ACC303 Contemporary Issues in Accounting

Analyse the conceptual framework with reference to the annual reports of your chosen companies in light of the reporting requirements imposed on accountants and those charged with governance of corporations.

Are the annual reports in compliance with the conceptual framework and AASB standard requirements You need to use extracts from the annual reports to support your analysis. Provide screen shots of the relevant sections from the reports in your assignment. If they are not in compliance, explain the reason.How the conceptual framework revision to include Prudence is likely to address the disparity in Compare and contrast the two annual reports, identify the differences in disclosures of these.

The two brands “Jetstar” and “Qantas Airways” are identified as economic airline operating in Australia. Jetstar alone is seen to be accountable for taking 8.5% of the passengers in Australia. It has been further seen that they have been seen to be operational in the home network and various types of other international routes operating from the Melbourne Airport (Qantas.com. 2017).

Virgin Australia Airlines is seen to be placed after Qantas in terms of size. The airline company has been further seen to be headquartered at Bowen Hills in Brisbane. The company has been further seen to be set up in 1999 and functions in a single route. Since this time the the organization has been able to expand itself across 29 cities (Virginatlantic.com. 2017).

The primary aim of the study has been seen to evaluate the existing framework for accounting and evaluate whether it is able to comply with the requirement prescribed in financial report of the company. The various implicatiosns of the study has been further bale to focus on the different types of the other consideration which is seen to be based on prudence and various considerations from intangible assets and tangible assets.

Conceptual framework of Accounting for both the companies

The conceptual framework for both the companies has been seen to be considered based on AASB and Corporations Act 2001. It has been further discerned that the financial standings of both the carriers has been further seen to address the varied types of the issue which has been able to be based on historical cost evaluation except in areas pertaining to liabilities and assets, which needs to be assed at fair value (Potter, Ravlic and Wright 2013).

The main form of the revenue recognition of the company is based on per “AASB 118 Revenue”, “AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes”.  The company has intended to adopt the new standard of “AASB 15 Revenue from contracts with the customers” in the published annual report on or after 1^st January 2018. It has been also seen that both the companies has been able to decide on replacing the existing standard related to “AASB 117 for leases”, and formulate the revision process as per AASB 16. The “AASB 136: Impairment of Assets” is considered based on the recognition of the impairment of the assets and several other financial guarantees is framed as per “AASB 136: Impairment of Assets” (Frestad and Beisland 2015).

In general the prudence implied as per the overestimation of the revenues. Jetstar and Virgin Australia Airlines have been further seen to be applied based on the prudence concept applied in the financial information. This has been further seen to be discerned as per conservative nature of asset recording and not underestimating the liabilities. The consideration financial statement has not taken into account the possible transaction (Andrew and Cortese 2013). Both the companies have seen to delay “AASB 15 Revenue from Contracts with Customers (AASB 15)” and “AASB 16 Leases (AASB 16)” and it is not confident in replacing the present standards. This has been further seen test viability of the method both the companies with commencement on or after 1 January 2018. The company has been further seen to recognize the leases on and after 1 January 2019. The various considerations made in the assessment have been further able to state on the influence on the general review of the assets and assess the reasons for declining values. In general, the most important concept of prudence has been based on “writing off the values” related to the fixed assets (Schulzke, Berger-Walliser and Marchini 2013).

Criteria followed for financial data

Total Assets- The net assets of both the companies is assessed at “fair value of plant assets less the present value”. The important consideration made in the report has been further able to show that the financial statements of  Virgin Australia has been able to hold the assets for the financial leases which are seen to be based on the preparation of leases at fair value (Potter, Ravlic and Wright 2013).

Tangible Assets and Intangible Assets- Qantas has been seen to consider the intangible and tangible assets as per the “non-current tangible assets” which has been seen to be categorised for the revenue generation activities. The various types of the considerations for the intangible assets are taken into account with recoverable assets. The intangible assets are considered based on impairment losses less cost. The different consideration for the determination of residual life for the amortisation of the assets has been further seen to be considered as per remaining life and of use life as on reporting date. The assets has not considered with the remaining and the of use life on reporting date (Qantas.com.au. 2017).

Depreciation – Qantas Group has been considered the depreciation on straight line basis for the PPE except freehold of land. The other considerations made in the depreciation rate have been seen to be owned by the computation of the of use life of the assets. The depreciation rates on these assets are charged as per the date of acquisition and useful life. The assets which are further seen to be held as financial leases are considered as depreciation on the appropriate amount (Schulzke, Berger-Walliser and Marchini 2013).

In a similar way the amortisation and the depreciation of the assets are considered from the date when they are considered for saleable amount. The depreciation on the amount of PPE is seen to be based on “accumulated depreciation and impairment losses”, less cost incurred. In a similar way Virgin Airlines and Qantas Airways has been able to recognize the depreciation as per the estimated value and straight line method (Navarro-García and Madrid-Guijarro 2014).

Rationale for the shareholders investing in the companies

The important highlight of the company has been seen to be based on stating the rationale of investing in the company based on the director’s report. The report published by “Virgin Airlines”, has been further able to show an increase from $ 4,749.2 million to $ 5,021.0 million. The recognition of the financial information has been further able to discern that the company has been able to reflect the total equity amount coming from 60% coming from “Tigerair Australia” in 16 October 2014. The investors need to chiefly assess the increasing nature of the net operating expenditure which has been increased from $4,802.7 million to $5,278.7 million (Mohammed, Fahmi and Ahmad 2015).

Based on the CEO’s suggestions on Qantas published in the annual report in 2016 the company has been able to contribute with the high figure in the financial year 2015-16. The improved financial standing has been apparent with the increasing margin of operations which has been recognised in terms of “EBIT” for Qantas Domestic, Qantas International “Jetstar Group” and “Qantas Loyalty”. More than 2/3rd of the summed up earnings of the company is based on the international operations and loyalty business (Teixeira 2014).

Conclusion

The main discussion of the report has given an augmented focus on the present accounting framework of both the companies. The various evaluations have confirmed whether the financial report has complied with the requirement as per the prescribed standard. The main conceptual framework has been recognised with AASB and Corporations Act 2001. It has been further discerned that the standards are issue by the international accounting board. Both Virgin Australia Airlines and Jetstar have included prudence in their financial report. The rationale for the investors has been further identified with the increasing revenue and operating margin for both the airliners.

References

Andrew, J. and Cortese, C. (2013) ‘Free market environmentalism and the neoliberal project: The case of the Climate Disclosure Standards Board’, Critical Perspectives on Accounting, 24(6), pp. 397–409. doi: 10.1016/j.cpa.2013.05.010.

Frestad, D. and Beisland, L. A. (2015) ‘Hedge Effectiveness Testing as a Screening Mechanism for Hedge Accounting: Does It Work?’, Journal of Accounting, Auditing & Finance, 30(1), pp. 35–56. doi: 10.1177/0148558X14549457.

Mohammed, N. F., Fahmi, F. M. and Ahmad, A. E. (2015) ‘The Influence of AAOIFI Accounting Standards in Reporting Islamic Financial Institutions in Malaysia’, Procedia Economics and Finance, 31(15), pp. 418–424. doi: 10.1016/S2212-5671(15)01216-2.

Navarro-García, J. C. and Madrid-Guijarro, A. (2014) ‘The Influence of Improvements in Accounting Standards on Earnings Management: The Case of IFRS’, Australian Accounting Review, 24(2), pp. 154–170. doi: 10.1111/auar.12020.

Potter, B., Ravlic, T. and Wright, S. (2013) ‘Developing Accounting Regulations that Reflect Public Viewpoints: The Australian Solution to Differential Reporting’, Australian Accounting Review, 23(1), pp. 18–28. doi: 10.1111/auar.12000.

Qantas.com.au. (2017). [online] Available at: https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf [Accessed 11 Aug. 2017].

Qantas.com. (2017). Our Company | Qantas. [online] Available at: https://www.qantas.com/travel/airlines/company/global/en [Accessed 11 Aug. 2017].

Schulzke, K. S., Berger-Walliser, G. and Marchini, P. L. (2013) ‘Lexis nexus complexus: comparative contract law and international accounting collide in the IASB-FASB revenue recognition exposure draft’, Vanderbilt Journal of Transnational Law VO - 46, (2), p. 549. doi: 10.2139/ssrn.2139578.

Teixeira, A. (2014) ‘The International Accounting Standards Board and Evidence-Informed Standard-Setting.’, Accounting in Europe, 11(1), pp. 5–12. doi: 10.1080/17449480.2014.900269.

Virginaustralia.com. (2017). [online] Available at: https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/2016-asx-financial-report.pdf [Accessed 11 Aug. 2017].