Contemporary Issues In Business Accounting Essay.

Importance of Maintaining Accounts

Question:

What is the Contemporary Issues In Business Accounting?

Accounting is the dialect of business. The daily functioning of a business are to be kept in check in the most efficient and methodical way so as to analyze the performance as well as financial standing of the company in the ending of the year (Harrison, Horngren and Thomas, n.d.). The importance of maintaining book of accounts for a company is hereunder:-

It facilitates the evaluation of performance of an enterprise as it reflects true and fair image of the functions of a business and portrays its financial position.

It is necessary to maintain proper accounts as it makes flexible to compare the financial statements of previous year’s data or with the other company’s data or with its own budgeted data.

Accounting of financial statements helps the firms to keep track of its cash flow and thereby, also its promotes the firm in making small as well as long term decisions to support the growth of the business. (Ittleson, 2009)

Accounting information provides a number of quantitative and qualitative information which forms an integral part of day-to-day operations.

Now comes into the picture conceptual framework for accounting. A conceptual framework is a structure of objectives, rules and ideas that leads to the formation of certain systematic and unvarying standards (Kimmel, weygandt and kieso, a.d.). The standards put forth the nature, extent and functions of financial statements and books. The grounds for forming a framework are as follows:

Solving of accounting future discourses

A framework for setting of standards

Following of elementary principles which are to be kept consistent throughout the accounting.

The International accounting standards boards (IASB) or IFRS is a non – trading and private organization whose focus is to institute the accounting standards so as to form proper reports which in turn will serve as guidance to the stakeholders like issuers, auditors, investors and other information users (libby, libby and hodge, 2017). IASB’s conceptual framework’s project started in 1973 in United States so as to serve as a theoretical sound basis for the evolution of accounting standards and norms. (Libby, Libby and short, n.d.)

The Australian accounting standards board (AASB) has Accoutred Australian equivalents to IFRS' (A-IFRS), that states  IFRS standards as AASB 1-8 and IAS standards as AASB 101-141 (Loughran, 2011).This acquisition replaces the previous Australian generally accepted accounting principles or AGAAP. The AASB had made number of changes in making A-IFRS by introducing additional disclosure or asking for more requirements by not-for-profit entities but is fundamentally eliminates an option under IFRS and not completely departing from IFRS for business entities. Also, the business entities who earns profits are required to prepare financial statements in compliance with A-IFRS are being able to construct an entire statement of compliance with IFRS (spiceland, Thomas and Hermann, n.d.).

Conceptual Framework for Accounting

The further following bullets are to be kept in consideration for better knowledge of IFRS:

It will bring the accounting standards much closer to other international standards that firms are familiar with and therefore, will allow the companies to appeal to foreign investors & go global.

The new standards lay more emphasis on detailed disclosures which will increase the transparency & governance standards.

IFRS is based on the principles of (a) substance over form, and (b) fair valuation that will present clearer picture of company's affairs specific about the conservatism principle.

It will reflect a more comparable picture of the books in which the previous accounting principles do not offer any specific guidance and therefore, enterprises followed different policies making their books incomparable. (Weygandt, Kieso and Kimmel, n.d.)

The Prudency Concept of accounting that the expenses or liabilities are not underestimated and the income and assets are not overstated but recorded even in the case of uncertainty. However now the current conceptual framework has overruled the Prudency concept. The Pros and cons of Prudency concept of accounting in inclusionof accounting standards is not getting into details but jumping to current storyline. The main concern of the new framework is to meet the user expectations by providing them a reliable record of performance without being predisposed. To achieve this, Prudency concept should be discussed as uncertainty should be reflected in measurement of the desired output. However, a lot of specimen and examples shows that the prudency concept clearly exists in IFRS and also, these instances are widely accepted treatments. Thus the discussion of prudency concept should be re-assessed.

• TPG Telecom Ltd and
• Woolworth Group

The statements comply with the international financial reporting standards (IFRS) adopted by the international accounting standards board (IASB). The statement of compliance of both the companies states that the financial statements are the general purpose financial statements and have been prepared in accordance with Australian Accounting standards (AASBs) as well as Corporations Act 2001.

The Woolworth Group has adopted the two following effective standards from the financial year 2016 as issued by AASB. However, no material affect on the amounts stated in the current period or prior periods has been casted upon by the adoption of these standards.

• Then, the adoption of AASB 2015-2 comes into picture that amends AASB 101- presentation of financial statements and requires clarification against the disclosure requirements in AASB 101. The Group has applied these amendments in the preparation of its financial statements.
• The group adopted AASB 9 that contains the introduction of hedge accounting and emphasizes on more effective and eligible requirements so as to connect with the entity's risk management framework. Though there were no material changes in the books, however, the additional disclosure requirements were stated in the Note 25 of the accounts.

There is no new adoption in case of TPG Telecom Ltd. However there are certain standards that have not yet been adopted and issued and will materially affect the books of both the companies. That is why; both the companies are assessing the impact of those new standards on their financial positions & results. The following standards are stated as below :

• AASB 9 - Financial Instruments : This revised standard provides guidance on how the financial assets are to be classified & measured and includes a third measurement category for debt instruments. An expected credit loss model will be prepared to ascertain the impairment cost of the financial assets.
• AASB 16 - Lease: this standard will significantly affect the accounting process for lease. In case of Woolworths Ltd, material effect will be observed on the key significant ratios. As per this standard, the difference between operating and finance leases will disappear and all the leases will be recognized as assets with a corresponding liability equaling to the present value of unavoidable payments of lease. Also, lease payments on operating lease which are presently treated as operating costs will then be treated as depreciation charge and an interest will be incurred as an expense on the lease held as liability.
• AASB 15 - Revenue from contracts with customers: As per this standard, a single model will be applicable to contracts with customers. It will provide two approaches to recognize the revenue - at that point or over that time. The contract emphasizes on the five step analysis of transactions to ascertain how much and when revenue is too recognized.

The two companies are on the way of analyzing the impact of the above stated standards on their financial statements and the impression they will have. However, the financial statements comply with the other required standard that clearly meets the demand of financial users.

War and conversion are on the same platform. It is the most popular issue that is to be looked into. The Australian Accounting Standards Board (AASB) is currently conducting in depth research so as to analyze the impact of IFRS adoption on publicly listed Australian companies and other market partners (Downers and Goodman, 2010). In consideration of this, following impact has been observed :

• On the other hand, IFRS adoption by Australian companies is of greater advantage to the investors and analysts as according to the research results the improved practices puts more emphasis on the accuracy and transparency.
• Surveys shows that the IFRS adoption opens up a huge opportunities to the possible benefits because of accounting convergence which comes into picture because of permissions allowed by the respective managers.
• Some studies reported that there is an improvement in the value relevance of accounting data while other comparable studies shows that the accounting quality have remained stable or consistent with AGAAP and infact, the previous treatments according to AGAAP for valuing intangible assets were more appropriate (Finance for managers, 2007).
• Some studies stated that there is a positive impact on the comparability of the Australian financial reporting practices with their other global competitors. However, not all the research work shows the same result (Knight and Satchell, 2002).

Given that results are in parallel to the academic theory, Not at all the possible aspects of the positive impact of IIFRS adoption in Australia has been examined in depth. Thus the AASB committee believes that further research is to carried on so to analyze the impact in depth and details and thereby conduct further chores to gather opinions of the financial statements preparers as well as users. (Weaver, 2014)

References

Downes, J. and Goodman, J. (2010). Barron's finance & investment handbook. Hauppauge, N.Y.: Barron's Educational Series.

Finance for managers. (2007). Boston, Mass.: Harvard Business School Press

Harrison, W., Horngren, C. and Thomas, C. (n.d.). Financial accounting.

Ittelson, T. (2009). Financial statements. Franklin Lakes, NJ: Career Press.

Kimmel, P., Weygandt, J. and Kieso, D. (n.d.). Financial accounting.

Knight, J. and Satchell, S. (2002). Performance measurement in finance. Oxford: Butterworth-Heinemann.

Libby, R., Libby, P. and Hodge, F. (2017). Financial accounting. New York, NY: McGraw-Hill Education.

Libby, R., Libby, P. and Short, D. (n.d.). Financial accounting.

Loughran, M. (2011). Financial accounting for dummies. Hoboken, N.J.: John Wiley & Sons.

Spiceland, J., Thomas, W. and Herrmann, D. (n.d.). Financial accounting.

Weaver, L. (2014). Managing the Transition to IFRS-Based Financial Reporting. New York, NY: John Wiley & Sons.

Weygandt, J., Kieso, D. and Kimmel, P. (n.d.). Financial accounting.