Essay On Corporate Accounting: Importance And Key Concepts With Woolworths Limited.

What is Corporate Accounting?

Questions:

In virtually all commercial settings we might expect that the notice of liability carries the connotation only of an amount legally owing. But in conventional accounting it is not the case. As with the notion of asset there are items appearing in the financials as left-overs from the processing of the transactions data – in a sense capitalised liabilities, and there are the injection of pure fictions such as deferred tax liabilities (the counterparts of the ‘deferred tax asset’), and the imputation of ‘provisions’ for obligations that might accrue. The first arises by virtue of the accrual system being based upon revenues being allocated on the basis of time rather than receipt, the second by virtue of the tax effect system of accounting, and the third from bringing to account expected obligations before they arise (Clarke and Dean, 2007, p 79). Clark, F., & Dean, G. (2007). Indecent Disclosure: Gilding the Corporate Lily. Cambridge University Press. Melbourne. Instructions: Download a 2015 annual report for a listed company from the Australian Securities Exchange (ASX) website. Groups are not allowed to do the same company and should discuss their selection with their tutor prior to commencing their research assignment (Banks are not allowed as they have particular reporting requirements). Refer to the marking guide (attached) for additional information and requirements.

1. With reference to the above statement describe what you understand by the accounting concepts mentioned and provide examples from your selected annual report.

2. Discuss the problems of tax effect accounting addressed in the above statement in the context of the present AASB / IASB standards and the conceptual framework using your selected annual report to provide examples.

3. Comment on the issues of tax effect accounting in the above statement as they relate to the provision of decision useful information. Use your selected annual report to provide examples.
 

The importance of corporate accounting can be observed majorly in the context of developing and maintaining the financial as well as accounting approaches for the global organizations. By investigating the definition of corporate accounting, it is acknowledged that the particular process is one of the broader areas of accounting responsible for dealing and controlling wide range of accounting practices for the companies. From the preparation of major financial statements to the analysis and interpretation of the financial results, the involvement of corporate accounting can be significantly found in the important events associated with the company, such as the amalgamation, absorption, or preparation of consolidated accounting statements (Ahmed & Henry, 2011). Concerning the particular understanding, the basic description of different accounting principles and concepts is attempted to be explored by considering the annual report of an identified company. In this case, the annual report of 2015 is considered for Woolworths Limited, operating in Australian the supermarkets and grocery segment and listed in Australian Stock Exchange. The company plays the role of a duopoly in the Australian supermarkets with the combination of Coles. The combined operation of both the companies is accounted for around 80% of the market share in the Australian supermarkets chain (Crowther, 2012). The subsequent portion of the paper will essentially deal with the application of key accounting concepts with the example of the company’s operations along with identifying the accounting problems encountered by the business with the present AASB or IASB standards. 

Key Accounting Concepts

Accounting concepts are known as the guidelines to develop the set of rules followed in the preparation of relevant accounts and financial statements associated with the company’s operations. According to the primary understanding, it should need to mention that there are four fundamental concepts are involved with the development of accounting standards and policies in the process of developing financial accounts and statements for the company (Dagwell, Wines, Lambert, & Psaros, 2011). These concepts are known as accrual concept, consistency concept, prudence concept, and going concern. Based on the accrual concept, the expenses or revenues are recorded by their occurrence, where these are not recorded during the reception or payment of cash. On the other hand, the consistency concept suggests the utilisation of accounting methods after its particular selection, and the company should need to provide a sound reason in case it is opting otherwise (Davis, 2012). Considering the prudence concept, the inclusion of revenue and profit are made in the balance sheet of the company only after their realisation, whereas the inclusion of liability is needed to be made where there is the possibility to incur them. Lastly, the going concern reflects the account of the business entity should need to be prepared in good condition, and the same is expected in foreseeable future of the business as well.

In the case of Woolworths, the basic involvement of AASB 9 ca be observed in the operation of the company. The particular involvement of the accounting standard guidelines provides an option for measuring the investment in equity instruments at the fair value to identify the possible changes in the form of other comprehensive incomes of the firm (Feldmann & Rupert, 2012). From the example of the annual report of 2015 of Woolworths, it can be found out that only the dividends are recognised from the consolidated income statement, as developed by the firm. From the annual report of the company, it is also clear that a particular group is selected by the company for applying the option. It is analysed that the basic application of the accounting standards affects the process of accounting for investments in different groups, like “The Warehouse Group Limited”,  “Australian Leisure and Entertainment Property Management Limited”, and “Shopping Centres Australia Property Group”. All of these groups have been designated to achieve the fair value through the involvement of other comprehensive incomes (Henry & Holzmann, 2012). Based on the investigation to the generate income from these comprehensive variables, the changes can be observed to be occurred. The retrospective effects of these identified changes can be observed majorly in the retained earnings associated with the operations of the company both in current and previous financial years.

From the analysis of the Annual report of Woolworths for 2015, it is further identified that the issued standards and interpretations are not adopted within the industry earlier. In this case, some of the major standards and amendments are found, as part of the critical accounting concepts of AASB should need to be discussed, as these were available for the early adoption based on their relevance with the operations of the consolidated entities like Woolworths (Miller, 2012). However, these standards and concepts have not been applied in the financial statements of Woolworths. “The Financial Instruments” and “Amendment to Australian Accounting Standards – Conceptual Framework” are two of the major parts of AASB 9 driving the development of some specific standards, which are not expected to have the significant impact on the reported amounts obtained from the consolidated financial statements. However, the significant application of these standards results in more extensive disclosures of the reports generated by the financial statements of the company.

Application of Key Accounting Concepts in Woolworths Limited

In the case of the operations carried out by Woolworths, the revisions to AASB 119 can be observed due to the particular implication of such accounting concepts leading towards the amendments of the accounting policies adopted by the company for defining the benefit plans (Nolop, 2012). Based on the investigation, it can be clarified that the utilisation of the expected return on the planned assets and the interest cost associated with the previous version of AASB 119 are replaced with the amount of net interest. Here, it is worth to mention that the company has calculated the specific amount of net interest by the application of the discount rate to the net defined benefits of the assets or liabilities. In this particular scenario, no restatement of the comparative information can be found on the annual report 2015 for the company, due to the impact of the identified change is immaterial to the overall group.  

The guidelines of the accounting standards of AASB 101 requires the suitable presentation of the financial statements with the ensuring the involvement of the directors in the process of preparation of those statements. Based on the analysis of the identified annual report of the company, the roles played by the directors during the preparation of financial statements are clearly addressed (Panaretou, Shackleton, & Taylor, 2012). Considering the particular analysis, it is acknowledged that the directors are required to develop the assessment regarding the ability of the company to continue as the going concern. On the other hand, the directors are required to disclose their uncertainties during the process of assessing the going concern. This particular role played by the directors is provided the utmost importance by Woolworths, as the uncertainties are significantly responsible for providing hindrance on the going concern related to the operations.

In the case of the reputable history of the company’s operations, i.e. the ability of the company to maintain a profitable operation during the past financial years, the organization can avoid the need for conducting detailed analysis to the going concern status. Within the annual report of the company, it is addressed that the growing issues are faced by the business due to the little concern provided to the continuation of the profitable operations (Picker, 2012). However, it is also mentioned in the annual report that achievement of such process will significantly require the ready access to the financial resources as per the requirements. Therefore, the significant amount of challenges is experienced by the company to satisfy all the required financial resources to develop the detailed analysis to guide the operations of the company and identify the area where the intervention of relevant accounting concepts are required. Concerning this particular scenario, it has become difficult for Woolworths to support the going concern due to the instability in the retail environment of the Australian economy (Sherman, 2011). On the other hand, the going concern cannot be supported fully without performing the detailed analysis, as mentioned in the AASB. Based on this identified fact, Woolworths provided the high level of priority to maintain the appropriateness of the going concern assessment for the company at the end of each financial reporting period by leveraging more pressure to the roles and responsibilities played by the directors.

Identification of Accounting Problems Encountered by Woolworths Limited with AASB or IASB Standards

The application of the various accounting concepts and standards related to the AASB can be observed in the different assumptions and assessment within the organizational functions of Woolworths. The roles and responsibilities played by the directors, as discussed earlier, should need to be supported by the adequate documentations formed by the management (Shim, 2012). The annual report developed by the company reflected that the management of Woolworths is responsible for conducting the detailed analysis including the reassessment of the past forecasts of the company. The past forecasts are comprised of the cash flows or different accounts maintained by the accounting division. This particular role is defined for the management of Woolworths to provide accuracy to the underlying assumptions by comparing to the actual financial results (Stevens, 2010). However, the company faces with some specific issues during the time of evaluation caused by considering the some essential factors. Firstly, the challenges are developed due to the degree of uncertainty about the future event, and the amount of such challenge will increase as the length of the period increases. Secondly, the issues can also arise for the management of Woolworths caused by the invalidity of the assessment, made in the last going concern. Lastly, due to the large and complex size of the organization, it is more sensitive to the external factors leading to the company to make significant decisions regarding the outcomes of the future events or conditions.  

The identified issues as discussed regarding the application of these accounting standards and principles associated with AASB, as well as IASB, have their potential impacts on the difficult and unstable market conditions, which is required to be dealt accordingly by the company through the careful evaluation (Sunder, 2012). In this case, it is necessary to mention that the uncertain economic or market condition within the country does not always reflect a significant amount of doubts related to the ability of the business to continue as a going concern. Therefore, it provides certain opportunities to the directors in forming the final assessment related to the going concern, as they should need to be involved in the proper evaluation process. Here, the evaluation is required for determining the most appropriate potential outcomes for the specific company regarding the particular circumstances.

Based on the application of the accounting concepts producing a significant number of issues to the company, it is observed that the principles and guidelines also lead towards the absence of material uncertainties forming major doubts about Woolworths’s ability to continue as the going concern (Tauringana & Mangena, 2012). In the case of going concern of Woolworths, the process of assessment leads to the involvement of high degree of judgement by the directors and subsequently to the auditors. The degree of judgement is highly based on the individual circumstances of the company. This particular judgement or decision-making is considered as the vital factor providing actual understanding about the company through the analysis of its annual reports. In the case of any doubts emerged from the going concern assessment process or any assumptions, these does not necessarily suggest that the company is likely to become insolvent (Wiley CPA Exam Review Focus Notes 2012, Financial Accounting and Reporting, 2011). Hence, it can be critically observed that the accounting issues addressed by the annual reports can relate significantly to the provision of decision-making and develop useful information about the company.  

Conclusion

From the overall understanding, it can be ascertained that the different standards and principles associated with the corporate accounting play the major roles in the formation of financial statements and relevant accounts associated with the operations of an organization. In addition, the companies are responsible for addressing the inclusion of different accounting concepts and standards in their operations as part of forming their annual reports. The overall process helps to extract significant sense about the company’s operations and their compliance with the particular accounting board, i.e. AASB or IASB. 

References

Ahmed, K. & Henry, D. (2011). Accounting conservatism and voluntary corporate governance mechanisms by Australian firms. Accounting & Finance, 52(3), 631-662. 

Crowther, D. (2012). A social critique of corporate reporting. Farnham, Surrey: Gower Pub.

Dagwell, R., Wines, G., Lambert, C., & Psaros, J. (2011). Corporate accounting in Australia. Frenchs Forest, N.S.W.: Pearson Australia.

Davis, M. (2012). Accounting for real estate transactions. Hoboken, N.J.: Wiley.

Feldmann, D. & Rupert, T. (2012). Advances in accounting education. Bingley, U.K.: Emerald.

Henry, E. & Holzmann, O. (2012). Lease accounting: Back to the future?. J. Corp. Acct. Fin., 23(5), 71-75.

Miller, W. (2012). Wiley CPA Examination Review 2013 Focus Notes, Regulation. New York: Wiley.

Nolop, B. (2012). The essential CFO. Hoboken, N.J.: John Wiley & Sons.

Panaretou, A., Shackleton, M., & Taylor, P. (2012). Corporate Risk Management and Hedge Accounting*. 

Picker, R. (2012). Advanced corporate accounting. Milton, Qld: John Wiley & Sons.

Sherman, E. (2011). Finance and accounting for nonfinancial managers. [New York]: American Management Association.

Shim, J. (2012). Time value of money and fair value accounting. Kent: Global Professional Publishing Ltd.

Stevens, K. (2010). Wiley CPA Examination Review Focus Notes. Hoboken: John Wiley & Sons.

Sunder, S. (2012). Corporate Disclosure: A Symposium. Accounting Horizons, 26(2), 353-355.

Tauringana, V. & Mangena, M. (2012). Accounting in Africa. Bingley, U.K.: Emerald.

Wiley CPA Exam Review Focus Notes 2012, Financial Accounting and Reporting. (2011). New York, NY.