The primary intention of the report is to analyse a particular accounting issue in one of the leading ASX organisations and thus, JB Hi-Fi is taken into consideration. The report shows analysis of a news article regarding the chosen organisation revealing depicting the fall in its share price.
JB Hi-Fi is a retailer of consumer products specialising in Ultra HD Blu-rays, DVDs, CDS, hardware, electronics, video games, mobile phones, electrical home appliances and variety of Telstra services. In August 2018, it has been the seventh biggest consumer electronics and home appliance retailer in the world (Annualreports.com 2018).
In this regard, one significant issue for the organisation is the adherence of JB Hi-Fi to the principles of the AASB conceptual framework for preparing and presenting the accounting statements accurately. There might be rise in financial errors and frauds, if the organisations do not comply with the AASB and conceptual framework requirements (Aasb.gov.au 2018).
In the current years, a significant accounting issue is the compliance with the needed accounting principles and standards for financial reporting. This aspect formulates opportunities for financial frauds and even the closure of the organisations. For avoiding the same, it is necessary for JB Hi-Fi to adhere to the pertinent accounting standards. In addition, it needs to abide by the necessary elements of the conceptual framework in AASB.
The above extract clearly states that the share price of JB Hi-Fi has fallen significantly by 8.9% in the past five months to a low of $23.28. The stock price has fallen by 21% on 2nd February 2018 from its high of $29.47. In 2016, JB Hi-Fi has made the acquisition of the Good Guys in September 2016 for $870 million along with forecasting $20 million in synergies over two years. Although the organisation has been comfortable with the synergy target, the competitive market conditions have resulted in tough integration (Australian Financial Review 2018).
Detailed accounting requirements:
After detailed evaluation of the annual report of JB Hi-Fi in 2018, it is noteworthy to mention that the general purpose financial statements of the organisation are prepared in such a manner that they comply with AASB and Corporations Act 2001. In addition, it has adhered to the requirements of IASB and IFRS, which states that the organisation has conformed to the necessary accounting standards and guidelines.
On the other hand, there are five elements of the conceptual framework, which include income, expenses, assets, liabilities and equity. For measurement needs, the conceptual framework of AASB has placed various obligations on the ASX listed organisations. The conceptual framework states that the organisations need to adopt a combination of measurements for measuring different elements of the financial statements like historical cost, fair value and others (Beattie 2014).
From the above extract, it could be observed that JB Hi-Fi has used historical cost as well as fair value for gauging assets and liabilities.
From the above extracts of the latest annual report of JB Hi-Fi, the organisation has utilised historical cost and fair value methods for gauging various conceptual framework elements like income, liabilities, assets and others. Therefore, it could be stated that JB Hi-Fi has conformed to the needs of the conceptual framework and AASB.
Moreover, the conceptual framework of AASB requires JB Hi-Fi to adhere to the qualitative characteristics of the conceptual framework and these are evaluated as follows:
Fundamental qualitative characteristics:
JB Hi-Fi provides pertinent financial information to its financial statement users for making decisions including predictive and confirmatory values. In addition, it provides both qualitative and quantitative descriptions of the various line items in the financial statements for ensuring the completeness of information. This has ensured relevance and faithful representation in its annual reports.
Enhancing qualitative characteristics:
JB Hi-Fi has represented financial information in a way that the users could contrast the same with another organisation or with varying timeline of the same organisation. In addition, the users could verify the accounting method in the financial statements by using independent observation and accounting knowledge (Collier 2015). Moreover, the organisation discloses its financial information within specified timeframe for making decisions. Finally, with the help of financial footnotes, the users could easily understand the various aspects in the financial statements. This has helped in ensuring comparability, verifiability, timeliness and understandabiity aspects of the conceptual framework of AASB.
Accounting theories and their themes in relation to the identified problems:
As per this theory, an organisation is considered as an agency and it represents an association for a complicated group of contracts and due to this, agency cost arises owing to various aspects and contracts (Henderson et al. 2015). According to this theory, JB Hi-Fi is the principal and the management of the organisation could be identified as its agent. This theory states that the agents undertake decision for the principals. For Orica Limited, the management undertakes the needed decisions and it carries out the tasks on behalf of the organisation.
This theory states that all stakeholders possess intrinsic moral worth and they have legitimate interest in the overall business activities. Therefore, the business organisations need to take into account the interests of the stakeholders in the form of intrinsic value (Hoque 2018). JB Hi-Fi has used the stakeholder theory concept in its business operations by addressing the stakeholder requirements. For instance, the significant stakeholders of the organisation include potential stakeholders and current investors and they are willing to invest in the organisation for obtaining better returns. Hence, JB Hi-Fi has addressed the interest of its stakeholders by providing them with the necessary financial information so that they could undertake useful decisions (Smith 2017).
It has already been evaluated that JB Hi-Fi has adhered to all the necessary Australian accounting standards and conceptual framework requirements mentioned in AASB. However, the declining share price has been identified as a significant issue for the organisation in 2018. Therefore, it is advised to consider the external factors before acquisition of any organisation for accurate estimation of future stock price along with abiding by the rules of AASB.
In accordance with the above discussion, JB Hi-Fi has adhered to the accounting standards and regulations of the conceptual framework along with adhering to the qualitative characteristics of the AASB conceptual framework. However, the financial performance of the organisation in the existing year is not satisfactory due to decline in share price. Finally, it has applied stakeholder theory and agency theory for conducting its business operations.
Aasb.gov.au., 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 14 Dec. 2018].
Annualreports.com., 2018. JB Hi-Fi Limited - AnnualReports.com. [online] Available at: https://www.annualreports.com/Company/JB-Hi-Fi-Limited [Accessed 19 Dec. 2018].
Australian Financial Review., 2018. JB Hi-Fi blames profit downgrade on weather, shares dive. [online] Available at: https://www.afr.com/business/retail/jb-hifi-blames-profit-downgrade-on-weather-shares-dive-20180502-h0ziwl [Accessed 19 Dec. 2018].
Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), pp.111-134.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Smith, M., 2017. Research methods in accounting. Sage.