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.
Task Details: Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting. Consideration of the Conceptual Framework Objective, Recognition Criteria, Fundamental and Enhancing Guidelines is essential.
It is recommended that you do not choose a bank, insurance company or large conglomerate to analyse.
A copy of the Conceptual Framework is available in Moodle. The questions you should ask yourself and answer when completing the assignment are:
Â· Does my company meet the objectives of the conceptual framework with its reporting?
Â· Have they satisfied the recognition criteria required to report Assets, Liabilities, Equity, Revenue and Expenses
Â· Have they satisfied the fundamental qualitative enhancing characteristics of financial reporting i.e. is the report relevant and have faithful representation
Â· Have they satisfied the enhancing qualitative enhancing characteristics of financial reporting i.e. is the information comparable, verifiable, timely and understandable?
To prove your points for and against you should support your arguments with academic research and appropriate screen shots from the annual report financial statements and notes.
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.
The most important reference while measuring the financial performance of a company are its accounting statements which have been prepared by the administration of the concerned entity. This is done in accordance to the policies and regulations set by the financial institutions. Therefore, the adherence to the financial and other criteria or standards is very important in order to produce the accounting statements that reflect a real and fair image of the firm. This particular study analyzes the annual report of GrainCorp Limited and provides an overview as to whether the construction of the accounting statements has been done in compliance to the laid down policies and regulations (Loyeung et al., 2016).
The term conceptual framework refers to a framework that in particular deals with the fundamental financial reporting issues that range from the utilization of the financial statements to the to the objectives of such statements, their characteristics and other associated features that enhance the usefulness of such statements and make them simple to understand and analyze by its users .
The general objectives of a regulating body, for instance, the Australian Accounting Standards Board state that the framework has been framed in order to support the regulating body to promote the harmonization of the already set regulations, assist the auditors in making their opinions and also assist the users in the efficient utilization of the financial statements.
GrainCorp Limited states in its annual report for the current accounting year of 2016 that the accounting statements were constructed in compliance with the Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. It has been further stated that the accounting statements have been constructed on a going concern basis. A going concern, according to the regulating body of the Australian Accounting Standards Board, is essentially a standard which normally assumes that the firm is very effectively a going concern and shall resume its operations through the days to come (Wee, Tarca and Chang 2014). Hence, it is further assumed that the entity has no intention to liquidate its assets or be insolvent in the near future. A company in order to qualify as a going concern should have to maintain a stable business without the need to curtail materiality.
Figure: Basis of preparation
Source: GrainCorp Limited, Annual Report, 2016
It is further stated, in the financial report of the entity that the accounting statements have in all probabilities been constructed complying to the International Financial Reporting Standards (IFRS).
This can be understood by the fact that the company has provided relevant disclosures in the accounting statements. Moreover, the company has prepared the income statement, balance sheet, cash flow statements and statement of changes in equity, which effectively complies with the requirements of AASB. Further, it has been stated in the annual report that the certain comparative accounts have been reclassified to align with current period presentation. Moreover, each and every financial component that has been included in the accounting statements, have been referred to in the disclosures to financial reporting as proper disclosures that has made it easier to understand (Lovell 2014).
Therefore, the management of GrainCorp Limited in the preparation construction of the accounting statements has effectively adhered to the conceptual framework laid down by the Australian Accounting Standards Board (AASB).
The recognition criteria is an important criteria on the basis of which the company aims to prepare its financial statements. There are two methods laid down by AASB according to which a particular company may prepare its financial statements. These are accounting statements prepared on the basis of cash received and accounting statements constructed occurrence basis. The accounting statements prepared on cash basis recognize an asset or liability or a loss or gain at the exact moment when cash or capital in actual flows in or out of business. On the other hand, accounting statements prepared on the basis of occurrence, records a certain transaction or an asset or liability or revenue or expenditure at the time when it occurs or is intended by business.
Figure: Recognition Criteria
Source: GrainCorp Limited, Annual Report, 2016
GrainCorp Limited prepares its financial statements on the basis of occurrence. This is clear from the disclosure provided by the annual report that the sales or purchase of financial assets have been effectively recognized on trade date that is the particular date on which the asset has been committed to purchase. All the revenues and gains are recognized in accordance to the individual recognition methods that have been mentioned by the accounting standards of AASB. For instance, an important revenue structure that is the sale of goods have been recorded or realized, when the third party acquires the risk and reward associated with the goods ownership. Other assets have been recorded at their fair values thus, complying with the standards of recognition laid down by AASB (Newberry 2015). Another important instance of the company adhering to the recognition criteria is that potential liabilities such as the financial guarantee contracts have been recorded and recognized as a financial liability, at the time of issuing the guarantee. This further indicates that the company strictly adheres to the standards laid down by AASB.
Fundamental Qualitative Enhancing Characteristics
Therefore, it is evidently proved that the company complies to the principle of recognition criteria as laid down by the Australian Accounting Standards Board and strictly adheres to it.
The qualitative enhancing features of the financial statements of the company essentially refer to the quality of the information provided in the accountingl statements of a particular organization. This means that the primary objective of the financial statements is that the external users of the statements may get an idea about the financial condition and the performance of the company. This can only be achieved when the statements are prepared provide information that is understandability, comparability, timeliness and verifiability.
GrainCorp Limited adheres to the first criteria that is understandability of the accounting statements completely. The administration of the company provides enough scope to the user of the financial statements to understand and scrutinize the performance and condition of the company (Saha and Roy 2017).
Secondly, it prepares its accounting statement complying to the generally accepted accounting principles that provides common standards of measurement and judgment. This makes comparison of the financial performance of GrainCorp Limited with its fellow competitors easier to execute and understand. The explanation of each financial component in the accounting disclosures of the financial report gives an excellent view into the financial condition by the company.
Thirdly, the timeliness of the information disclosed in the accounting statements also appears to be accurate. Even the carrying value of any account or an asset or liability has been properly disclosed revealing that the financial statements have accurately met the aspect of timeliness (Jin, Shan and Taylor 2015).
The aspect of verifiability can be confirmed by the auditor’s report. The auditor’s report mentions that the accounting particulars have been prepared in compliance to the Corporations Act 300A further revealing that there has been no issue of materiality in the books of accounts. Moreover, the accounting standards in all probabilities reveal a real and fair image of the firm thus enhancing verifiability of the financial statements. Therefore, GrainCorp Limited has very effectively adhered to the fundamental qualitative enhancing of financial reporting (Morris 2017).
The faithfulness of the accounting statements have been proved by the auditor’s opinion. Moreover, the company seem to be in a healthy financial position without the need to curtail materiality. This means that there has been no occurrence of material misstatement in the books of accounts either deliberately or by mistake further revealing and confirming the genuineness of the information disclosed in the accounting statements of the company.
Therefore, it can be added that the degree of reliability of the accounting statements produced in the annual report of the company are high and the stakeholders of business or other third party investors making decision on the basis of such statements, will in all probabilities lead to potentially good decisions.
The finding that is arrived at after the scrutiny of the financial statements of GrainCorp Limited is that the company strictly adheres to the principles or regulations laid down by the Australian Accounting Standards Board in terms of its financial reporting. The conceptual framework that has acted as the foundation of the accounting statements has strengthened the accounting base of the company by revealing its true image via the financial statements that are the income statement, balance sheet and the cash flow statement. The reliability of the information provided in the accounting statements is high as the books have been prepared by following the guidelines of AASB. Thus, GainCorp Limited has successfully adhered to all the criteria, that qualifies its financial statements as the statements that reflect a real and fair image of the company.
Morris, R.D., 2017. Discussion of: The Phoenix Rises: The Australian Accounting Standards Board and IFRS Adoption. Journal of International Accounting Research, 16(2), pp.155-157.
Saha, S.S. and Roy, M.N., 2017. Quality Control Procedure for Statutory Financial Audit: An Empirical Study.
Jin, K., Shan, Y. and Taylor, S., 2015. Matching between revenues and expenses and the adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35, pp.90-107.
Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting. Economy and Society, 43(2), pp.260-284.
Loyeung, A., Matolcsy, Z., Weber, J. and Wells, P., 2016. The cost of implementing new accounting standards: The case of IFRS adoption in Australia. Australian Journal of Management, 41(4), pp.611-632.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in Accounting, 31(1), pp.165-178.
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.
Wee, M., Tarca, A. and Chang, M., 2014. Disclosure incentives, mandatory standards and firm communication in the IFRS adoption setting. Australian Journal of Management, 39(2), pp.265-291.
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