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Describe about the Contemporary Issues in Accounting.

Background of Acrow Formwork and Construction Services Limited

The main objective of this report is the analysis and evaluation of the adherence to the various requirements of accounting conceptual framework by one of the Australian Stock Exchange (ASX) listed companies; and Acrow Formwork and Construction Services Limited (Acrow) is considered.

Acrow is one of the leading companies of Australia involves in providing various types of construction services to the Australians. In addition, the company offers formwork and scaffolding services to the customers of residential, civil, commercial and industrial segments. Apart from this, Acrow is also involved in providing soffit systems, heavy shoring, concrete hardware and accessories to their customers. The company only operates in the various regions of Australia as they do not have overseas business operations (acrow.com.au 2018).

In Australia, the presence of Conceptual Framework can be seen issued by Australian Accounting Standard Board (AASB) and International Accounting Standard Board (IASB). In this context, it needs to be mentioned that the main objective of conceptual framework is to assist the business organizations in the preparation and presentation of the financial statements by providing them with the required accounting standards and policies. It also plays a crucial role in developing new accounting standards and policies for the companies (aasb.gov.au 2018).

It needs to be mentioned that the Conceptual Framework has certain elements; they are Assets, Liabilities, Equity, Expenses and Income. IASB has further subdivided income into two parts; they are Revenues and Gains. It is needed for the business organizations to consider the definitions and recognition criteria of these elements in the process of financial reporting (Zhang and Andrew 2014).

Business organizations can avail certain benefits from complying with the Conceptual Framework like increased compatibility of the accounting standards, effective communication with the major stakeholders, economic development of accounting standards and others (van Mourik 2014).

Assets and liability measurement is related to the income and expenses recognition. The IASB Conceptual Framework puts the obligation on the firms not to adopt one single measurement basis for all assets and liabilities as cannot provide relevant financial information to the users. Four measurement basis is there for measuring the assets and liabilities; they are fair value method, historical cost method, realizable value method and current cost method (Gebhardt, Mora and Wagenhofer 2014). The following discussion shows whether Acrow has adhered to the measurement requirements of IASB conceptual framework. 

The above image is a clear evidence of the fact that the company has not only adopted one single measurement basis for their assets and liabilities as the presence of more than one measurement basis is there in the form of historical cost method and fair value method. 

Accounting Conceptual Framework

It can be seen from the above images from the 2018 Annual Report of Acrow that the company has used historical cost method and fair value method based on the merit and requirements of their assets and liabilities (acf.irmau.com 2018). This particular aspect indicates towards the fact that there is not any issue for the company in the compliance with the measurement requirements of IASB Conceptual Framework.

As per IASB Conceptual Framework, the fundamental qualitative characteristics are Relevance and Faithful Representation.

Relevance characteristic enables the financial information of the firms to create positive influence on the users’ decision related to the scarce resource allocation so that posive impact can be created on the decision-making process of them. It requires the presence of both confirmatory and predictive value in the financial information as these make the users getting feedback about the past evaluation along with the making of their personal prediction (Nobes and Stadler 2015). For explaining this, the examples of revenue, income, expenses and costs can be considered.

(Source: acf.irmau.com 2018)

The above image shows that Acrow has disclosed detailed information about their revenue, income and cost for both the current and previous year. It helps the users in the prediction of revenue, income and cost for the future years. They also have the option for comparing revenue prediction with the previous years (acf.irmau.com 2018). This aspect confirms the presence of both the confirmatory as well as predictive value in the financial information of the company.

Faithful representation of the financial information assures that the information is complete, neutral and free from errors (Kythreotis 2014). It can be seen from the 2018 Annual Report of Acrow that the company has given the detailed information of their assets and liabilities in the notes to the financial statements that include both the description about nature of the assets and liabilities along with their numerical values.  

It can be seen from the above that Acrow has disclosed the detailed information of their assets like property, plant and equipment, inventories and others that includes both the natural and numerical description (acf.irmau.com 2018). It confirms the compliance of the company with the second fundamental qualitative characteristics.

As per the IASB Conceptual Framework, the enhancing qualitative characteristics are Comparability, Verifiability, Timeliness and Understandability.

The presence of comparability provides the users of the financial statements with the opportunity to compare the financial information of a firm with its competitor company and with the different timeline of the same firm (Barth 2013). As per the 2018 Annual Report of Acrow, financial information of 2017 and 2018 is there (acf.irmau.com 2018). 

Measurement Basis

As per the above images, the users can compare the financial information of Acrow with another company, Nexus Infrastructure Plc. It confirms the presence of comparability characterise.

In the presence of verifiability, the users of the financial statements can apply their knowledge and observation for determining the fact that the accounting works have been with accordance to the methods and basis of conceptual framework (Agyei-Mensah 2013). In case of Acrow, the users can do the same from the provided information in the notes to the financial statements related to the adopted methods.

In case of timeliness, it needs to be mentioned that Acrow discloses all of the required financial information through various financial statements so that the users can obtain them at the time of decision-making (Barth 2013).

In case of understandability, the presence of notes to the financial statements helps the company in presenting their financial information in the most clear and concise manner so that the users can easily understand them (Gordon et al. 2015).

For the purpose of decision-making, the users must be able to use the financial statements of the companies for extracting the required information. As per the 2018 annual report of Acrow, the firm has provided the following financial statements  

As per the above images, every financial statement has certain purposes; such as the users can gain knowledge about the financial performance of the company from the statement of comprehensive income, financial position of the company from the statement of financial position, change in the financial performance of the firms from the statement of change in equity and both the inflows and outflows of cash from the statement of cash flows (acf.irmau.com 2018). These aspects are evidence that the users can use the financial statements of Acrow for decision-making.

It can be seen from the earlier discussion that the users of the financial statements can apply their knowledge and observation to understand the provided financial as well as accounting treatments of various financial phenomena in the annual report of Acrow from the provided notes to the financial statements (acf.irmau.com 2018). In spite of this, there are certain calculations and judgments presented in the notes of Acrow that required more than basic accounting knowledge to understand.  

However, except these few areas, the users of the financial statements can analyse the financial statements of Acrow in the presence of basic accounting knowledge.

As per the requirement of the general purpose financial reporting, it is the obligation on the firms to ensure the delivery of all the required financial information by the users about the financial performance and position of the firm so that they can effectively make decisions (Zhang and Andrew 2014). According to the above parts of the discussion, the users of the financial statements can obtain the required financial information about the company from their published financial statements and notes. It provides the evidence of the company’s adherence to the requirements of general purpose financial reporting.

Conclusion and Recommendations

The above discussion provide clear indication of the fact that Acrow has complied with all of the requirements of the IASB conceptual framework; and thus, there is not any accounting issues in the company. However, based on the above discussion, certain recommendations are provided below:

  • It is recommended to Acrow for providing accounting clarification, justification and calculation of the critical accounting aspects in more concise and simple manner so that the users can understand them without the help of experts.
  • It is also recommended to Acrow to provide a list of assets and liabilities that have been measured under historical cost and fair value for the ease of the understanding of the users of the financial statements. 

References

Aasb.gov.au., 2018. [online] Conceptual Framework for Financial Reporting. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 13 Dec. 2018].

Acf.irmau.com. 2018. Annual Report 2018. [online] Available at: https://acf.irmau.com/site/PDF/1618_0/AnnualReporttoshareholders [Accessed 13 Dec. 2018].

Agyei-Mensah, B., 2013. Adoption of International Financial Reporting Standards (IFRS) in Ghana and the quality of financial statement disclosures.

Barth, M.E., 2013. Global comparability in financial reporting: What, why, how, and when?. China Journal of Accounting Studies, 1(1), pp.2-12.

Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.

Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS. Abacus, 50(1), pp.107-116.

Gordon, E.A., Bischof, J., Daske, H., Munter, P., Saka, C., Smith, K.J. and Venter, E.R., 2015. The IASB's discussion paper on the Conceptual framework for financial reporting: a commentary and research review. Journal of International Financial Management & Accounting, 26(1), pp.72-110. 

Kythreotis, A., 2014. Measurement of financial reporting quality based on IFRS conceptual framework’s fundamental qualitative characteristics. European Journal of Accounting, Finance & Business, 2(3), pp.4-29.

Nobes, C.W. and Stadler, C., 2015. The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research, 45(5), pp.572-601.

van Mourik, C., 2014. The equity theories and the IASB conceptual framework. Accounting in Europe, 11(2), pp.219-233.

www.acrow.com.au., 2018. About Us. [online] Available at: https://www.acrow.com.au/ [Accessed 13 Dec. 2018].

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.

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My Assignment Help. (2021). Essay: Analysis Of Acrow Formwork's Adherence To Accounting Framework.. Retrieved from https://myassignmenthelp.com/free-samples/busn7005-contemporary-issues-in-accounting/expenses-recognition.html.

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My Assignment Help (2021) Essay: Analysis Of Acrow Formwork's Adherence To Accounting Framework. [Online]. Available from: https://myassignmenthelp.com/free-samples/busn7005-contemporary-issues-in-accounting/expenses-recognition.html
[Accessed 27 February 2024].

My Assignment Help. 'Essay: Analysis Of Acrow Formwork's Adherence To Accounting Framework.' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/busn7005-contemporary-issues-in-accounting/expenses-recognition.html> accessed 27 February 2024.

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