Purpose: This assessment is designed to allow students to demonstrate a higher level of understanding of accounting standards and theoretical and philosophical approaches, as they apply to the resolution of more complex accounting problems.
Topic: This assignment covers the in-depth theoretical concepts with practical accounting task application based on the topics from the subject.
Task Details: Students are required to prepare a comprehensive report directed to a corporation selected from a list provided by your lecturer.
Consideration of the Conceptual Framework Objective, Recognition Criteria, Fundamental and Enhancing Guidelines is essential. The relationship between accounting research and professional practice is essential. This article needs to inform your arguments.
The analysis and supported recommendations need to be formatted into a professional report as would be expected in a modern organisation by management and clients. It should include an abstract, introduction, body, conclusion and bibliography. Maximum word count is 1500 words not including the abstract or bibliography.
Research Requirements: Students need to support their analysis and recommendations with the text and recent and relevant academic and professional journal articles. Other sources may also be used but students need to be confident of the academic validity of such sources.
Background Information about Maca Limited
With the ramified economic changes, each and every company need to comply with the applicable laws and regulations to meet its objectives and goals. It is analyzed that The Maca limited is running its busienss on international level to satisfy its clients and having its headquarters situated in Australia. It is a public listed company. The popularity of this company is because of its specialisation in mining, civil construction, infrastructure and mineral processing equipment. The operations of company are traversed across Australia and South America. Talking about conceptual framework, it is emerged as a revision of general purpose financial reporting framework. Conceptual framework has limited the number of users of financial information and instead of focusing on entity’s financial position, performance and changes in cash flow positions, the conceptual framework focuses on a broader sphere in reference to financial information being, reporting of an entity’s economic resources, claims on those resources and the changes that happen therein. A presentation of financial information in this manner helps the users in gaining a better understanding and in taking more informative decisions. Further the reports that are generated as a result are examined by the auditors in a much better way (Cascino, et al. 2014).
The conceptual framework analyses the qualitative aspects of financial information into two categories being fundamental qualitative characteristics and enhancement of those qualitative characteristics. The fundamental qualitative characteristics focuses on providing a relevant and faithful presentation of financial information to the users and a helping them on thinking informatively before making any decision. Materiality is an important aspect to be followed in this kind of framework and only the material information is to be disclosed (Cheng, et al. 2014). The earlier notion of reliability is now replaced by the term faithful. When it is said that the financial presentation needs to be faithful, it means that the financial information is complete, neutral and free from error. The main objective of following the conceptual reporting frameworks are to make the busienss more transparent and satisfying its clients to its extent (Hoitash, and Hoitash, 2017).
The enhancement of qualitative characteristics is aimed to enhance the above discussed relevant and faithful representation. The enhancement is regarding comparability, timeliness, verifiability and understandability of the relevant and faithful financial information. Comparability stands for applying consistent policies over all periods. This consistency shall promote the comparison much understandable. Verifiability of financial information is its ability to make the reader reach upon an agreement for the faithfulness of financial information. It’s newly introduced in the conceptual framework. Timeliness is all about releasing of financial information at the time when it’s most effective in influencing decision of the users. Understandability is all about ending of ambiguity. It stands for presentation of financial information in clear and concise manner (Palinkas, et al. 2015).
Maca Limited has prepared its financial statements completely in accordance with Australian Accounting Standards, Australian Accounting interpretations, and other related pronouncements. The financial statements are general purpose financial statements. These are not based on conceptual framework but are prepared in accordance with the guidelines of earlier framework. The guidelines of International Financial Reporting Standards issued by International Accounting Standard Board are also being followed. The concept of materiality is being followed in selection of accounting policies to be applied. The preparation of financial statements is on accrual basis. Historical cost method is followed by the entity and wherever required modification of certain selected non-current assets, financial assets and financial liabilities is made on the basis of fair value. Company has also followed the impairment test as per the IFRS-136 which assists company to report its financial assets to its financial reporting authority. The financial information is all presented in Australian Dollars. This will not only keep the busienss more transparent but also Assists Company to set strong nexus with its stakeholder’s development and busienss growth.
Conceptual Framework in Financial Reporting
The accounting information is being presented on a consolidated basis in which all the data of the subsidiaries of Maca Limited is also grouped along with that of the entity. In preparation of consolidated accounts, the company has eliminated all intercompany transactions, balances and unrealised gains. A consistency is followed in preparation of accounts of subsidiaries. The company has disclosed in its annual report the accounting standards that are released by the Australian Accounting Standard Board but are not necessarily required to be adopted by the company. The effect of non-adoption and the impacts of such adoption in future are mentioned as follows:
This standard is said to be adopted retrospectively by the company in near future. It shall include reclassification regarding financial instruments. The changes expected shall include simplification in classification of financial assets and in accounting of embedded derivatives, the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income and upfront accounting for expected credit loss. A new method of hedge accounting is also introduced that shall promote greater flexibility in hedging risk. However, as far as consolidated statements are concerned, the application of this standard shall have no significant effect over that (Hussey, 2017).
On application of this accounting standard, the older single, principles-based model shall be replaced. A five step process involving identification of contract with customer; identification of performance obligations in the contract; determination of transaction price and allocation of transaction price to the performance obligations in the contract shall be followed. This standard shall apply to all contracts except for certain exceptions, including leases. However, as similar as AASB 9, this standard too shall have no significant effect over group statements on its application (Holland, 2016).
The application of this standard shall provide a dual option to either apply this standard retrospectively, or to recognise the accumulated effect as an adjustment, on the date of initial application, to opening equity. As like other standards discussed above, this standard shall also have no effect on the group statements as the business premise from which the company conducts the business from is on operating lease (Joubert, Garvie, and Parle, 2017). However, with the application of IFRS rules and regulations, company needs to bifurcate the lease in different parts such as operational and financial lease. It strengthens the lease reporting in the financial statements of organization.
There stands a slight difference between presentation of financial information as per general purpose reporting framework and conceptual framework as discussed earlier. It’s well evident that conceptual framework is much better than the earlier one because its focuses on realistic faithful information that unrealistically defined reliability. Maca Limited should focus more on providing information to the users in a manner that it becomes more useful to them, instead of focusing on the number of users to whom the information is supposed to be provided. The financial information needs to be more informative to get the decisions made. The needs of stakeholders should be met with the financial information to the maximum extent. Further, the application of this conceptual framework has started to be made applicable to all preparers of financial statements that use IFRS. In order to comply with this requirement soon, the company should start to adopt the necessary requirements.
The Maca Organization has followed IFRS rules and standards to comply to strengthen its reporting frameworks. Company have kept its busienss transparent after following the The primary users of financial information should be identified, being the existing or potential investors, lenders and other creditors. Undoubtedly, follow up of this framework shall set up a common platform for all kind of policies (Lewandowski, 2016). It is advised to all the organizations that if they want to curb the insider trading acts in their busienss then they will have to follow the proper IFRS rules and conceptual reporting framework. The Maca Company should establish the harmonization in its domestic and international reporting financial accounting standards to mitigate the business transparency issues.
Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J., Imam, S. and Jeanjean, T., 2014. Who uses financial reports and for what purpose? Evidence from capital providers. Accounting in Europe, 11(2), pp.185-209.
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.
Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance Directions, 68(11), p.666.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. Journal of New Business Ideas & Trends, 15(2).
Lewandowski, M., 2016. Designing the business models for circular economy—Towards the conceptual framework. Sustainability, 8(1), p.43.
Palinkas, L.A., Horwitz, S.M., Green, C.A., Wisdom, J.P., Duan, N. and Hoagwood, K., 2015. Purposeful sampling for qualitative data collection and analysis in mixed method implementation research. Administration and Policy in Mental Health and Mental Health Services Research, 42(5), pp.533-544.
Hoitash, R. and Hoitash, U., 2017. Measuring accounting reporting complexity with XBRL. The Accounting Review, 93(1), pp.259-287.
Hussey, R., 2017, May. Leasing of Assets: A Content Analysis of Comment. In GAI International Academic Conferences Proceedings (p. 23).
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