ACC303 Contemporary Issues in Accounting

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.

Conceptual Framework for Financial Reporting provides great assistance to the business organizations in the preparation of financial statements. It provides the businesses with necessary outline along with principles and standards in order to prepare the financial statements (Abeysekera 2013). Apart from this, many organizational issues regarding financial reporting can be solved by applying the principles and standards of conceptual framework. Thus, it is evident that conceptual framework has many roles to play in the financial aspects of the companies. In the year 1989, International Accounting Standard Board (IASB) introduced the framework of conceptual framework of financial reporting (Cheng et al. 2014).

Thus, this particular study aims to examine the adherence with the objectives, recognition criteria and qualitative characteristics of conceptual framework by the companies. For the effective completion of this report, Myer is taken into consideration. Myer is considered as a major departmental store of Australia established in the year of 1900. The company is headquarter at Melbourne, Sydney. The company operates in the retail industry of Australia (myer.com.au 2017). It needs to be mentioned that Myer is listed among the top hundred companies in Australia Stock Exchange (ASX) with code name of MYR (m.asx.com.au 2017). The report analyzes Myer’s compliance with various requirements of conceptual framework for financial reporting.           

Meeting Conceptual Framework Objectives

According to the above discussion, it can be observed that conceptual framework for financial reporting is an essential element for financial reporting of the business organizations. The annual report of Myer contains essential information regarding the adherence with various aspects of conceptual framework. According to 2017 annual report of Myer, it can be observed that the company has adopted the principles and regulations of Australian Accounting Standard Board (AASB) and Corporations Act 2001 for general purpose financial reporting (aasb.gov.au 2017). Apart from this, the consolidated financial statements of the company are developed based on the principles and standards of International Financial Reporting Standards (IFRS) and International Accounting Standard Board (IASB). Thus, on the overall basis, it can be observed that Myer follows the conceptual framework issues by IFRS for their financial reporting. In this context, it needs to be mentioned that conceptual framework for financial reporting has three major objectives that are required to be satisfied by Myer (aasb.gov.au 2017). The following discussion shows the extent of adherence with conceptual framework objectives by Myer.

The first objective of conceptual framework indicate the responsibility of the business organizations in delivering useful as well as purposeful financial information to their stakeholders in order to make effective financial decisions (aasb.gov.au 2017). In case of Myer, it is required to be mentioned that the company provides all the necessary financial information in their financial statements on a timely basis. The company provides useful financial information through various financial statements; they are income statement, statement of comprehensive income, balance sheet, statement of change in equity and statement of cash flows. In addition, the company provides financial notes that are a major source of financial information. The next objective states that the provided financial information should be helpful in the assessing amount, timing and uncertainties related to organizational cash flows (aasb.gov.au 2017). In this context, it needs to be mentioned that Myer uses to release their cash flow statement on timely that provides the users with al necessary information related with the cash flow of the company.

The third objective of conceptual framework indicates that the companies are required to publish all the necessary information regarding organizational resources so that they can become supportive for financial decision-making process. In case of Myer, it can be seen that the company prepares their balance sheet as per the regulation of AASB that includes all the required information about the economic resources of the company (aasb.gov.au 2017).

Thus, from the above discussion, it is clear that Myer has well met all the major objectives of conceptual framework.

Meeting the Recognition Criteria of Conceptual Framework

According to the conceptual framework for financial reporting, it is the responsibility of the business organizations to meet the recognition criteria of assets, liabilities, equity, revenue and expenses. There are three major requirements. First, there needs to be relevant information about these financial aspects. Second, all these aspects are required to be presented faithfully. Third, information related to these aspects must be helpful for the users. Following discussion shows the meeting of recognition criteria by Myer.

Assets

Different kinds of assets are there in Myer. In case of property, plant and equipment (PPE), they are recorded by deducting depreciation from cost of assets. Costs related to these assets are recognized in case the future benefits are flown in favor of the company (myer.com.au 2017).

In case of the intangible assets of the company, they are subject to impairment. Impairment losses are recognized against the carrying amount of those particular assets. In Myer, Intangible assets have specific useful life and they are not subject to amortization (myer.com.au 2017).

Liabilities

There are different liabilities in Myer. In case of differed tax liabilities, they are recognized based on the difference in tax rates (myer.com.au 2017).

Myer recognizes their inventories at lower cost with net reliable value. The cost of inventories is determined with the help of weighted average cost method. Trade and other receivables are paid within 30 to 90 days after recognition process (myer.com.au 2017).

Equity

Myer classifies the ordinary shares as equity. The attribution of incremental costs can be seen to the issues of shares of Myer. All these incremental costs are deducted from the  equity of Myer (myer.com.au 2017).

Revenue

In case of revenues, the management of Myer recognizes them at the time of the point of sale after the deduction of taxes. In addition, sales provisions are recognized based on assessment. Thus, the sales value includes the revenue from the sale of goods (myer.com.au 2017).In case of the expenses of Myer, they are recognized based on certain categories. They are employee benefit expenses, depreciation and amortization expenses, financial costs, rental expenses related to operating leases and net foreign exchange gains. All these expenses are recognized and recorded at the time of their occurrence (myer.com.au 2017).

Hence, the above discussion shows that Myer has satisfied all recognition criteria of concept framework for reporting of assets, liabilities, equity, revenues and expenses (myer.com.au 2017).

Satisfaction of Qualitative Characteristic of Conceptual Framework

There are some major qualitative characteristic of conceptual framework in order to enhance the quality of financial reporting. It is essential for Myer to satisfy all these qualitative characteristics. Following discussions shows the extent of adherence with these qualitative characteristics of conceptual framework by Myer.

Relevance: This characteristic state that provided financial information is required to be relevant so that they can be helpful for financial decision-making. Myer complies with all recent principles and regulations of AASB, IFRS, Corporations Act 2001 and others. In addition, the company takes into consideration all the recent rates of depreciation, tax and others (ey.com 2017). Thus, it can be said that the provided financial information of Myer is relevant to financial decisions.        

Faithful Representation: According to this characteristic, business organizations are needed to present their financial information in true and fair basis (fasb.org 2017). It implies that they need to be able to acquire the faith of their stakeholders. The audit report of Myer by PWC states that the company has faithfully represented their financial statements by complying with all required accounting standards. Thus, it can be said that Myer has faithfully represented their financial statements.      

Comparability: According to this characteristic, provided financial information should make the stakeholders able to identify the similarities and differences among various financial statements (fasb.org 2017). It needs to be mentioned that Myer has presented their financial statements in simple tabular form along with graphs and charts. This aspect makes it easier for the investors and creditors compare the financial position of Myer with other companies.  

Verifiability: It implies that the users of financial statements need to be able to verify provided financial information by the company (iasplus.com 2017). For this purpose, Myer provides the classification of almost every accounting aspect in the notes of financial statements.

Timeliness: It indicates that financial information is provided in timely manner. In case of Myer, it can be seen that the company publishes their financial statements yearly as well as quarterly basis (ifrs.org 2017). Thus, it can be seen that the users can get timely financial information from the financial statements of Myer.   

Understandability: As per this characteristic companies are required to make their financial statements in such a way so that they can become easy understandable for the users. Myer publishes their financial statements in simple formal for the ease of their users (ifrs.org 2017).

Conclusion

The above discussions shows that Myer follows the conceptual framework of AASB for the purpose of their financial reporting. Apart from this, Myer has adopted the principles and standards of IFRS, IASB and Corporations Act 2001 for the preparation of consolidated financial statements. As per the above discussion, it is evident that Myer has satisfied three major objectives of conceptual framework as a part of their financial reporting. In case of recognition criteria for asset, liability, equity, revenue and expenses, Myer also follows the principle of AASB. Lastly, Myer has fulfilled the major qualitative characteristic of conceptual framework for enhancing the quality of financial reporting.

References

Aasb.gov.au. (2017). Conceptual Framework for Financial Reporting. [online] Available at: http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 3 Dec. 2017].

Abeysekera, I., 2013. A template for integrated reporting. Journal of Intellectual Capital, 14(2), pp.227-245.

Australian Securities Exchange - www.asx.com.au. (2017). Company details - MYR - ASX - Australian Securities Exchange. [online] Available at: http://m.asx.com.au/m/company-info.xhtml?issuerCode=MYR [Accessed 4 Dec. 2017].

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.

Ey.com. (2017). Conceptual Framework: Objectives and Qualitative Characteristics. [online] Available at: http://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$FILE/Supplement_86_GL_IFRS.pdf [Accessed 3 Dec. 2017].

Fasb.org. (2017). Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. [online] Available at: http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true [Accessed 3 Dec. 2017].

Fasb.org. (2017). Conceptual Framework-Objective and Qualitative Characteristics. [online] Available at: http://www.fasb.org/project/cf_phase-a.shtml [Accessed 3 Dec. 2017].

Iasplus.com. (2017). Conceptual Framework Phase A – Objective and qualitative characteristics. [online] Available at: https://www.iasplus.com/en/projects/completed/framework/framework-a [Accessed 3 Dec. 2017].

Ifrs.org. (2017). IFRS . [online] Available at: http://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/ [Accessed 3 Dec. 2017].

Myer. (2017). About Us. [online] Available at: https://www.myer.com.au/p/about-myer/ [Accessed 4 Dec. 2017].

Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., 2012. Contemporary issues in accounting. Milton, Australia: Wiley.