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Discuss about the Accounting Theory and Issues for Purpose Financial Statement.

The company selected for explaining the accounting theories with conceptual Framework and its accounting policies is Woolworths. Woolworths is one of the renowned retail groceries Supermarket of Australia, with its headquartered in Bella Vista, New South Wales. It has established in 1924.(Woolworths Limited 2016). Woolworths is mostly dealing in Selling Groceries like vegetables, packaged foods, fruit, meat etc. But gradually they had started selling DVDs, Magazines and Stationery items. Currently it is operating for over more than 380 stores all over the Australia. Few of the Supermarkets is trading as ‘Safeway’ Shop in Victoria, which includes- 3 stores in Melbourne’s Suburbs and around the area with 4 area in the rural area. Customer enthusiasm for the organization developed after December 1924, because most branches of the shop were built up crosswise over Australia. Woolworth’s stores started offering an assortment of merchandise, asserting the least expensive costs and also cash back insurances. At the front line of development in Australia, Woolworth’s stores turned into the principal assortment store on the planet to introduce receipt printing trade register machines out 1926. About a quarter century the organization's foundation, Woolworths had a store in each state in Australia, taking after the opening of their Hobart store in 1940. With the organization and its stores doing effectively, Woolworths started to try different things with extending their staple extent; more stores started stocking new products of the soil and a bigger scope of sustenance. Woolworths has the aim, goal, objective are as follows:

  • It aims in delivering Quality and Style with the 100% on time delivery.
  • It engages in simple and original value beyond the customer quality with the reasonable price.
  • It always thinks about its customer first and satisfying them.
  • Innovation is given the foremost criteria at every moment.
  • By considering to the sustainability factor it builds its future on the consideration of environment factor.
The conceptual Framework of Accounting:

The consolidated Financial Framework are the part of the general purpose statements which is made in with the help of the Corporation Act 2001, Australian Accounting Standards and Interpretation (AASI), International financial Reporting Standards (IFRS) and relating to the other availability of the laws and accounting rule.(Dufour et al.,2014). The Woolworths statement is prepared based on the Australian Dollar and amounts are in million dollars. The financial statements are prepared taking into account the historical cost excluding the derivative of the financial assets, which is measured with the fair value as, mentioned in the policies of accounting.  Some of the heads of the balance sheet has been re-categorized to adjust with the recent time of financial performance with individual as well as of group. It follows ASRE 2410, AASB 134, and ASRE 2410, which is related to IAS 34 (Deegan 2013)

Code of Ethics of Woolworths Limited

Woolworths Limited is committed towards acting for the best interests of customers as well a shareholders and fellow colleagues. This particular retail organization meets the highest standards of behavior as well as appearance. It complies with the law in and with the company policies. It aims at protecting company assets as well as information and reputation. As per the present code of ethics of Woolworths Limited, the employees are prohibited front the consumption of alcohol during the working hours or work under the influence or drugs. The employees are prohibited using any sort of objectionable and obscene language at the work, place. The code ethics of Woolworths further states that the employees are to behave in a consistent manner adhering to the present policies of Woolworth.

Remuneration of Woolworths Limited

Executive Remuneration Framework designs in reviewing at the broader business strategy at Woolworths limited. This retail organization remains consistent with remuneration strategies as well as principles. It drives the behaviors for promoting sustainable long-term value to the key shareholders in the most appropriate way. The remuneration principle of the company are based on market competitiveness, demanding measures, performance based remuneration and the alignment of the shareholders. The remuneration strategies are framed in such a manner thst it ensures tht the talented employee of the organization are well rewarded with attractive remuneration packages. The company’s performance based remuneration is directly, based on the different types of the strategies of the company are base on the financial performance of then business.

Corporate Governance of Woolworths Limited

Woolworths Limited has access to continuous Corporate Disclosure policies containing compiling attributes under Corporations Act 2001 as well as ASX listing rules. It involves establishing framework for enabling Woolworths for providing Woolworths Limited for providing shareholders on timely manner. It requires direct as well as equal access towards gaining relevant information in relation with Woolworths Limited. It aims at promoting investor confidence in integrity for the company as well as securities in application of corporate disclosures. It is the procedures involving directors and employees for attainment of future goals and objectives.

Significant Accounting Theory

Basis of consolidation – The preparation of the consolidated financial statement of the firm includes the assets, liabilities and the issue of the extension till June 28 2015. Group has control in all the entities of the subsidiaries. (Christensen et al.,2015)

Foreign Currency – This section deals in two categories of diversion i.e., Functional & Presentation Currency, Traditional & Balances and Items with functional Currency other than AUD. Functional & Presentation Currency includes the financial statement in which initial currency economic environment measures operating entity. Traditional & Balances translates the foreign currency transactions into Australian Dollars with the involvement of the exchange rate at the time of transactions. Whereas, the Financial Statements of Foreign Operations are transforming the AUD to the exchange rates.(Barker et al.,2014)

Goods and Services Tax (GST) – Assets, revenue and expenses are considered as net of GST, only leaving the case where GST is not recoverable from the taxation department

New and Amended standards adopted – This section has acquired all the accounting regulations which are new and already regulated and issued by the (AASB) Australian Accounting Standards Board which will be advantageous for the period starting on and after June 30 2014. AASB 9 which deals in financial statement amended by AASB 2010-7, AASB 2012-6, AASB 2013-9 and AASB 2014-1. AASB 2015-2 which contains Amendments of Australian Accounting Standards – This discloses the representations of financial statements.( Bureau of Meteorology & Australia. Water Accounting Standards Board 2012)

Sales of goods – Revenue identifies the specific risk that will receive and to be received by the consumers. Revenue will be identified as net of discount and returns.


Depreciation and Amortization-
This section deals in policies and rules related to the reduction in the value of Assets and Liabilities. (Haslam et al., 2016)

Employee Benefit- This section looks to the Rules and regulation related to the benefit of the people working in the employees.

Leases – if the Woolworths then this section deals in the rules and standards take any lease related to the accounting standards. If any operating lease is taken then the rules and standards related to that is mentioned in this section.(Adibah Wan Ismail et al., 2013)

Financing Costs – It include rules and regulations related to the burrowing which is directly given for the acquisition, production and merger of the qualifying assets, which is to be capitalized during the time when the assets are acquired.

Trade and Other receivables – Trade and receivable are initially identified on the fair value and then measurable at the expense of the method of the interest, less an allowance during the impairment. It basically provides 30 days.

Inventories – It is calculated on the lower of the two i.e., net realizable amount and the cost. Cumulative profit or loss is taken into consideration after the sale and purchase of the securities that is generally done over the exchange.(Ahmed et al., 2013)

Listed securities – The listed securities are determined at the fair values of the security.

Issued Standards and Interpretation not adopted earlier – The details of the section are given on the table mentioned below:

Scandal or Issue Faced by Woolworth Ltd

Scandal or Issue Faced by Woolworth Ltd

Woolworth’s Ltd is Australia’s biggest retailer that in the past years sacked two senior managers who were accountable for disappearance of worth million dollars of meat from its takeaway stores in Victoria. The company was involved in the meat scandal in which a former manager working in a Woolworth Ltd’s meat processing plant was dismissed at the time when his confidential financial interest n the organization implicated in the fraud was exposed (Jorissen et al., 2014). Another senior manager was sacked because of his failure to maintain a proper account and report for such disappearance of thousands of kilogram of trimmed meat.

Certain negligence, misleading and deceptive conduct was observed in Woolworth Ltd that involved the company in a civil court action in Australian Federal court in the year 2001. From such scandal, it was gathered that the company faced issues because of its meat division that came into limelight due to faulty account maintenance after meat disappearance (Larson & Herz, 2013).

The code of conduct of the Woolworths applies to all the member of the company, under the code of conduct every member of the employee should follow and maintain honesty, integrity and dealing of fair of very employees while interacting to the customers, community, suppliers and competitors and fulfill the duties and responsibilities (Nguyen & Gong, 2014).

The remuneration of the company includes giving fixed and variable remuneration to all the executive and non-executive of the company and details of the annual report is given in the Annual report of the company (Klettner et al.,2014).

The corporate governance of the company deals in fulfilling the diversity, initiatives and the objective of the company which has been mentioned in the corporate governance of the statement of the company. The corporate governance of the company includes continuing the incremental growth in the number of women working as senior roles in the company (Tricker 2015).  

Current Position of Woolworth Ltd through Statistical Representation

From the gross margin position graph of the company depicted under, it can be gathered that the company is in a financially sound position. The balance sheet of the company is placed in a better position with a manageable level of gearing with the operating cash flow remaining robust. It also has highest rates in profitability. Woolworth’s Ltd has attained a normalized return on equity that is increased by 34% over the past five years (Niskanen, 2016). Efficient compliance with the corporate governance codes has indicated that the compound growth in the intrinsic value is at a healthy position over time.

Gross Margin of Woolworth Ltd

Figure 1: Gross Margin of Woolworth Ltd

(Source: Woolworths Limited, 2016)

Current financial position of the company is depicted in the figure below that indicates gradual increase in the shareholders return. The business strategy planning cycle and its continuous innovation has resulted in increased shareholders returns. By experiencing increase in profits, the company delivers income and growth for shareholders (Woolworths Limited, 2016). The company has delivered constant growth of its shareholders; however, it has failed to offer good dividends to its shareholders in the recent year that depicts a deceasing trend in the shareholder dividend graph. The company experienced constant increase in revenue from its continuing operations.

Woolworths Ltd has recorded a successful record of accomplishment of dividend growth that has provided a constantly increased stream of franked income to holders over two decades. The company declares fully paid dividend in the recent years because of its increased income growth. The earnings per share of the company subsequently increased over the years until 2015. To eliminate the issues of account maintain and abiding by the corporate governance code of conduct, the company has paid good attention in ensuring increased returns for their investment. Both the price earnings ratio and the price earnings growth of the company is deemed to be higher in the market as depicted in the annual report. Moreover, Woolworth’s Ltd has increased its rewards for its investors properly by offered regular increased interests and high performance that contributed to the strong fundamentals of the company.

Shareholders Return Graph for Woolworths Ltd

Figure 2: Shareholders Return Graph for Woolworths Ltd

(Source: Woolworths Limited, 2016)

Cash flow is considered among the vital financial indicators of the company. From the annual report of Woolworth’s Ltd, it can be gathered that there is a gradual increase in the operating cash flows that ensured smooth running of its business operations (Weaver, 2014). However, the company has undertaken great capital expenditures for introducing extended term productivity and business efficiency. This has resulted in the availability of free cash flows though the organization has been capable to maintain a positive balance. Hence, the company’s availability of cash flow is observed to decline and such decline is because of the reason of expansion and inefficiency in the supply chain (Weaver, 2014).


The objective of the report was to offer appropriate understanding of the accounting theories and concepts and the way a company prepares its General Purpose Finance. The report also conducted a comprehensive report on Woolworth Ltd that is among the top 100-listed Australian company with explanation of the conceptual framework. The research included various account-based theories that are taken from the General Purpose Financial Statement. Moreover, the report offered information regarding any scandal or issue that was faced by the company in the past. Current position of Woolworth Ltd was evaluated employing certain statistical charts provided in the annual report. The study also includes accounting policies also affects the current scenario of the Woolworths which is depicted in the above mentioned charts. It is important to review and analyze the truth than come forward with the actions. Regular check-up is necessary to avoid the sale of products that are not fresh and the slogan should match the reality. From the above study it is analyzed that the Woolworths has not given the dividend to its Shareholders this year, similarly the cash flow  is also fluctuating in the current year. So on an average the company is moving to profit maximization.

Reference list:

Adibah Wan Ismail, W., Anuar Kamarudin, K., Van Zijl, T., & Dunstan, K. (2013). Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market. Asian Review of Accounting,21(1), 53-73.

Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.

Australia. Bureau of Meteorology, & Australia. Water Accounting Standards Board. (2012). Australian water accounting standard 1: Preparation and presentation of general purpose water accounting reports. Canberra, A.C.T: Water Accounting Standards Board.

Barker, R., Lennard, A., Nobes, C., Trombetta, M., & Walton, P. (2014). Response of the EAA financial reporting standards committee to the IASB discussion paper A review of the conceptual framework for financial reporting. Accounting in Europe, 11(2), 149-184.

Christensen, H. B., Lee, E., Walker, M., & Zeng, C. (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), 31-61.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Dufour, D., Teller, P., & Luu, P. (2014). A neo-institutionalist model of the diffusion of IFRS accounting standards. Computational Economics, 44(1), 27-44.

Haslam, C., Tsitsianis, N., Hoinaru, R., Andersson, T., & Katechos, G. (2016). Stress testing international financial reporting standards (IFRS): Accounting for stability and the public good in a financialized world. Accounting, Economics and Law: A Convivium, 6(2) doi:10.1515/ael-2015-0006

Jorissen, A., Lybaert, N., Orens, R., & Van der Tas, L. (2014). A longitudinal analysis of Corporate political activity towards the IASB: An analysis of context and firm-level antecedents as well as adopted strategies.

Klettner, A., Clarke, T., & Boersma, M. (2014). The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), 145-165. doi:10.1007/s10551-013-1750-y

Larson, R. K., & Herz, P. J. (2013). A multi-issue/multi-period analysis of the geographic diversity of IASB comment letter participation. Accounting in Europe, 10(1), 99-151.

Nguyen, A. T., & Gong, G. (2014). Measurement of formal convergence of vietnamese accounting standards with IFRS. Australian Accounting Review, 24(2), 182-197. doi:10.1111/auar.12033

Niskanen, S. (2016). of thesis Accrual anomaly and accounting standards–Evidence from the adoption of IFRS. Journal of Financial Economics, 80(3), 511-529.

Quality Brands and Trusted Retailing - Woolworths Limited. (2016). Retrieved 12 August 2016, from

Tricker, B. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Weaver, L. (2014). Managing the transition to IFRS-based financial reporting: A practical guide to planning and implementing a transition to IFRS or national GAAP which is based on, or converged with IFRS. Chichester, England: Wiley-Blackwell.

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