Ac7106: Contemporary Issues In Accounting Assessment Answers

Introduction

This report takes an honest attempt for the analysis and evaluation of the compliance of one of the Australian companies with different aspects of accounting conceptual framework. For the purpose of this report, Metcash, an Australian company is taken into consideration. Metcash is regarded as a major Australian company involves in the distribution and marketing of different products like groceries, alcoholic beverages, hardware, fresh produced products and various other consumer products (metcash.com, 2018). There are three major parts in this report. The first part involves in the analysis of the objectives of conceptual framework related to Metcash. The second part involves in analyzing the recognition criteria provided by the conceptual framework of different financial aspects. After that, the last part involves in the analysis of the qualititative characteristics of financial reporting for the companies. A conclusion along with recommendation is provided in the last part based on the whole study.

General Purpose Financial Reporting Objectives

In Australia, the Australian Accounting Standard Board (AASB) has published the required Conceptual Framework for the Australian companies and they are obliged to follow the guiding principles of this conceptual framework. The AASB conceptual framework has certain objectives that Metcash should follow in their financial reporting and they are discussed below:

Objective 1: It is needed for the companies to publish every information that helps the investors and other users in understanding the present financial position and standings of them. For this reason, the entities must provide all the information about their financial resources like assets, liabilities and others (aasb.gov.au, 2018). According to the 2017 Annual Report of Metcash, it is evident that the entity has responsibly published their Statement of Financial Position and this statement contains all the information related to the economic resources of the entity that is majorly helpful for the investors and other users in understanding their financial standing. It is shown below:

Objective 2: According to the AASB Conceptual Framework, the companies are responsible to release all the required information that is largely helpful for the investors and other users to ascertain the financial performance of them. This aspect imposes the responsibility on the companies to provide all the information related to revenue, income, exposes and profit of the businesses (aasb.gov.au, 2018). It is visible in the 2018 Annual Report of Metcash that the business entity has released all the information related to their financial performance with the help of the Statement of Comprehensive Income and it is shown below:

Objective 3: The AASB Conceptual Framework put the obligation on the business entities of Australia that they are needed to show the change in their financial performance as well as cash position in their financial reports (aasb.gov.au, 2018). It can be seen in the 2018 Annual Report of Metcash that the company has released the needed information for judging the change in financial performance through Statement of Change in Equity and Statement of Cash Flows; they are shown below:

From the above discussion, one aspect is clear that Metcash has released all the information for their investors and other users of the financial statements for ascertaining the financial position, financial performance and change in financial performance as per the conceptual framework objectives.

Recognition Criteria

It is needed for the companies to do proper recognition of some of the major financial aspects of their business and they are asset, liability, equity, revenue and expense. AASB conceptual framework has certain criteria that Metcash is needed to consider while doing recognizing these financial aspects and they are shown below:

Asset: According to AASB Conceptual Framework, it is needed for Metcash to follow the regulations of AASB 116 Property, Plant and Equipment under section 334 of the Corporations Act 2001 for the recognition of their property, plant and equipment (PPE) (aasb.gov.au, 2018). Metcash recognizes their PPE in the statement of financial position at cost value less accumulated depreciation and impairment losses; and straight-line method issued for depreciation. In Metcash, the recognition of inventories is done by following AASB 102 Inventories and they are recorded in lower of cost or net realizable value (aasb.gov.au, 2018). These can be shown below:

Moreover, according to AASB Conceptual Framework, Metcash is needed to comply with the guiding principles of AASB 138 Intangible Assets for the recognition of the intangible assets of their business (aasb.gov.au, 2018). Metcash measures their business intangible assets in cost value,

Liability: According to the Conceptual Framework of AASB, Metcash has the requirement to comply with the guiding principles of AASB 132 Presentation of Financial Instruments for recognizing their interest-bearing borrowings. The 2018 Annual Report of Metcash shows that the company recognizes their long-term borrowings in fair value basis. For the recognition of the lease liabilities, Metcash is needed to follow the principles of AASB 16 Leases (aasb.gov.au, 2018). It requires telling that Metcash recognizes their leases at the time of their occurrence. For the recognition of previsions, the obligation on Metcash is to follow the principles and regulations of AASB 137 Provisions, Contingent Liabilities and Contingent Assets (aasb.gov.au, 2018). Metcash recognizes their provisions at the present of any current obligation due to any past event. These can be seen in below:

Equity: According to the Conceptual Framework of AASB, it is required for the Australian companies including Metcash to follow the regulations of AASB 132 Financial Instruments: Presentation to recognize equities (aasb.gov.au, 2018). The 2018 Annual Report of Metcash shows that the company considers fully paid ordinary shares as equity and it can be shown below:

Revenue: According to the Conceptual Framework of AASB, the requirement for Metcash is to make compliance with the principles of AASB 118 Revenues to recognize the business revenues (aasb.gov.au, 2018). Metcash recognizes their revenues from different sources at the time to the inflow of future economic benefits in the favor of the company. It can be seen below:

Expense: According to AASB Conceptual Framework, the obligation on Metcash to recognize their revenue at the presence of the probability that there will be outflow of the future economic benefits against the company. The major business expenses for Metcash are operating lease expenses, employee benefit expenses, depreciation and amortization, finance costs and others.

Hence, it can be observed from the above discussion Metcash recognizes the major financial aspects of their business as per the Conceptual Framework of AASB.

Qualitative Characteristics of Financial Reporting

Financial information of the businesses becomes more purposeful and useful when they include the fundamental and enhancing characteristics of financial information. They are shown below:

Fundamental Qualitative Characteristics: According to the Conceptual Framework of AASB, Relevance and Faithful Representation are the fundamental qualitative characteristics of financial reporting. In order to make all the financial statements relevant, Metcash has released all the financial information for the year 2017 and 2018 and the investors can gain all the required financial information from their financial statements for investment decision-making (Barth, 2013). Moreover, for ensuring the faithful representation of the financial statements, Metcash has made compliance with all the guiding principles of Corporations Act 2001, AASB, International Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB). This is a crucial step for ensuring the true and fair presentation of the financial statements (Barth, 2013).

Enhancing Qualitative Characteristics: These characteristics help in enhancing the usefulness of the financial information; and they are Comparability, Verifiability, Timeliness and Understandability. It can be observed from the 2017 Annual Report of Metcash that the company has provide the financial information of both 2017 and 2018 so that the users can compare the financial information (Henderson, et al. 2015). Moreover, the users can also compare the information with the other companies. Apart from this, the users of the financial statements of Metcash can verify the used assumptions and accounting estimates from the notes to the financial statements of Metcash. Thus, the presence of verifiability can be seen. For the aim to maintain timeliness, Metcash publishes their quarterly, half-yearly as well as annual financial report for ensuring the accessibility of the information by the users while needed. Lastly, all the required classification, justification and explanation of different financial aspects can be seen in the noted to the financial statements in the 2018 Annual report so that the users can gain required understanding (Barth, 2013).

Conclusion

It is evident from the above discussion that the management of Metcash has taken into consideration all the objectives of AASB Conceptual Fretwork while preparing their financial statements. Moreover, full compliance with the recognition criteria of AASB is evident from the side of Metcash for measuring asset, liability and others. Lastly, it can also be seen that the financial information of Metcash includes both the fundamental as well as enhancing characteristics of financial information that is helping Metcash in making their financial information more purposeful for their users.

As per the above analysis, it can be recommended to other Australian companies that they are needed to make compliance with all the guiding principles of AASB Conceptual Framework so that they can avoid major issues in accounting.

References

Aasb.gov.au. 2018. Conceptual Framework For Financial Reporting. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Financial Instruments: Presentation. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB132_07-04_COMPoct09_02-10.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Inventories. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-04_COMPjun09_01-09.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Leases. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB16_AmendStd_02-16.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Property, Plant And Equipment. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Provisions, Contingent Liabilities And Contingent Assets. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-14.pdf> [Accessed 11 August 2018].

Aasb.gov.au. 2018. Revenue. [online] Available at: <https://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPoct10_01-11.pdf> [Accessed 11 August 2018].

Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.

Mars-metcdn-com.global.ssl.fastly.net. 2018. 2018 Annual Report. [online] Available at: <https://mars-metcdn-com.global.ssl.fastly.net/content/uploads/sites/101/2018/07/24145704/Metcash-Annual-Report-2018.pdf> [Accessed 11 August 2018].

Metcash | Australia’s leading wholesale distribution and marketing company. (2018). About Us - Metcash | Australia’s leading wholesale distribution and marketing company. [online] Available at: https://www.metcash.com/about-us/ [Accessed 11 Aug. 2018].