The report that has been taken into consideration undertakes extensive exertions in assessing the performance one of the Australia based companies with respect to the various components related to the conceptual framework. For the purpose of completing the paper in a precise manner, FAR Limited has been selected as this is an Australian company that is related to the extraction and manufacturing of oil and gas. The company is even listed in the “Australian Stock Exchange” (FAR Limited, 2018). There are numerous elements that will be evaluated in this paper and one of them constitute of analysing the objectives of the conceptual model from the point of view of FAR Limited (Far.com.au, 2018). The next area has been to address the assessment of the distinct point of discovery, which have been explained in the conceptual framework in relation to the several kinds of financial elements. The final point of discussion in this report focuses on scrutinising the qualitative traits of conceptual model for FAR Limited with the help of which the paper would address recommendations for FAR Limited with respect to the outcome that would be attained.
2. Objectives of General Purpose Financial Reporting:
There has been declaration made by the “Australian Accounting Standards Board” (AASB) that there is a requirement for the companies that are operational in Australia and all the companies are to adhere to the regulations that have been explained in the model. The conceptual model constructed by AASB constitutes of numerous kinds of goals, which are to be maintained by the financial reporting procedures and they have been addressed as follows:
The companies have the obligation of addressing all the key information that would be assistive to the stakeholders who are in need of these information to have an outline of the current financial scenario and performance. It is due to this reason that it becomes obligatory for the firms to address all the data in relation to the financial resources and these resources are assets, liabilities etc (Perera and Chand, 2015). By looking into the annual report that has been disclosed for the year 2017, the company has disclosed their balance sheet that constitutes of the information that is essential with respect to the resources that are available to the company. The data that is disclosed is favourable to the stakeholders as it would provide an idea about the present financial scenario of the company. The explanation can be understood with the help of the following table:
AASB has constructed the conceptual framework that explains that all the Australian companies are obligated to publish their organizational information so that it becomes helpful to the stakeholders to understand the actual financial performance of the companies. This element has enhanced the obligation of the companies in publishing their data that is in relation to profit, income, revenue and expenses (Erb and Pelger, 2015). This aspect is even observed in the annual report of FAR Limited as it is seen that the company has revealed all the data that is in relation to their financial aspect and this is seen in the comprehensive income statement that is constructed by the company. The table below therefore highlights the same.
AASB has stated that all the Australian organizations need to highlight any kind of alterations in their financial performance and the cash based scenario within their financial statements as this constitutes of the guiding principles of conceptual framework (Jin, Shan and Taylor, 2015). The evaluation of the annual report of FAR Limited addresses the fact that all the essential data has been published by the company in order to reveal the changes in their financial performance. The changes are shown in the statement of changes in equity and even in the cash flow statement. The table below highlights the same.
By assessing the information that have been explained in the earlier section, there are extensive evidences with respect declaration of the essential data by FAR Limited. The purpose of the same has been to support the stakeholders in evaluating the actual performance with respect to the aims of the conceptual framework.
3. Recognition criteria:
It is seen that all the companies have to undertake precise identification of certain key financial elements that comprises of the expenses, equity, revenues, liabilities and assets (Newberry, 2015). There are several criteria within the conceptual model constructed by AASB and these criteria has to be maintained by FAR Limited while realising the financial components and they have been addressed as follows:
According to the AASB conceptual framework, FAR Limited has the obligation to comply with the guidelines mentioned under “AASB 116 Property, Plant and Equipment” in compliance with “Section 334 of the Corporations Act 2001”. This act is formulated with the intent so that the organisations could recognise its fixed assets like property, plant and equipment (Baker, 2017). In case of FAR Limited, the recognition of this asset is made after deducting impairment losses and accumulated depreciation from acquisition value.
In order to recognise inventories, it is necessary to comply with “AASB 102 Inventories”. For FAR Limited, it could be observed that no depiction of inventory is made in its annual report, since it does not maintain any inventory level. Moreover, it is necessary for the organisation to conform to “AASB 132 Intangible Assets” and they are measured at cost.
It is necessary for all the business organisations to adhere to “AASB 132 Presentation of Financial Instruments” for recognising the interest bearing bonds (Buchheit, et al., 2015). Along with this, it needs to adhere to “AASB 16 Leases” and for the chosen organisation; leases are recognised as expense on straight-line basis over the term of the lease.
FAR Limited has to adhere to the norms specified under “AASB 137 Provisions, Contingent Assets and Contingent Liabilities”. The organisation recognises provisions when there is possibility of sacrifice of future economic benefits due to current obligation arising out of past events.
It is mandatory for the Australian entities in complying with the norms of “AASB 132 Financial Instruments: Presentation” for realising equity (Hoque, 2018). For FAR Limited, ordinary shares and reserves are categorised as equity in the annual report of the organisation.
As mandated by the conceptual framework of AASB, all the firms operating in Australia are required to conform to “AASB 118 Revenues” so that revenues could be realised appropriately. For FAR Limited, it recognises revenue based on time proportion by taking into consideration effective yield on financial asset.
It is necessary for all the business organisations to make recognition of expenses at the time future economic benefits flow in their opposition (Macve, 2015). For FAR Limited, the important expenses taken into consideration constitute of depreciation and amortisation expense, exploration expense, corporate administration expense, employee benefits expense, corporate consulting expense and others.
The above discussion clearly makes it inherent that FAR Limited has made effective recognition of all its financial aspects that adhere to the guidelines laid down in AASB conceptual framework.
4. Qualitative characteristics of financial reporting:
For enhancing the usefulness and purpose of financial information, the role of qualitative characteristics is immense in financial reporting and the discussion is conducted as follows:
Fundamental qualitative characteristics:
Relevance and faithful representation are the most important fundamental qualitative characteristics associated with financial reporting. For maintaining relevancy in financial reports, it is necessary for FAR Limited to reveal the necessary information for the years 2016 and 2017. This has assisted the investors immensely so that they could make their decisions related to investment (Mala and Chand, 2015). In addition, in order to assure faithful representation, FAR Limited has complied with the norms mentioned under IFRS, AASB, Corporations Act 2001 and IASB. Thus, it has ensured both faithful representation and relevance in its financial statements.
Enhancing qualitative characteristics:
Enhancing qualitative characteristics play a significant role in enhancing the quality of information and these characteristics mainly include comparability, verifiability, timeliness and understandability. It has already been evaluated that FAR Limited has published financial information for the years 2016 and 2017 and hence, the users could easily compare such information with similar entities. Along with this, the accounting assumptions and projections could be verified by using notes to accounts; thus, assuring the aspect of verifiability (Zhang and Andrew, 2014). Furthermore, the publication of quarterly, half-yearly and yearly reports has made easy access of information to the users ensuring the aspect of timeliness. Lastly, all the notes to accounts are supported by explanations in order to enable better understanding for the users.
It is analysed that FAR Limited has taken into account the three objectives specified under the conceptual framework when it has prepared its financial reports. It has made full adherence to the different criteria for recognition in accordance with AASB for gauging the different financial resources of the organisation. Lastly, evidence has been gathered that the organisation has fulfilled all the qualitative characteristics so that the usefulness of financial reports could be increased for the years. Based on such findings, the recommendation would be to continue adhering to all the necessary guidelines specified in AASB conceptual framework for avoiding future accounting issues.
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