
Moreover, the representation that is done by the company in the annual report related to the financial and non-financial element remains true and fair which is essential to be presented with the proof and points. These proofs help the stakeholder in developing the interest and they can also search it in the near future. In the annual report of the company, the entire actions and data have made the place are essential to be analysed and documented in report. Considering the case of the James Hardie, it has been formed that all the foresee assignment, new functions and modifications in the companies have been stated in the annual report related to the corporation concisely. In addition to this, the companies are majorly liable for conforming the taxes, accounting, regulations, law and rules. Moreover, it has been stated in the annual report of James Hardie can be accessed through Data via Software.
In addition, it must be noted that the company has applied the legitimacy theory. This theory calls for the appropriate disclosures of the social and environmental practices, in order to fulfil the regulatory requirements and serve to the society. The company had paid US $ 156.4 million towards the asbestos adjustments in the financial year 2018 (James Hardie, 2018). In addition, the company also applies the contingency theory which states that the optimal course of a business action in an enterprise is dependent upon the various internal and external environment situations. Accordingly, once the asbestos liability was determined as per the actuarial estimate, later on as the case settled, the amount was paid and difference was recorded
In order to analyse the financial performance of the enterprise, another enterprise chosen for the evaluation is CSR Ltd. The company is also listed on the Australian Stock Exchange and has diversified into various building products over the years.
In terms of the comparison of the financials, following observations are noteworthy. The market share of the entity James Hardie Industries Plc. is much more than as compared to that of the CSR Ltd, i.e. $ 4.79 billion for the former and $ 1.45 billion for the latter. The following figures show the comparative data of pattern of revenues and gross profits of both the entities.
Comparison with Other Corporations
Thus, it can be stated that the revenues and the gross profits of both the entities are moving at a similar pace. But in terms of the net profit figure, the CSR Ltd is better as compared to the James Hardie. Also it is significant to note that the dividend yield of the CSR Ltd is much better than that of James Hardie. The dividend yield of CSR Ltd is 9.20 percent, while that of James Hardie is 3.67 percent (Morning Star, 2018).
From the point of view of investment in the company, following points are noteworthy. Though the revenue of the financial year 2018 has increased for the company, but the earnings have depreciated as compared to the financial year 2017. As a result of which the shareholder return amounts to 13.3 percent as compared to the 17.5 percent last year (Invest Smart, 2018). The financial vitals are also negative on the point that the net profit margin have declined as compared to 14.4 percent of the last year to 8.4 percent in the current year. The overall business operations in the year have resulted in the decrease in the shareholders equity which amounts to $ (289) million. The only positive attribute in terms of the performance from the investors point of view was the pay-out ratio of 102 percent as compared to the 61 percent of the year 2017 and 69 percent in the year 2016. Thus, the pay-out ratio was almost double than what was offered to the stakeholders in the last two years. However, in terms of the dividend yield the performance is more or less the same, i.e. the 2.3 percent for year 2018, to 2.5 percent in 2017, and lastly 2.9 percent in the year 2016. A slight negative trend is quite evident in the dividend yields.
In the end, it can be concluded that the major reason behind the formation of agreed conceptual framework are that this renders the structure with the aim of forming the standard of accounting standard, the base for the essential principles which don’t recur in accounting standard and for resolving the clashes related to accounting. It offers the support to prepares, auditors and users of the financial statements to attain the knowledge related to the approaches to standard. It is found the aim of the guidelines and policies of accounting are to depict the true, substantial and appropriate financial data in front of the stakeholders of the company so that they can make appropriate decisions. The annual report of James Hardie is formed by focusing on points and guidelines to accomplish and improve the performance of companies. It is suggested that conceptual framework policies are essential to be implemented by companies.
However, as far as the performance is concerned, the entity has not performed very well from the point of view of the shareholders. As stated in the earlier parts of the report, a negative trend in earnings and returns is visible in the entity’s performance, as to be considered from the point of view of the shareholders. The comparison enables to conclude that the other company is performing better than James Hardie Industries Plc. from the investment point of view.
Australian Accounting Standards Board. (2015) Conceptual Framework for Financial Reporting [online] Available from: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 20 December 2018].
Chand, P., Patel, A., and White, M. (2015) Adopting international financial reporting standards for small and medium?sized enterprises. Australian Accounting Review, 25(2), pp.139-154.
Deegan, C. M. (2014) Financial accounting theory, 4th ed., North Ryde, N.S.W. McGraw-Hill Education (Australia) Pty Ltd.
James Hardie (2018) Annual Reports. [online] Available from: https://ir.jameshardie.com.au/jh/artable.jsp [Accessed on 20 December 2018].
Invest Smart. (2018) James Hardie Industries Plc. (JHX) [online] Available from: https://www.investsmart.com.au/shares/asx-jhx/james-hardie-industries-plc/financials [Accessed on 20 December 2018].
Morning Star. (2018) James Hardie Industries PLC ADR/ JHX [online] Available from: https://www.morningstar.com/stocks/xnys/jhx/quote.html [Accessed on 20 December 2018].
Yahoo Finance. (2018a) James Hardie Industries Plc. (JHX.AX) [online] Available from: https://au.finance.yahoo.com/quote/JHX.AX/financials?p=JHX.AX&.tdata-src=fin-srch-v1 [Accessed on 20 December 2018].
Yahoo Finance. (2018b) CSR Limited (CSR.AX) [online] Available from: https://au.finance.yahoo.com/quote/CSR.AX/financials?p=CSR.AX [Accessed on 20 December 2018].
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