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MA511 Financial Accounting And Reporting For CIMIC Group Limited

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Questions:

a. Describe and discuss the function and role of high quality financial accounting in the contemporary business environment.
b. Describe and discuss the application and basis of selected IFRSs set by the IASB.
c. Apply IFRSs including the framework in the preparation of general purpose financial statements.
d. Apply financial analytical skills to evaluate, explain and solve financial accounting problems relating to general purpose financial statements.
e. Design and develop an entity’s accounting system to maintain financial information and facilitate the preparation of general purpose financial statements.
f. Compare, contrast and review financial accounting systems to ensure efficient and reliable financial accounting information.
g. Evaluate and appraise stock exchange listed entity’s financial statements.
h. Develop and communicate solutions to ethical issues orally and in writing.

 

Answer:

Introduction

Brambles Limited is identified as world leader in providing supply chain and logistics solutions based on reusable pallets, containers and crates used by multiple participants. It is noted that brambles long-standing asset management expertise and benefits for superior network is an integral part to its customer solutions. The company is listed in ASX with its operations in more than 60 countries (Brambles Corporate Site. 2018).

CIMIC Group Limited is acknowledged as world leader as international contract miner. The operations of the company are seen to be in existence since 1899 and listed in Australian securities exchange with its head office in Sydney. Some of the services provided by the company includes construction, mineral processing, engineering, mining, concessions and maintenance services related to infrastructure and property markets (Cimic.com.au. 2018).

The purpose of the study is to discuss on the function and role of high quality financial accounting and its importance in contemporary business environment. Some of the main learnings of the study will include discussion on application of IFRSs set by IASB in the selected organizations. The fourth part of the report will apply financial analytical skills for evaluating, extending and solving financial accounting problems concerning “general purpose financial statements”. The fifth part of the report relates to developing and designing entities in accounting system for facilitating and preparation of GPFR. The latter part of the study evaluates enterprises stock exchange as per entities financial statements. The final section of the study develops and communicate solutions for the ethical issues addressed orally and in writing.

 

Function and role of high quality financial accounting in the contemporary business environment

Modern business environment has undergone several drastic changes in a very short span of time. Advancement in the business technology and business functions has reached to the level which was not possible previously. These intricacies inculcated in the modern accounting system calls for the need of following a more reliable process of accounting in the contemporary business environment.

Every business wants to maximize its profit. The use of high quality financial accounting allows the owners of the business to report, analyse and record company’s financial information. In addition to this, a good quality accounting provides accurate information associated to “cost of goods sold, income, owners’ equity, expenses and assets”. In addition to this, in several occasions business owners are seen to rely on information for how the money was spent on business. Financial statements are considered as the finite output of accounting and these include aggregate financial information for a particular accounting period. A quality financial information allows the owners of the business benchmark their reports for comparing the same with the industry standard. The accounting information often relates to acquire credit from bank or investor financing for their business. In several cases, businesses require start-up capital during initiation of business operations. Accounting is often referred to as the language of the business and this acts as the method used to measure different companies using the same measuring stick (Ari.uitm.edu.my. 2018).

 

Application and basis of selected IFRSs set by the IASB

The “International Financial Reporting Standards (IFRS)” set by “International accounting standard board (IASB)” is considered as a global standard for the preparation of financial statements. This standard is seen to be adopted in more than 150 countries due to its high quality and transparency features in the reporting. The principle philosophy behind the application of IFRS is transparent and fair treatment of accounting. The application of the standard ensures that the financial statement is able to provide a complete, relevant, transparent and accurate picture of the transactions with least scope for manipulation (Iasplus.com. 2018).

The use of IFRS is observed to use a single set of global accounting standard and trust between the investors and investees along with buyers and supplies. In addition to this, the foreign investors are able to easily trust on the financial statement of the company and make investment with more ease. This particular standard is conducive in enhancing the confidence of global stakeholders and fascinated the process of merger and acquisitions and access to international capital and investment. In several cases, IFRS offers greater compatibility of financial statements with more accuracy (Yurisandi and Puspitasari 2015).

Application of IFRSs including the framework in the preparation of general purpose financial statements

The companies primarily using “General Purpose Financial Reporting (GPFR)” need information about resources of the entity not only to assess the future prospect but also to know about effectiveness and efficiency of the management in discharging their responsibilities for entities existing resources (Manes Rossi and Aversano 2015). The IFRS framework is able to take into account that prudential aspect and market regulators may find general purpose financial reports to be more useful. It is further noted by the framework that board considers the objectives of financial reporting may not be consistent in nature. Henceforth, the letters of the financial information is not the primary users and  GPFR are not primarily directed to the regulators or other parties (Sutton, Cordery and Zijl 2015).

Some of the main changes brought by IFRS for the preparation of GPFR statements includes the consideration of changes pertaining to economic resources and claims, financial performance reflected by accrual accounting, financial performance reflected by fast cash flows, changes in the reporting entity, qualitative characteristics based on useful information and application of enhancing qualitative characteristics. The final aspect of the framework has included the elements such as recognition of the elements of financial statements and measurement of the immense in the financial standards with the acknowledgment of “historical cost, current cost, net realizable value and present value” (Aasb.gov.au. 2018). 

 

Application of financial analytical skills to explain financial accounting problem

The application of the financial analytical skills is performed with ratio analysis in the key areas of financial statements including “profitability ratio, return on equity, short-term liquidity ratio analysis, data equity ratio and market performance ratio".

As per the profitability ratio analysis, despite of having high net profit margin for Brambles limited, it has reduced from 10.80% in 2015 to 10.07% in 2016. On the other hand, CIMIC Group has increased its net profit margin ratio from 3.92% in 2015 to 5.35% in 2016. The ROE of both the firms are competent enough to generate profits from its shareholders investments in the company, although CIMIC Group has shown significant improvement in this area. In a similar fashion, the representation of all the other ratios has shown that CIMIC Group is in a better financial position.

Profitability Ratio Analysis: -

 

Brambles Ltd

CIMIC Group

Particulars

2016

2015

2016

2015

 

 

 

 

 

Revenue (A)

5535.4

5440.5

10853.6

13280.8

Net Profit/Loss after Tax (D)

557.4

587.6

580.3

520.4

Ordinary Equity(H)

2955.1

2641.1

3312.4

4115.3

 

 

 

 

 

Net Profit Margin (D/A)

10.07%

10.80%

5.35%

3.92%

Return on Equity (A/H))

19%

22%

18%

13%

 

Short-Term Liquidity Ratio Analysis: -

 

Brambles Ltd

CIMIC Group

 

2016

2015

2016

2015

 

 

 

 

 

Total Current Assets (A)

1469.9

1351.1

5074.8

5353.8

Receivables (D)

1150

1044.6

3209.6

2659.6

Cash and equivalents (B)

156.1

166.2

1576.5

2167.8

Total Current Liabilities (F)

1658.8

1579.5

5799.2

4306.5

 

 

 

 

 

Current Ratio (A/F)

0.89

0.86

0.88

1.24

Quick Ratio [(B+D)/F)

0.79

0.77

0.83

1.12

 

 

 

 

Debt Equity Ratio

 

Brambles Ltd

CIMIC Group

 

2016

2015

2016

2015

 

 

 

 

 

Total Liabilities (A)

4941.2

4953.5

6708.7

5561.5

Total Assets (B)

7896.3

7594.6

10021.1

9676.8

Debt Equity Ratio

0.63

0.65

0.67

0.57

 

Market Performance Ratio

 

Brambles Ltd

CIMIC Group

 

2016

2015

2016

2015

Basic EPS

37.3

37.3

176.6

153.4

EPS

37.30

37.30

176.60

153.40

Designing and developing entities accounting system to maintain financial information

The preparation of the financial statements is documented with providing the relevant information on nature of business, risks, prospects, objectives and key strategies. In order to maintain the financial reports as per IFRS it is important to identify the present issues in the accounting standards, evaluate background materials on accounting standards and convergence of existing standards.

Comparing, contrasting and reviewing financial accounting systems 

The interpretation of financial statements of Brambles Ltd. have shown that the financial statements comply with “International Financial Reporting Standards (IFRS)” as dispensed by the “International Accounting Standards Board (IASB)”. In addition to this, the general purpose financial report is prepared as per the standard of “Australian Accounting Standards (AAS)”. Some of the other alternative pronouncements made by the company are in accordance with “Australian Accounting Standards Board (AASB)” and the requirements of the “Corporations Act 2001 (Act)”. Under the aforementioned standards the financial statements draw up to the conventions of historical cost accounting except for the consideration of financial assets at fair value through profit or loss.

As per evaluation of the financial statement of CIMIC Group Limited the general purpose financial report is prepared as per “Australian Accounting Standards (“AASBs”)” accepted by the “Australian Accounting Standards Board (“AASB”)” and in agreement with the “Corporations Act 2001”. In addition to this, the consolidated entities comply with the IFRS standard as adopted by IASB. It is for the discerned that the standards and amendments which are set for the early adoption in the financial report includes AASB 16 Leases.

 

Evaluating and appraising stocks listed entities financial statements

The evaluation and appraising of the stocks listed entities is identified with graphical representation of stock price movement and that calculating the required rate of return for both the companies. As per the findings is discerned that CIMIC Group is in a better position in terms of its stocks and thereby attracting more number of investors. 

      Calculation of required rate of return

Brambles Ltd

Brambles Monthly change

CIMIC Group

CIMIC Monthly change

ASX Delayed Price

ASX Monthly change

 

 

 

 

 

 

10.6

 

20.63

 

5588.30

 

11.1

4.717%

21.50

4.217%

5928.80

6.093%

11.52

3.784%

21.15

-1.628%

5891.50

-0.629%

10.83

-5.990%

21.09

-0.284%

5790.00

-1.723%

11.44

5.633%

24.24

14.936%

5777.20

-0.221%

10.6

-7.343%

21.75

-10.272%

5459.00

-5.508%

10.88

2.642%

23.80

9.425%

5699.20

4.400%

9.84

-9.559%

23.41

-1.639%

5207.00

-8.636%

9.74

-1.016%

23.50

0.384%

5021.60

-3.561%

10.38

6.571%

27.72

17.957%

5239.40

4.337%

10.89

4.913%

25.05

-9.632%

 

5166.50

 

-1.391%

11.57

6.244%

24.30

-2.994%

5295.90

2.505%

11.13

-3.803%

24.07

-0.946%

5005.50

-5.483%

12.49

12.219%

31.56

31.118%

4880.90

-2.489%

12.12

-2.962%

34.76

10.139%

5082.80

4.137%

12.48

2.970%

35.79

2.963%

5252.20

3.333%

12.85

2.965%

37.40

4.498%

5378.60

2.407%

12.39

-3.580%

35.75

-4.412%

5233.40

-2.700%

13.45

8.555%

29.24

-18.210%

5562.30

6.285%

12.32

-8.401%

29.61

1.265%

5433.00

-2.325%

11.98

-2.760%

28.74

-2.938%

5435.90

0.053%

11.53

-3.756%

29.59

2.958%

5317.70

-2.174%

11.78

2.168%

30.82

4.157%

5440.50

2.309%

12.4

5.263%

34.94

13.368%

5665.80

4.141%

 

 

 

 

 

 

 

 

 

 

 

 

βa

0.69

βb

0.33

 

 

 

 

 

 

 

 

Risk Free Rate (Rf)

2.06%

 

2.06%

(As per Government Bond rate 2 Year Yield)

 

 

 

 

 

 

Expected market return of Brambles Ltd (Rm1)

0.85%

Expected market return of CIMIC Group (Rm2)

2.80%

 

 

Developing and communicate solutions to ethical issues

The adoption of ethical standards as per IFRS is evident in more than hundred countries which has adopted to the ethical solutions provided by the IFRS. The two important theories justifying the concerns are associated to ethical problems which is mainly identified with tendency towards stockholder theory and stakeholder theory. The ethical consideration as per the stakeholder shows obligation of firm towards legitimate interests of the stakeholders. On the other hand, the stockholder theory aims to address the obligation of the firm only towards its stockholders. The mutual understanding of the ethical consideration is included with ineligibility and comparability as articulated by IFRS. The mutual understanding of communication is considered as on the most important discussion on ethical concepts. IFRS is able to mobilize intelligibility and comparability of the financial statements to ensure maximum number of the users have a mutual understanding of the several types of financial terms used in the statements. The comparability also attempts to establish a standardized process of techniques to understand the usage of similar language which would result in better comparability of the financial statements.

Conclusion

The learnings from the discourse is able to display that the use of quality financial information allows the owners of the business to benchmark their reports for comparing with the industry standard. The IFRS framework is able to take into account the concepts which shows prudential and market regulators may find general purpose financial reports to be more useful. It is further noted by the framework that board considers the objectives of financial reporting may not be consistent in nature. 

 

Reference List 

Aasb.gov.au. (2018). [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 26 Jan. 2018].

Ari.uitm.edu.my. (2018). [online] Available at: https://ari.uitm.edu.my/main/images/MAR/vol14-1/chapter1.pdf [Accessed 26 Jan. 2018].

Brambles Corporate Site. (2018). AR2017. [online] Available at: https://www.brambles.com/ar2017-about [Accessed 26 Jan. 2018].

Cimic.com.au. (2018). Profile - CIMIC Group. [online] Available at: https://www.cimic.com.au/our-business/profile [Accessed 26 Jan. 2018].

Iasplus.com. (2018). Conceptual Framework for Financial Reporting 2010. [online] Available at: https://www.iasplus.com/en/standards/other/framework [Accessed 26 Jan. 2018].

Manes Rossi, F. and Aversano, N., 2015. Advancing performance measurement: Italian local government vis-à-vis the IPSASB project. International Journal of Productivity and Performance Management, 64(1), pp.76-93.

Sutton, D.B., Cordery, C.J. and Zijl, T., 2015. The purpose of financial reporting: The case for coherence in the conceptual framework and standards. Abacus, 51(1), pp.116-141.

Yurisandi, T. and Puspitasari, E. (2015). Financial Reporting Quality - Before and After IFRS Adoption Using NiCE Qualitative Characteristics Measurement. Procedia - Social and Behavioral Sciences, 211, pp.644-652.

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