ACFI3001 Accounting Theory Framework of Reporting

Introduction

The main objective of the assessment is to analysis the financial report of Flight Center ltd for the purpose of evaluating whether the business follows conceptual framework of reporting. The conceptual framework is basically a guideline which all accounting professionals are expected to follow in order to accurately report the financial status of the business.

Company background

The business of Flight center ltd is selected for such a purpose and the company is engaged in the business of providing air travel services to its customers (Macve 2015). The assessment would be commenting on the financial performance of Flight Centre Ltd for the year 2018 and also assess whether all the relevant accounting principles applicable to the organization is followed or not (Flight Centre Travel Group. 2018). The assessment would be analyzing the reporting framework which is used by the business of Flight center ltd and whether the same is consistent with the conceptual framework.

Purpose of the Conceptual Framework

The first step which is required for understanding the conceptual framework purpose is finding out the meaning of conceptual framework. It is defined as the format under which the theoretical and conceptual aspect of reporting are reflected for the purpose of presenting financial information to the investors by applying and following relevant accounting standards (Barth 2013). It can be explained as a guideline which every accounting professional should comply with while preparing the financial statement of a business.

The main purpose of conceptual framework is to ensure that relevant and useful financial information regarding the company is provided to the users of the financial reports in a systematic manner. The conceptual framework brings about clarity and better presentation with regard to financial information that is presented in the annual report of the business. The conceptual framework requires the accounting professionals to stick to a format which can be easily be interpreted and understood by accounting professionals (Murphy and O’Connell 2013). As per many experts if conceptual framework was not present the annual reports would be complex in nature and not easily interpreted by a user of annual report.

Another important reason due to which the conceptual framework exists is to help the IASB (International Accounting Standard Board) in formulating and developing IFRS standards so that consistency can be brought about in the reporting framework which is followed across the world (Libby 2017). The Standards which are followed by the business are as per AASB requirement and all relevant standards are covered in the annual report of the business. The purpose of conceptual framework can be further classified in the following point format:

• The conceptual framework plays a vital role in formulating new standards and making revisions to the same so that the overall reporting framework can improve.
• The conceptual framework aims at harmonizing the regulations of accounting and accounting standards to achieve the level of consistency across the world.
• The conceptual framework focuses on training the accounting professionals in proper preparation and presentation of financial information under the financial report of the organization (Weil, Schipper and Francis 2013).
• The conceptual framework also acts a guide to the auditor in assessing whether the business has presented all important information and also the same has been portrayed as per the requirement of relevant accounting standards.

In today’s world, the conceptual framework needs to be followed by every business and the is made mandatory by law so that all relevant information are show in the financial statement which is prepared by businesses. The annual report which is prepared for Flight center ltd for the year 2018 is consistent with the conceptual framework which is to be followed by every company. The management of the company has complied with all the relevant accounting standards applicable to the company and also provided appropriate disclosures for all accounting treatments which make even the complex treatment much easier to understand.

The annual report of Flight center ltd for the year 2018 has been prepared effectively following the five important accounting concepts which are universally followed and forms an important part of the conceptual framework of the business. The five important concepts are listed below:

• Accrual Concept: The concept states that the business should recognize income as and when they are earned or in case of expenditure as and when they accrue and not when actual cash is received or paid(Edmondset al.2013). The concept is follow by Flight center ltd as the business recognizes trade payables and receivables even though actual cash is not received. Therefore, the business is in adherence to this concept.
• Substance over Form: information portrayed in the financial reports should be reliable and relevant and shall reveal a true and fair view and this concept does not consider the legal form of any transaction but how the same will be impacting the financial position of the business is the primary concern. The business of Flight center ltd has followed this concept as well as proper notes is provided for all transaction.
• Prudence: The concept states that liabilities and expenses are to be recognized first in the annual report as and when the same are incurred even if the same is not assured. This concept is also known as the concept of conservatism. The business ofFlight center ltd has followed this concept as well as the disclosure notes to the account section of the financial report of 2018 of the company shows a section of contingencies which proves the company is consistent.
• Comparability: The annual statement shall be prepared in such a way that the financial information which is contained can be compared with other companies as well as from past year’s company’s performance. The annual reports of Flight center ltd can be compared easily and therefore the business follows this standard as well.
• Materiality: The business should only include which are material and can affect the financial position of the business or may have an impact on the decisions which are to be taken by the investors. In the case of Flight center ltd, the information which is contained in the annual report is material and is relevant to the financial statements users.

The above discussion shows that the business of Flight center ltd is consistent with accounting concept but the business also needs to follow all relevant accounting standards applicable to the business. The report of the auditor of Flight center ltd for the year 2018 confirms that the business has appropriately followed all relevant accounting standards and complied with all regulations which are applicable on the bossiness.

Comparative Study with other company

A comparative study can be undertaken with the business of Flight center ltd and one of its closest competitors which is Travelport Locomote ltd for understanding the reporting of both the companies. A comparative analysis of the financial reports from both the companies shows that they have effectively prepared the financial statements adhering to all the relevant standards and following the conceptual framework and also which are applicable to both the companies. Both the companies have also taken the disclosure requirement seriously as adequate notes to accounts is provided (Zhang and Andrew 2014). This shows that qualitative characteristic is present in the annual report of both the companies. The annual reports of both the companies show proper analysis of the of the financial information which is included and both the companies have followed accounting standards which are applicable to such companies and therefore it can be stated that the annual report are prepared as per the requirements of AASB regulations.

Analysis of Financial Performance

The financial statement is effectively prepared by Flight Center ltd for the year 2018. The management of the organization has complied with recognition criteria and included all the reliable and relevant information in the annual report of the firm. The income statement of the business reveals that the revenue of the business has increased significantly as compared to previous year analysis which is a positive sign and the same suggest that the business is achieving growth. The net profit of the business is also shown to have increased significantly and the same is shown to be $ 264,213,000 in 2018 and this can be attributed to the high revenue which was generated by the business from its services. The cash from operations and closing cash balance is shown to be positive which shows that the overall liquidity position of the business is stable but the same can improve further. An appropriate liquidity suggest that the business is able to take care of any current obligation easily. The total assets of the business have also increased in comparison to previous year figure which suggest that the business has financial strength.

Conclusion

The discussion which is shown above clearly shows that the financial statement is prepared effectively by the business ofFlight Center ltd. The annual reports are formulated by the business following all relevant accounting standards and concepts. Therefore, it can be said that the financial statement are showing accurate and true view of the financial position of the business. The above analysis also includes a comparative analysis between Flight Center ltd and Travelport Locomote ltd for analysis of the reporting framework of the companies. The analysis of financial performance of the company also reveals that the business is performing well and from a point of view of an investor, investment should be made in the shares of the company.

Reference

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

Edmonds, T.P., McNair, F.M., Olds, P.R. and Milam, E.E., 2013. Fundamental financial accounting concepts. New York, NY: McGraw-Hill Irwin.

Flight Centre Travel Group. (2018). Annual Reports - Flight Centre Travel Group. [online] Available at: https://www.fctgl.com/investors/annual-reports/ [Accessed 19 Dec. 2018].

Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to Behavioural Accounting Research (pp. 42-54). Routledge.

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

Murphy, T. and O’Connell, V., 2013. Discourses surrounding the evolution of the IASB/FASB Conceptual Framework: What they reveal about the “living law” of accounting. Accounting, Organizations and Society, 38(1), pp.72-91.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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