ACC303 | Accounting | The Conceptual Framework for GWA Group Limited

You are required to prepare a comprehensive report directed to a corporation.

Introduction:

In this report, possible efforts are made in order to analyse the conformance of one of the Australian organisations in relation to the different aspects associated with the conceptual framework. Therefore, for meeting the purpose of this assignment, GWA Group Limited has been chosen as the Australian organisations, which sells household products for its consumers and it is listed on the “Australian Stock Exchange” in May 1993 (GWA Group Limited, 2018). This report covers three significant aspects. The first segment would focus on the evaluation of the conceptual framework objectives from the perspective of GWA Group Limited. The second segment would highlight the analysis of certain criteria for recognition, which are stated in the conceptual framework pertaining to various financial aspects. The last segment of the report would concentrate on assessing the qualitative characteristics of conceptual framework for GWA Group Limited. Finally, the report would shed light on providing some recommendations for the concerned organisation based on the overall findings.

Objectives of General Purpose Financial Reporting:

The “Australian Accounting Standards Board (AASB)” has announced the needed framework for the organisations operating in Australia and they are required to abide by th

Objective 1:

The business organisations have the responsibility of disclosing all necessary information, which would help the investors and other related users to gain an overview of the existing financial performance and position. Due to this reason, it is mandatory for these organisations to disclose all information regarding their financial resources that include liabilities, assets and others (Cheng, et al., 2014). In accordance with the latest annual report of GWA Group Limited in 2017, it could be found that the organisation has published its balance sheet statement containing all necessary information regarding its organisational resources. This information is beneficial to the investors as well as other related users to gain an insight of the current financial condition of the organisation. The statement is illustrated briefly as follows:

Table 1: Balance sheet statement of GWA Group Limited for 2016 and 2017

(Source: Gwagroup.com.au, 2018)

Objective 2:

The conceptual framework of AASB states that all business organisations are responsible to disclose all the needed information for assisting the investors as well other users in determining their overall financial performance. This aspect has increased the responsibility of the organisations in disclosing all information associated with income, revenue, profit and expenses (Henderson, et al., 2015). This is evident from the annual report of GWA Group Limited in 2017, as it is observed to disclose all information associated with its financial performance by publishing the comprehensive income statement depicted as follows:

Table 2: Comprehensive income statement of GWA Group Limited for 2016 and 2017

(Source: Gwagroup.com.au, 2018)

Objective 3:

All the Australian entities are obliged to reflect any change in financial performance and cash position in their financial statements, as a part of the guiding principles of the AASB conceptual framework (Aasb.gov.au, 2018). After evaluation of the annual report of GWA Group Limited in 2017, it has been found that all required information has been released in order to judge the changes in financial performance by publishing the statement of changes in equity and cash flow statement. These statements are represented in the form of tables as follows;

Table 3: Statement of changes in equity of GWA Group Limited for 2016 and 2017

(Source: Gwagroup.com.au, 2018)

Table 4: Cash flow statement of GWA Group Limited for 2016 and 2017

(Source: Gwagroup.com.au, 2018)

Based on the above evaluation, there are wider evidences regarding the disclosure of all necessary information from the end of GWA Group Limited. The intention is to assist the various financial statement users including the investors in analysing the actual financial performance, financial position and any change in performance in accordance with the objectives of the conceptual framework.

Recognition criteria:

All the business organisations have to conduct suitable recognition of few significant financial aspects, which constitute of assets, liabilities, revenues, expenses and equity (Jin, Shan and Taylor, 2015). The conceptual framework of AASB has various criteria, which GWA Group Limited needs to abide while realising the financial aspects and they are represented as follows:

Assets:

In accordance with the conceptual framework of AASB, GWA Group Limited is needed to conform to the norms of “AASB 116 Property, Plant and Equipment” under “Section 334 of the Corporations Act 2001” for realising its property, plant and equipment (Macve 2015). GWA Group Limited realises its property, plant and equipment in its balance sheet statement by deducting impairment losses and accumulated depreciation from cost. For computing accumulated depreciation, it uses straight line method. The inventories are realised by adhering to “AASB 102 Inventories” and they are disclosed at either net realisable value or cost, whichever is lower.

Table 5: Accounting treatment of property, plant and equipment of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Table 6: Accounting treatment of inventory of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Along with this, GWA Group Limited needs to adhere to “AASB 138 Intangible Assets” for realising intangible business assets and it gauges its intangible assets at cost.

Liability:

One of the fundamental guiding principles of AASB conceptual framework for any business organisation is to comply with “AASB 132 Presentation of Financial Instruments” in order to realise interest-bearing bonds (Newberry 2015). In accordance with the annual report of GWA Group Limited in 2017, the organisation realises its interest-bearing financial instruments at notional value. Moreover, it needs to conform to AASB 16 Leases and it realises leases in the form of expense in relation to operating leases. In order to realise provisions, GWA Group Limited needs to adhere to the guidelines laid down in “AASB 137 Provisions, Contingent Assets and Contingent Liabilities”. The organisation realises its provisions at present legal or constructive obligation because of any past events. These recognitions could be illustrated as follows:

Table 7: Recognition of interest bearing financial instruments of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Table 8: Recognition of operating lease commitments of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Table 9: Recognition of provisions of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Equity:

The AASB conceptual framework needs the Australian organisations to adhere to the regulations of “AASB 132 Financial Instruments: Presentation” in order to recognise equity (Wahlen, Baginski and Bradshaw, 2014). GWA Group Limited considers ordinary shares in the form of equity, which is represented as follows:

Table 10: Recognition of equity of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Revenue:

The conceptual framework of AASB requires the Australian firms to comply with the principles laid down in “AASB 118 Revenues” in order to recognise revenue. at fair consideration value, rebates, net of returns and discounts. This could be seen as follows:

Table 11: Recognition of revenue of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Expense:

The conceptual framework requires the organisations to recognise expenses when there is chance of outflow of future economic advantages against them (Nobes, 2014). The significant business expenses for GWA Group Limited include cost of sales, personnel expenses, net financing costs and others, which are depicted as follows:

Table 12: Recognition of expense of GWA Group Limited

(Source: Gwagroup.com.au, 2018)

Therefore, it is evident from the above evaluation that GWA Group Limited realises the significant financial aspects to adhere to the AASB conceptual framework.

Qualitative characteristics of financial reporting:

Qualitative characteristics help in increasing the purposes and usefulness of financial information and these characteristics are represented briefly as follows;

Fundamental qualitative characteristics:

The two most significant fundamental qualitative characteristics include faithful representation and relevance. In order to ensure relevance in its financial statements, GWA Group Limited has disclosed all required information for the years 2017 and 2018 and the investors could gather necessary information for undertaking investment decisions (Yong, Lim and Tan 2016). Along with this, for assuring that the financial statements are represented faithfully, GWA Group Limited has conformed to the rules prescribed under AASB, IFRS, IASB and Corporations Act 2001. This is a significant move to ensure accurate and fair depiction of the financial statements.

Enhancing qualitative characteristics:

The financial information quality could be enhanced with the help of these characteristics and they include timeliness, verifiability, comparability and understandability. As GWA Group Limited has disclosed the financial data for both 2017 and 2018, it has become easy for the users to compare the same with similar organisations. In addition, the users could verify the accounting estimates and assumptions from financial notes and this has ensured the verifiability aspect (Zhang and Andrew 2014). Along with this, GWA Group Limited publishes half-yearly, quarterly and annual reports for assuring information accessibility for the users and this assures the timeliness aspect. Finally, it has provided all justifications related to financial footnotes for better understanding of the users.

Conclusion and recommendations:

The above discussion makes it clear that GWA Group Limited has considered all the conceptual framework objectives at the time of formulating its financial statements. Complete conformance to the various recognition criteria of AASB is inherent in order to gauge liabilities, assets and others. Finally, it could be witnessed that the organisation has followed both fundamental and enhancing qualitative characteristics for increasing the usefulness of financial statements to its users. Therefore, it is advised to the Australian organisations to adhere to the AASB guiding norms and regulations laid down in the financial reporting conceptual framework so that significant issues related to accounting could be avoided in future.

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].

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.

GWA Group Limited., 2018. GWA Group Limited – Australia’s leading supplier of building fixtures and fittings. [online] Available at: https://www.gwagroup.com.au/ [Accessed 11 Aug. 2018].

Gwagroup.com.au., 2018. [online] Available at: https://www.gwagroup.com.au/wp-content/uploads/Annual-Report-2017-1.pdf [Accessed 11 Aug. 2018].

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

Jin, K., Shan, Y. and Taylor, S., 2015. Matching between revenues and expenses and the adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35, pp.90-107.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

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

Nobes, C., 2014. International classification of financial reporting. Routledge.

Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in accounting, 35, pp.62-74.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.