Question:
Purpose: This assessment is designed to allow students to demonstrate a higher level of understanding of accounting standards and theoretical and philosophical approaches, as they apply to the resolution of more complex accounting problems.
Value: 20%
Task Details: Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting. Consideration of the Conceptual Framework Objective, Recognition Criteria, Fundamental and Enhancing Guidelines is essential.
It is recommended that you do not choose a bank, insurance company or large conglomerate to analyse.
A copy of the Conceptual Framework is available in Moodle. The questions you should ask yourself and answer when completing the assignment are:
· Does my company meet the objectives of the conceptual framework with its reporting?
· Have they satisfied the recognition criteria required to report Assets, Liabilities, Equity, Revenue and Expenses
· Have they satisfied the fundamental qualitative enhancing characteristics of financial reporting i.e. is the report relevant and have faithful representation
· Have they satisfied the enhancing qualitative enhancing characteristics of financial reporting i.e. is the information comparable, verifiable, timely and understandable?
To prove your points for and against you should support your arguments with academic research and appropriate screen shots from the annual report’s financial statements and notes.
The relationship between accounting research and professional practice is essential. This article needs to inform your arguments. The analysis and supported recommendations need to be formatted into a professional report as would be expected in a modern organisation by management and clients. It should include an abstract, introduction, body, conclusion and bibliography.
Maximum word count is 1500 words not including the abstract or bibliography.
Answer:
Introduction:
Billabong International limited is clothing retailer that deals in the production of variety of products and accessories such as skateboards, watches, snow board products, west suits and hard goods. The core business of organization is marketing, distribution, wholesaling and retailing. Products produced by organization is licensed in more than hundred countries and are availability in many locations approximately ten thousands. Organization associate with high profile professional athletes, junior athletes, brand advocates and other events for marketing and promoting their products. Some of the major areas of operations of country are japan, Europe, South Africa, Australia, North America and New Zealand (Billabongbiz.com, 2017). The distribution of products of Billabong is done through specialized sport retailers and own branded outlets of retail. The report is prepared to analyses the conceptual reporting framework of organization by assessing its current year financial report. In the current study, assessment of fundamental qualitative characteristics and enhancing qualitative characteristics is done. Recognition criteria for several items presented in financial statement such as assets, liabilities, equities, expense and revenue are analyzed by several figures reported in the report.
Discussion:
Determining where company meet the objectives of corporate reporting:
Australia accounting standard board and the interpretations issued by corporations Act, 2001 and Australian accounting standard board forms the basis of preparing of general purpose financial report of Billabong. The consolidated entity financial report are in compliance with International financial reporting standard that are issued by International Accounting standard board. Historical cost conventions forms the basis of preparation of financial report.
The management of tax affairs of group is done according to tax risk framework and is reviewed and reported on regular basis by Risk and audit committee. It is ensured by framework that an active approach s pursued to tax risk management and exercising informed judgment. There is incentive framework that rewards employee at the end of each annual results. Statements are modified by financial liabilities and assets at fair value through loss and profit. Certain critical accounting estimates are needed for preparing financial statements. Application of accounting policies within the group need the management to exercise judgment. Notes of financial statement make disclosure of the areas requiring complexities and estimates and assumptions are significant (Carey et al., 2014).
Accounting standard not applicable to the current accounting period is elected by organization to not to apply earlier. Some of amended and new accounting policies is applicable to the group and has not been exercised in the current period. Moreover for assisting the users of financial statements such as investors, creditors and lenders to understand the financial information of group and to deliver them with additional information concerning continuing operations, segment results are presented in the annual report of group. This segmentation have been done to enable uses to understand the impact of major events on the operational results of organization (Cordery and Sinclair 2016). However, some aforementioned considerable items are not presented in the segmented results. Therefore, from the analysis of financial report, it can be inferred that group adhere to all reporting standards and objectives of accounting standard.
Assessing the satisfaction of recognition criteria for reporting liabilities, assets, expenses, equities and revenue:
In a transaction, the initial recognition of liabilities and assets does not take into account deferred income tax. The measurement and recognition of financial liabilities and assets requires estimation of financial liabilities and financial assets (Watts and Zuo, 2016).
Fair value measurements:
(Source: Billabongbiz.com 2017)
For the short-term liabilities and assets, fair value is approximately equals to carrying value and market price forms the basis of fair value of borrowings. There is no considerable difference in fair value of non-current receivables with its carrying value. The initial recognition of leased assets is measured at an amount that is equal to lower value of present value minimum lease payments or fair value of leased assets. The recognition of interest elements of finance cost in income statement is done to produce a constant periodic interest rate. Depreciation of assets is done over the shorter of lease term and useful life of assets subsequent to initial recognition.
AASB 139 have been replaced by AASB 9 that helps in addressing financial liabilities and financial assets measurement, classification and deregulation. A new model of expected loss impairment have been introduced by AASB 9 that will require entities at the time of assets recognition to account for expected credit loss. It is expected that adoption of new standard does not have any material impact on measurement and classification of financial liabilities and assets.
Standard for measurement and recognition of financial liabilities and assets:
(Source: Billabongbiz.com 2017)
Revenue of Billabong is recognized as per new accounting standard that will result in replacement of accounting standard that is AASB 118 that covers revenue that arises from rendering services and selling of goods. The principle that forms the basis of new standard that is AASB 15, is that when service and goods control is transferred to customers. Refund obligations and refund of goods from customers is required to be presented separately on balance sheet as per standard of revenue recognition. It is perceived that some new complexities that group has to deal with the adoption of this new revenue standard. Judgment, assumption and estimates are adjusted for current conditions prevailing in market and on historical experience (Barth, 2015).
Revenue recognition:
(Source: Billabongbiz.com 2017)
Compliance of financial statements of Billabong with Australian accounting standard and corporation Act, 2001 depicts a fair and true view of financial position of group.
Assessment of satisfaction of fundamental qualitative characteristics of financial reporting:
The decisions taken by users depend upon relevance of financial information that is ought to make difference. Faithful representation and relevance are fundamental characteristics that are considered useful in providing any financial information. Reviewing of structure and content of remuneration report that increases the relevance of information presented and present in a simplified way to users (Perera and Chand, 2015).
From the analysis of financial report of Billabong, it can be seen that financial information and data presented is complete, error free and neutral. It is viewed from annual report that duplicate information and immateriality that leads to over complication of intended disclosures are disregarded. Information regarded continuing information are provided to all users that assist them in taking investment decisions and relying on financial data presented. Uncertainties in the data and information is detected by making specific disclosures (Yong et al., 2016).
Organization employ some non-financial measures for measuring their business performance and allocation of resources. Some of constraints in achieving faithful representation of information and overcoming them is done by acknowledging and amending the amended standard. Qualitative factor is taken into consideration by understanding the disclosure relevance. Users are dependable on qualitative information in addition to non-qualitative factors for undertaking any decisions (Huber 2016). In this regard, the auditing of financial statements of Billabong and its scope, nature and timing is done by consideration of qualitative factors.
Assessment of satisfaction of enhancing qualitative characteristics of financial report:
The financial report of Billabong is prepared by ensuring that information presented are timely, complete and available at minimum costs. Comparability of data presented in the financial, report, timeliness preparation, understandability and verifiability of information is done by enhancement of qualitative characteristics. Data presented in the report make adequate comparative disclosures that assist users in making timely comparison and assist in taking proper decisions.
Income statement:
(Source: Billabongbiz.com 2017)
Above table depicts statement of financial position for two consecutive year that will assist user in comparing the financial performance over period of two years. Segmentation of generation mix has been practices in terms of long and short tee incentives.
Contractual undiscounted cash flow:
(Source: Billabongbiz.com 2017)
Financial liabilities of group that is based on remaining period at the reporting to contract maturity data are analyzed in the above table. Restatement of comparative disclosures are practices by Billabong in their annual or financial report (Scholten et al., 2017). Break up of financial data over a considerable time period enable them to verify information by comparing data of current year with previous year and before.
Conclusion:
From the analysis of financial report of Billabong, it can be inferred that organization adhere to objectives of conceptual framework of reporting. Data and information presented in financial report enable users to enhance their decision making capability. The underlying principles of financial reporting brings clarity about financial information. Reports presented is verifiable and enables observers to reach a consensus. Comparability of information has been achieved due to consistent application of accounting principle and adopting of conceptual framework. However, there is no pictorial and graphical presentation of information that makes communication platform somewhat uneasy. In this regard, graphical presentation of information would assist users in easier comparatively and timely presentation of information. Therefore, it can be concluded that organization adhere to objectives of conceptual framework of reporting.
References list:
Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus, 51(4), pp.499-510.
Billabongbiz.com. (2017). Billabong Biz : Behind the Brand – Investors – 2017 News & Announcements. [online] Available at: http://www.billabongbiz.com/phoenix.zhtml?c=154279&p=irol-news&nyo=0 [Accessed 8 Dec. 2017].
Carey, P., Potter, B. and Tanewski, G., 2014. Application of the reporting entity concept in Australia. Abacus, 50(4), pp.460-489.
Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges.
Huber, W., 2016. Irreconcilable Differences? The FASB’s Conceptual Framework and the Public Interest.
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.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in Accounting, 31(1), pp.165-178.
Scholten, R., Lambooy, T., Renes, R. and Bartels, W., 2017. Accounting for Future Generations. Does the IFRS Framework Sufficiently Encourage Energy Companies to Reflect on Climate Change in the Valuation of Their Production Assets, Taking into Account the New Initiative of the Task Force on Climate-Related Financial Disclosures? An Exploratory Qualitative Comparative Case Study Approach.
Watts, R.L. and Zuo, L., 2016. Understanding practice and institutions: A historical perspective. Accounting Horizons, 30(3), pp.409-423.
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.
