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Discuss about the Application or Innovation in Engineering and Management.

Conceptual framework is a philosophy that helps in practicing the qualitative process of theories (Jabareen, 2009). Conceptual framework supports in establishing the concepts of motivating financial reporting system by setting the standards in business operations. Thus, it can be stated that the framework is more useful in understanding the objective of the financial reporting (Wiley, 2010). Corporate reporting is considered as the information, which is required to be provided to all the counterparties for maintaining a successful business transaction. It further helps to influence the corporate behavior, which potentially benefits the companies in initiating necessary changes in the business transactions (Eccles & Serafeim, 2014).  In the similar context, prudence is considered as one of the accounting principles that help to measure basic practical essentials of accounting. Prudence commonly defined as the capacity to respond to the uncertain conditions raised throughout the work process (Paseková, et al., 2011). To maintain an ethical and transparent work environment in the entire domain the Australian Accounting Standards Board (ASSB) has initiated certain regulations that every company needs to follow in their work process. ASSB is a government agency that concentrates to develop the quality of accounting standards for bringing transparency in the financial statements (Australian Accounting Standards Board, n.d). The paper intends to identify the contribution of conceptual framework along with prudence in addressing the disparity in corporate reporting. In accordance with the paper objective, two different companies namely A-cap Resource Limited and Deep Yellow Limited have been selected to compare their financial reports.

Analysis of A-cap Resource Limited

A-cap Resource Limited is a company listed in the Australian security exchange and considered to be the largest deposits of uranium in the world. The major objective of the company is to develop the production of uranium projects by keeping the interest of shareholders, which can help to continue the business with higher profitability in long run (A-cap Resource Limited, 2016). The chairman’s report of 2015 shows decline values of the commodities in the resource sector due to which the company has changed the board members for developing the activities in the market (A-cap Resource Limited, 2015).

Profit & Loss Statement

Figure 1: Profit & Loss Statement

Source: (A-cap Resource Limited, 2015)

Concerning the financial activities of A-cap Resource Limited, it is evident that the company earned profit of around $718,322 in the year 2013. However, it has experienced loss of a quite amount i.e. $3,005,965 in the period 2014 to 2015. The company again earned a profit of $35,098,626 in 2015, but the share price still reduced for which the company experienced a basic loss per share of $ 0.78 in the same year. On the other hand, the financial capability of the company is comparatively higher as the total asset of the company has increased from $42,633,116 to $50,180,731 in the year 2015, wherein the total liabilities has decreased from $1,193,038 to $974,181. In addition to this, the annual report also depicts that the net asset of the company has been enhanced from $41,440,078 to $49,206,550 in the year 2015. In this regard, the cash flow statement of the company helps in explaining the investment spending of the company (Bond et al., 2003). Thus, according to the cash flow statement, cash and cash equivalents of the company at the end of the financial year has decreased from $5,070,514 to $2,207,637 from 2014 to 2015 (A-cap Resource Limited, 2015). The financial information can be elaborated in more effective manner through the following figure:

Analysis of Deep Yellow Limited

Consolidated Statement

Figure 2: Consolidated Statement

Source: (A-cap Resource Limited, 2015)

Based on the information obtained from the company reports, it can be stated that A-cap Resource Limited has always practiced all the policies by following the recommendation of the Australian Security Exchange (ASX) to maintain transparency within the business. Apart from this, the financial report represents the actual view on the financial condition and operation results as per the standards set by the AASB. The company has effectively communicated with the ASX regarding the information, wherein the financial statement of the company properly included all the criteria according to the AASB including the Australian Accounting Interpretations. From this perspective, it is stated that provisions have been implemented for providing benefits to the employees as well as other stakeholders. For instance, by disclosing remuneration in the Directors’ report, the company can fairly and responsibly address all the issues that might face by the employees (A-cap Resource Limited, 2015). Hence, it is observed that by following the rules and criteria of the AASB the company has successfully enhanced its overall performance along with the satisfaction level of the stakeholders as well.

Cash Flow Statement

Figure 3: Cash Flow Statement

Source: (A-cap Resource Limited, 2015)

Deep Yellow Limited is also an advanced uranium exploration company, which operates in Australia and Namibia. The preliminary focus of the company is become a developer and producer of the uranium by concentrating on the Namibian projects (Deep Yellow Limited, 2015). The consolidate statement of profit and loss explains that the revenue and other income of the company have increased from $158,513 to $687,875 from 2014 to 2015. The total comprehensive loss for the period 2015 is $18,713,144, which is lesser as compared to 2014i.e. $22,901,684 (Figure 4 (2Deep Yellow Limited, 2015). 

Profit & Loss Statement

Figure 4: Profit & Loss Statement

Source: (Deep Yellow Limited, 2015)

Apart from this, the total asset of the company has decreased from $72,061,973 to $57,907,524 from 2014 to 2015, whereas the total liabilities have increase from $307,035 to $ 286,538 in the year 2015 as compared to 2014. This implies that the company needs to concentrate on enhancing assets which in turn will help to continue the business in more effective manner (Deep Yellow Limited, 2015). The rise in the cash and the cash equivalents of the company is also evident from $1,235,654 to $ 3,926,631 (Deep Yellow Limited, 2015). In this regard, it can be affirmed that the company has positively adopted the accounting principles for the preparation of the financial statements as per the standards set by AASB. The corporate governance of the company follows the framework set by the ASX council (Deep Yellow Limited, 2015). The financial statements can be illustrated through the following figure in more elaborately:

Inclusion of Prudence in the Conceptual Framework

Consolidated Statement

Figure 5: Consolidated Statement

Source: (Deep Yellow Limited, 2015)

Disclosure of the information by the company helps to attract the interests of potential investors for further investment (Li, 2008). Disclosure policy of the company has been complying with the recommendations of the ASX requirements, wherein the remuneration of the executives are monitored by the remuneration committee that helped in  initiating appropriate measures concerning the packages of the executives or non-executives and other members as well. The ethical practices are actively promoted by the company to keep a peaceful environment among all the stakeholders (Deep Yellow Limited, 2015).

Cash Flow Statement

Figure 6: Cash Flow Statement

Source: (Deep Yellow Limited, 2015)

Prudence is the ability to practice public usefulness guideline in which the behavior and decisions of companies are reviewed. The concept of the prudence can provide more positive outcome to the companies that takes the responsibility of its endurance (Beecher, 2008). The financial statements included in a document of a framework that increases the process of the setting standards and its development for future assistance. The conceptual framework provides a foundations on which the standards of accounting is largely depends (Pearson, 2010).

Prudence plays a crucial role in the conceptual framework for setting right standards for the financial statements. The preparation of the financial accounts has to compete with many difficulties and uncertain circumstances such as inclusions of doubtful receivables, unexpected life of equipments and machineries (IFRS, 2015). These uncertainties can be well addressed by exercising the prudence in preparing the financial accounts (Stedman, 2011). The implementation of the prudence can be seen clearly on both the listed companies namely A-Cap Resource Limited and Deep Yellow Limited. The companies have identified and supported their responsibilities by setting the accounting standards while preparing financial statements. The exercise of the prudence assists in identifying the overstatement of assets and incomes as well as the understatement of liabilities and expenses. The Director’s report of A-Cap Resource Limited revealed the financial position and performance of the companies, wherein it is observed as per the report that the employees has effectively contributed in satisfying their role. The principal activity of the Consolidate Group is to study the ongoing possibility of Letlhakane Uranium Project. The group has adequately compliance with the environmental legislation, by designing the remuneration policy through which the company has managed to offer long-term incentives for the directors and executives (A-Cap Resource Limited, 2015).

On the other hand, the main activity of the Deep Yellow Limited for the year 2015 is to explore the uranium mineral in Namibia and diversify its iron ore project. The board of the company has successfully identified key operational issues, which helped in monitoring the performances. The monthly report of performance is regularly evaluated by the board during the board meetings, which supported in sorting the areas of difficulties in business operations. In addition, the group effort of the company is also able to protect its core assets and kept the strong company’s position in the market. Therefore, by continuing such proceeding, the company can manage the difference in the corporate reporting. In this regard, the coordination between the managements has played a significant role in eradicating the disparity among the management professionals (Deep Yellow Limited, 2015).

A-Caps Resource Limited and Deep Yellow Limited both have followed the guidelines set by the AASB in preparing the financial statements. The depreciable amount of the all fixed assets of the A-Caps Resource Limited has been performed on a straight line basis over their useful lives, wherein the rates of depreciation are vehicles 25%, computer hardware & software 20%, furniture and fittings 15%, geophysical equipment 20%, containers and sheds 15% and camp & field establishment 15% (A-cap Resource Limited, 2015; Velmurugan, G, 2014).  On the other hand, the depreciation of machinery and plant of Deep Yellow Limited has been calculated using the written down value method to allocate the costs, net residual values against the estimated lives, which includes office equipment and fittings 12.5%-33% of cost, site equipment 25% of cost, motor vehicles 25% of cost and leasehold property and buildings 5% of cost. Hence, it is apparent that both the companies have followed the advanced accounting principles by preparing the financial statements on a historical cost basis (Deep Yellow Limited, 2015). The categorization of the assets and liabilities of both the companies followed the criteria according to the advanced accounting principles and set standards of the AASB.  Besides, the annual report of the company shows the certain degree of credibility as compared to other corporate source (Jenkins & Yakovleva, 2006). Hence, both companies’ annual reports have helped in comparing the performances and identifying the differences in the work (Bose, 2010). Therefore, it can be stated based on the annual reports that although the companies have different types of operation process and strategic priorities, evident in the reports, both the companies have operated the business according to the set standards of AASB.

Conclusion

Based on the evaluation of A-Cap Resource limited and Deep Yellow limited, it is apparent that both the companies operate their businesses in the energy industry. The conceptual frame of AASB has been followed by both the companies, wherein A-Caps Resource Limited is able to convert the loss suffered in 2014 into profit by the year 2015. The company’s net asset has also been increased as compared to 2014. On the other hand, Deep Yellow Limited has to experience a loss in 2015, though the amount has decreased as compared to the year 2014. The company has failed to increase the value of its net asset in 2015, but the total current assets have been cited as increased.

From this perspective, it can be stated that A-Caps Resource limited is unable to increase the total current asset in 2015. To mitigate this concern the company can use the sweep accounts through financial institution and decrease the overhead expenses. To get more inflow of the cash, A-Caps Resource needs to improve the borrowings, loans and debt management with legitimacy and economic reasonableness. From a different perspective, it is also apparent Deep Yellow limited has encountered a loss in 2015, which can be mitigated by minimizing the overhead cost through the utilization of the bookkeeping in an efficient manner. Apart from this the company is also suggested to increase the paid-up capital and decrease the liabilities as well.

References

A-cap Resource Limited, 2015, ‘Chairman’s Report’, Annual report 2015, pp. 1-70.

A-cap Resource Limited, 2016, Home. Strategy. viewed 08 September 2016 <https://acap.com.au/corporate/strategy/>

Australian Accounting Standards Board, No Date, AASB board. About The ASSB. viewed 08 September 2016 <https://www.aasb.gov.au/AASB-Board.aspx>

Beecher, J, A 2008, ‘The prudent regulator: politics, independence, ethics, and the public interest’. Energy Law Journal, vol. 29, pp. 577-614.

Bond, S et al. 2003, ‘Financial factors and investment in Belgium, France, Germany, and the United Kingdom: A comparison using company panel data’, The Review of Economics and Statistics, vol. 85, no. 1, pp. 153-165.

Bose, D, C 2010, Advanced accounting, PHI Learning Pvt. Ltd, New Delhi.

Deep Yellow Limited, 2015, ‘Company Profile’, Annual report 2015, pp.1-57.

Deep Yellow Limited, 2015, Governance.  Corporate Governance Statement, viewed 08 September 2016, <https://www.deepyellow.com.au/corporate/governance.html>

Eccles, R, G. & Serafeim, G 2014, ‘The functions of corporate reporting’. Corporate and Integrated Reporting: A Functional Perspective, pp.1-21.

IFRS, 2015, ‘A Tale of prudence’, Investor Perspectives, pp.1-6.

Jabareen, Y 2009, ‘Building a conceptual framework: Philosophy, definitions, and procedure’, International Journal of Qualitative Methods, vol.8, no.4, pp. 49-62.

Jenkins, H, & Yakovleva, N 2006, ‘Corporate social responsibility in the mining industry: Exploring trends in social and environmental disclosure’, Journal of Cleaner Production, vol. 14, pp. 271-284.

Li, F 2008, ‘Annual report readability, current earnings, and earnings persistence’, Journal of Accounting and Economics, vol. 45, pp. 221-247.

Paseková, M. et al., 2011, ‘Auditor’s insight on prudence principle application in Czech Smes’, Recent Researches in Applied Economics, pp. 139-144.

Pearson, 2010, ‘Why a conceptual framework’, Conceptual Framework for Financial Reporting, pp.36.

Stedman, J, M 2011, ‘Their application to assessment of psychopathology and psychotherapy’, Practical Philosophy, vol. 10, no. 1, pp. 57-64.

Velmurugan, G 2014, ‘A study on depreciation of assets under the companies act, 2013’, International Journal of Application or Innovation in Engineering & Management, vol.3, no.12, pp. 183-191.

Wiley, 2010, ‘Conceptual Framework’, Conceptual Framework for Financial Reporting, pp.1-23.

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