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Discuss about the Foundations in Accounting for Pros and Cons for investors .

The following assignment report is based on the two companies of Australia, Westpac Banking Corporation and BP Australia Limited presenting the understanding the conceptual framework for reporting organizations within the Australia. The report provides the explanation and requirements of Australian Accounting Standards Board (AASB) 1053 and Statement of Accounting Concepts (SAC) 1 for the selected companies. Further, the assignments focus on the identification of categories of assets, reporting values and impairment or depreciation charges according to the AASB 116, 138 and 136 (Zhuang, 2016). The report presents the assets according to the specific categories line current assets, non-current assets, intangible assets, and their respective reported values (Linnenluecke et al., 2015). In the last part of the report, discussion and arguments have been provided on the adoption of International Financial Reporting Standards (IFRS) within Australia. The discussion has been supported with necessary advantages and disadvantages as well as the explanations given by peer- reviewers.   


The conceptual framework presents a number of requirements for Financial Reporting that helps the Board of International Accounting Standards based on the concept of consistency. It also assists the accounting preparers to develop the consistency of accounting policies and helps the users of the accounting information in understanding and interpreting the standards of accounting. A reporting entity in Australia has to follow the conceptual framework requirements laid by the Australian Accounting Standards Board to present its financial statements for the use of the stakeholders (Hughes-Morley et al., 2015).

A reporting entity qualifies to be reported under the accounting principles and standards of Australia if the financial information has the capability of providing useful information to the users. The users can be potential ordinary shareholders for investment, banks to provide loans or resources and government for considering tax and duties. In addition, if one company has the controlling power on another company to direct the business activities, then such company falls under the category of reporting entity (Newberry, 2015). However, AASB 1053 provides certain application of Tiers to different categories of reporting companies for preparing the financial statements. This standard applies to the organizations having annual reporting period beginning on or after 1st July, 2013. However, an entity is also required to report as per the AASB 1053 if its annual reporting period starts between the years 2009 to 30th June 2013 (Bridgett et al., 2015).


In case of the selected companies, Westpac Group and BP Australia both are eligible to be reported according to the Australian Accounting Standards Board and Statement of Accounting Concepts. Both the companies have annual reporting period between 2009 to 30 June 2013 as well as the financial information has the potential to provide necessary information to the users. In case of Westpac Group, the performance highlights of the year 2015 shows a rise in net profit by 6% amounting to $8,012 million. Other than that, cash earnings show a rise of 3% amounting to $7,820 million while payment of dividends gone up by 3% and returns by 15.8% (Personal, Business and Corporate Banking, 2016).

Whereas in case of BP Australia, whose objective is to create long-term values for its shareholders. Though the company incurred a loss of approximately $6.5 billion compared to the net profit of the year $3.8 billion in the year 2014. The loss was mainly due to the loss in replacement of assets amounting to $5.2 billion. The company is required to report as per the AASB 1053 even if it incurred losses so that the users of the financial statements can get the correct information (BP, P, 2016).

Therefore, both the companies are required to report their financial statements with compliance to the Australian accounting standards and principles that regulates the conceptual framework to record and measure the accounting data (Drew, Kortt & Dollery, 2015). As the standard requires an entity to represent its financial statements, it consists of two tiers to report the financial information. Tier 1 requires complete disclosure while Tier 2 requires reduced disclosures of accounting information. Both the companies fall under Tier 1 reporting that incorporates IFRS and are specific for Australian entities (Bond, Govendir & Wells, 2016).

Australian Accounting Standards Board 116 regulates the recognition of property, plant and equipment. As per the standard, an asset is to be recorded if there is any future economic benefit associated with the asset that will flow to the company. In addition, the value of the asset is eligible to be measured reliably. Further, AASB 138 on Intangible assets states the same condition to recognize and measure the value of impaired assets (Chalmers, Clinch & Godfrey, 2012). The cost of intangible assets should be recorded at the purchased value reduced by the proportional amount of amortization (Cheung, Evans & Wright, 2012). AASB 136 on Impairment of assets requires that the assets of the organizations are not carried out in the financial statements more than their recoverable value (Bond, Govendir & Wells, 2016). The identification of impairment of assets depends on the external as well as the internal sources of the company (Yao, Percy & Hu, 2015).


In case of Westpac Group, the financial statement shows the different categories of assets, their values and other necessary information. The presentation reflects the financial status of the company with respect to the holding of assets at the end of the accounting year 2015 (Finch, 2012).

Reported assets and their values of Westpac Group

Amount A$m



Current Assets

Cash and bank balances with central banks



Receivables due from other financial institutions



Derivative financial instruments



Trading securities and financial assets designated at fair value and available-for-sale securities



Available-for-sale securities



Due from subsidiaries


Investments in subsidiaries


Investments in associates



Non- Current Assets





Life insurance assets



Regulatory deposits with central banks overseas



Property and equipment- Fixed Assets



Deferred tax assets



Other assets



Goodwill and other intangible assets



Impairment charges



Amortization and impairment of software assets



Amortization and impairment of intangible assets
and deferred expenditure



Impairment on investments in subsidiaries



Depreciation of property and equipment



Depreciation and impairment of IT equipment



Table 1: Reported assets and their values of Westpac Group

(Source: Personal, Business and Corporate Banking, 2016)

Reported assets of BP Australia as per the financial statements 2015

Reported assets and their values BP Group

Group Amount A$m

Current Assets

Cash and cash equivalents






Trade and other receivables


Derivative financial instruments




Current tax receivable


Other investments


Non- Current Assets

Property, plant and equipment




Intangible assets


Investments in joint ventures


Investments in associates


Other investments


Fixed assets 




Trade and other receivables


Derivative financial instruments




Deferred tax assets


Defined benefit pension plan surpluses


Depreciation, depletion and amortization


Impairment and losses on sale of businesses and fixed assets


Table 2: Reported assets of BP Australia

(Source: BP, P, 2016)

The carrying costs of assets of both the companies were according to the principles of AASB 136 while the costs of intangible assets were according to AASB 138. The depreciation on fixed assets of Westpac has been provided as per the principles and standards of Australian Accounting at straight-line method (Personal, Business and Corporate Banking, 2016). The depreciation of assets of BP Group has been provided at written down value method (BP, P, 2016). Further, the Intangible assets of both the Australian companies have been amortized in the proportion of number of years in compliance with AASB 138.

International Financial Reporting Standards (IFRS) are a set of principles and standards that regulates the recognition and measurement of company account. IFRS has been designed to record the accounting information to make it understandable and comparable across the international boundaries. In recent years, many nations are adopting the IFRS to regulate the accounting records and recognition to have standardized and equalized financial information across the globe (Christensen et al. 2015). Replacement of IFRS with different national standards of accounting arises the change in valuation and recognition of assets, liabilities, capital structure, equities and other financial elements. IFRS provides the rules and principles to recognize the business transactions in a concise manner that is regulated worldwide (Ramanna & Sletten, 2009).

To present the accounting information globally accepted and understandable, Australia has adopted International Financial Reporting Standards. It states the accounting principles and methods to recognize the business transactions to harmonize the presentation of financial information across international boundaries. Australia has acquired International Financial Reporting Standards for all the reporting organizations to present their financial reports in the manner specified by the Standard. The Board of Australian Accounting has adopted the IFRS since the accounting year 1st January 2005 (Ball, Li & Shivakumar, 2015). Since Australia has two Tiers of reporting essentials to prepare and present the financial statements, application of International Financial Reporting Standards had been incorporated to Tier 1 reporting requirements. Tier 1 reporting is presented as per the Australian Accounting Standards while Tier 2 reporting requires reduced disclosures under Australian Accounting Standards. According to the regulations of Australian Accounting, entities that are profit making in the private sector having accountability are required to report under Tier 1. In addition, corporations under Australian State, Territory or local Government also require to report the accounting information under Tier 1 (Ball, 2006).

The European Union had mandated the adoption of International Financial Reporting Standards for all the listed companies under the International Accounting Standards Board. By acquiring the IFRS growth in foreign capital and trades are expected in consideration with the economic benefits. Foreign capital would be considered as the ratio between direct investment inflows to Gross Domestic Product and equity portfolio related to foreign exchange transactions. International Financial Reporting Standards provides the principles to recognize the necessary transactions, measure the value of investment, and return on investment that are accepted across the International boundaries (Lourenço, Branco & Castelo, 2015).

Decision to adapt the International Financial Reporting Standards for recording accounting information to make the financial reports uniform and acceptable across the globe serves some benefits to Australia. Maintaining the accounting statements according to IFRS helps in attracting the capital inflow in Australia at lower cost i.e. the cost of capital employment would be lower (Cascino & Gassen, 2015). Another benefit of adopting IFRS in Australia is lowering the costs for account preparers, cost of auditing and cost for the users of financial statements of the organizations. Preparing accounting records as per International Financial Reporting Standards also fills certain space in Generally Accepted Accounting Principles in Australia (Lourenço, Branco & Castelo, 2015).

International Financial Reporting Standards requires changes in the methods of measuring financial elements like valuation of Earnings per share for the ordinary shareholders, capital ratios, values of fixed assets and depreciation charges. It also specifies the rules to valuation and recognition of goodwill, mergers and acquisitions, inventory valuation, cost of borrowings, cash flow statements and impairment of assets. Many entities operate and invest in other companies as a parent or holding company within the nation or outside the nation (Mardini, Crawford & Power, 2015). In this respect, it is necessary to present the financial statement in uniform manner that reflects harmonized presentation to make it understandable for the users across the world. Apart from that, IFRS presents the principles to make required disclosures specific to the components of finance (Ramanna & Sletten, 2009).

Therefore, the selected companies Westpac Group and BP Group have adopted IFRS to prepare their financial statements. Both the companies have evaluated and measure different accounting components like capital expenditures, Earning Per shares (basic and diluted), depreciation charges, amortization expenses, goodwill valuation, replacement costs and other relevant data. While, the respective reported values of assets and methods used for computing depreciation charges have already been mentioned in the previous part of discussion (Ramanna & Sletten, 2009).

However, there are some disadvantages on adopting International Financial Reporting Standards by Australian Accounting Boards. The primary disadvantages of acquiring the accounting systems are per IFRS are involvement of high cost of changes. Most of the multinational companies employ upgraded and advanced accounting software to maintain their books of accounts are required to change the entire internal system of recording the business transaction as per IFRS. Such change of software and other internal requirements incorporates huge expenditure to make it compatible for the users. Other than the high cost structure, IFRS requires critical understanding of the concepts of objectives, scope, definition, transaction recognition criteria and disclosure requirements. In order to be acquainted with the principles and rules of IFRS the account prepares have to study and update their knowledge, which is time-consuming. Certain issues like extraordinary gains or losses are not allowed to recognize according to International Financial Reporting Standards. Hence, the critical understanding of these issues requires sound and fundamental knowledge and competency about the concept and content of various standards (Ball, 2006).

Besides the disadvantages, maintaining the accounting records according to International Financial Reporting Standards reflects many advantages. One of the significant benefits is to favor the investors by providing the financial statements more accurately, timely and in a comprehensive manner. Accounting reports according to IFRS provides clear understanding and more information about the organizations performance and financial status. Another essential benefit of application of International Financial Reporting Standards for preparing the accounting records is immediate recognition of loss. This recognition provides advantage to the investors for the purpose of investments and other stakeholders to make better and corrective business decisions. Recognition of accounting data under IFRS sheds transparency and effectiveness to the users of the financial reports for investment, procuring or providing loans and advances and any other necessary business deals (Ball, 2006).

Another benefit of adopting IFRS is the comparability of the financial statements for the companies as well as for the users. Many entities prepare consolidated accounting statements apart from the standalone accounting statement as per the requirements of Accounting Boards. Therefore, preparation of financial statements under IFRS provides improved comparability for the investors, business management and other stakeholders of the companies. Such comparability provides better understanding of the company’s financial position and performance during the accounting year with respect to the financial markets of the current economy (Ball, 2006).


The above report has been presented on different elements and concepts of accounting information within Australia based on the financial information of two Australian companies. The report in the first part focuses on the requirements of AASB 1053 and SAC 1 for the reporting entities for recording the accounting transactions and preparing financial statements. The standards state the necessity to maintain the books of accounts as per the principles and standards of International Accounting Standards under Tier 1 and Tier 2 requirements. Both the selected companies qualify as reporting entities because they are profit-making organizations having public accountability.

In the second part of the report, assets of both the companies have been categorized and respective reporting values have been mentioned. The categorization has been done according to the AASB 116, 138 and 136 that presents the principles and rules to recognize plant, property and equipment, intangible assets and impairment of assets respectively.

Last part of the report represents the discussions and arguments on acquiring accounting records as per IFRS by Australia. The standard has been adopted to present and prepare the financial reports of the Australian company in transparent, accurate and comprehensive manner. The discussion also presents the advantages and disadvantages of adopting IFRS in accounting system. However, adoption of IFRS is time-consuming and involves huge costs it provides advantages for investors and stakeholders reflecting better comparability and transparency in understanding the financial statements for the users.

Reference List

Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and business research, 36(sup1), 5-27.

Ball, R., Li, X., & Shivakumar, L. (2015). Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), 915-963.

Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance.

BP, P. (2016). Retrieved 27 July 2016, from

Bridgett, D. J., Burt, N. M., Edwards, E. S., & Deater-Deckard, K. (2015). Intergenerational transmission of self-regulation: A multidisciplinary review and integrative conceptual framework. Psychological bulletin, 141(3), 602.

Cascino, S., & Gassen, J. (2015). What drives the comparability effect of mandatory IFRS adoption?. Review of Accounting Studies, 20(1), 242-282.

Chalmers, K., Clinch, G., & Godfrey, J. M. (2012). Adoption of international financial reporting standards: impact on the value relevance of intangible assets. Australian Accounting Review, 18(3), 237-247.

Cheung, E., Evans, E., & Wright, S. (2012). The adoption of IFRS in Australia: The case of AASB 138 (IAS 38) Intangible Assets. Australian Accounting Review, 18(3), 248-256.

Christensen, H. B., Lee, E., Walker, M., & Zeng, C. (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), 31-61.

Drew, J., Kortt, M., & Dollery, B. (2015). What determines efficiency in local government? a DEA analysis of NSW local government. Economic Papers: A journal of applied economics and policy, 34(4), 243-256.

Finch, N. (2012). Intangible assets and creative impairment-an analysis of current disclosure practices by top Australian firms. Journal of Law and Financial Management, 5(2), 18-24.

Hughes-Morley, A., Young, B., Waheed, W., Small, N., & Bower, P. (2015). Factors affecting recruitment into depression trials: systematic review, meta-synthesis and conceptual framework. Journal of affective disorders, 172, 274-290.

Linnenluecke, M. K., Birt, J., Lyon, J., & Sidhu, B. K. (2015). Planetary boundaries: implications for asset impairment. Accounting & Finance, 55(4), 911-929.

Lourenço, I. M. E. C., Branco, M. E. M. D. A., & Castelo, D. (2015). Main consequences of IFRS adoption: analysis of existing literature and suggestions for further research. Revista Contabilidade & Finanças, 26(68), 126-139.

Mardini, G. H., Crawford, L., & Power, D. M. (2015). Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research,16(1), 2-27.

Newberry, S. (2015). Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), 371-376.

Personal, Business and Corporate Banking. (2016). Westpac. Retrieved 27 July 2016, from

Ramanna, K., & Sletten, E. (2009). Why do countries adopt international financial reporting standards?. Harvard Business School Accounting & Management Unit Working Paper, (09-102).

Yao, D. F. T., Percy, M., & Hu, F. (2015). Fair value accounting for non-current assets and audit fees: evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), 31-45.

Zhuang, Z. (2016). Discussion of ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136’. Accounting & Finance, 56(1), 289-294.

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