ACC303 Contemporary Issues in Accounting

In today’s world, business organizations consider Conceptual Framework for Financial Reporting as an important factor. The reason is that conceptual framework helps in the dealing of various organizational fundamental accounting issues like financial statement objectives, various characteristics of financial statements, different characteristics of financial information, different bases of financial statements development and many others (Horngren et al., 2012). For all these reasons, it is necessary for the business organizations to prepare their financial statements while considering all the above-mentioned aspects. This particular study aims to analyze and evaluate the aspect of the compliance with various rules and regulations of conceptual framework for financial reporting (Barth, 2013). In order to carry on with this report, Woolworths Limited is taken into consideration. Woolworths is an Australian retail company founded in the year of 1924 and has it’s headquarter at Bella Vista, New South Wales, Australia (woolworthsgroup.com.au, 2017). Woolworths Limited is enlisted in the top hundred companies in Australian Stock Exchange (ASX). The code name of Woolworths in ASX is WOW (asx.com.au, 2017). The aim of this report is to analyze the fact that whether the financial statements of Woolworths are developed based on the principles and standards of conceptual framework.

Adherence with the Conceptual Framework Objectives

According to the above discussion, conceptual framework has its importance for the Australia companies in the development of various financial statements. In case of most of the Australian companies, it can be observed that they use to comply with the standards and principles of Australian Accounting Standard Board (AASB) as it’s is largely helpful in the development of the financial statements of both private and public companies (aasb.gov.au, 2017). From the observation of 2017 annual report of Woolworths Limited, it can be seen that Woolworths follows the regulations, standards and principle of AASB at the time of developing their financial statements. In case of AASB, it can be seen that there are four major objectives of AASB that Woolworths is required to be met at the time of developing the financial statements.

According to the first objective, it is the responsibility of the companies to provide their investors and creditors with true and useful financial information in order to provide assistance in making different investment and credit decisions (aasb.gov.au, 2017). Thus, as per 2017 annual report of Woolworths, it is evident that the financial statements of Woolworths is a genuine source of financial information for their various stakeholders as the users of financial statements can get valuable financial information from different financial statements like profit and loss statement, balance sheet, change in equity statement, cash flow statement and many others .

According to the second objective of conceptual framework, companies are required to provide their stakeholders with necessary financial information for the assessment of future cash flows (aasb.gov.au, 2017). On a more precise note, investors and creditors are required to get valuable information from the company so that they can make assessment of the time and uncertainty of the future cash flows. In this regard, it needs to be mentioned that Woolworths develop their cash flows in such a manner so that the users can get all the necessary information regarding future cash flows (aasb.gov.au, 2017).

As per the third objective of conceptual framework, companies are responsible for providing the investors and creditors with useful information regarding different kinds of assets and resources of the companies. Resources refer to assets, equities and others. 2017 annual report of Woolworths has all the required information about different kinds of resources of the company (woolworthsgroup.com.au, 2017).

Thus, from the above discussion, it can be observed that all the three objectives of AASB conceptual framework is well met by Woolworths Limited at the time of preparing financial statements.

Adherence with Recognition Criteria

AASB conceptual framework for financial reporting states the fact that there is a requirement of some basic recognition criteria for the organizations in order to recognize organizational assets, liabilities, equities, revenues and expenses. First of all, it is essential for the companies to satisfy the definition based on conceptual framework. After that, their future economic benefits must flow to or from the organization. Lastly, companies are required to reliably measure the cost value of them. Woolworths has been using the standards and principles of AASB for recognizing various financial aspects (woolworthsgroup.com.au, 2017).

From the above, it can be seen that Woolworths make the recognition of their organizational assets on the basis of fair value. This aspect implies that Woolworths use to record the amount of various assets in financial statements according to their market price. The same concept is also applicable for the liabilities of Woolworths as they are also recognized in the financial statements on the basis of their fair value. In both of these case, the recognition criteria is done according to the principles of International Financial Regulatory System (IFRS) (woolworthsgroup.com.au, 2017).

The above excerpt shows that Woolworths recognize the equity shares of their companies based on the regulation of fair value accounting. After that, they are shown under ‘fair value through other comprehensive income’ (woolworthsgroup.com.au, 2017).

The above excerpt shows that revenues of Woolworths are also recognized under fair value method. Revenues are recognized at the time of the transfer of risk and rewards related to their ownership. Thus, it becomes easy to measure them (woolworthsgroup.com.au, 2017).

In case of the organizational expenses, Woolworths recognize them at the time of their occurrence in the profit and loss account of the company. Hence, from the above discussion, it can be seen that Woolworths has well fulfilled the recognition criteria of their major financial aspects as per the standards of AASB and IFRS (woolworthsgroup.com.au, 2017).

Adherence with the Qualitative Enhancing Characteristics of Conceptual Framework

Conceptual framework for financial reporting demands the satisfaction of the fundamental enhancing qualitative characteristic of conceptual framework of AASB. There is not any exception of this fact in case of Woolworths Limited. The following discussion shows that whether Woolworths satisfies the major characteristics of conceptual framework or not.

Relevance is considered as the first characteristic. It is necessary for the financial information to be relevant in order to be crucial in various decision-making processes of the investors and creditors as they are helpful in the evaluation of the effects of past, present and future transactions on organizational cash flows. 2017 annual report of Woolworths shows the valuation of their assets and liabilities based on fair value (woolworthsgroup.com.au, 2017). It implies that the values of assets and liabilities are relevant in the current market. Faithful Representation is another characteristic of conceptual framework. In this aspect, three major criteria are required to be met; they are completeness, neutral and error free. The annual report of Woolworths shows the compliance of the company with the regulations and standards of AASB, IFRS and Corporation Act 2001 (fasb.org, 2017).

With the help of these accounting standards, Woolworths has become able to faithfully represent all of their financial information. Comparability is considered as the next major characteristic of conceptual framework. In the presence of this character, the users of financial statements are able to identify and underpants the major differences as well as similarities in financial information. The showing of financial information of Woolworths based on the financial years 2017 and 2016 is proof that there is comparability in the financial information of the company as the users are able to make comparison of the financial information of the company (ey.com, 2017).

The presentation of various financial results in the form of graphs and pictures is a symbol of faithful representation. Verifiability is the next major characteristic of conceptual framework. In order to provide the users the scope of verification, Woolworths uses to make disclosure of underlying assumptions, compiling methods and others in the endnotes of their financial statements. This aspect is majorly helpful for the financial statements users as they get the scope for verification. Timeliness is considered as the next characteristic of conceptual framework(ey.com, 2017). As per the principles of timeliness, most recent information is required to be appeared in the financial statements. The next major characteristic is Understandability. As per this characteristic, financial reports and statements are required to be easy understandable. Woolworths uses to provide proper justification and classification of most of their major financial items in the financial statements (aasb.gov.au, 2017). With the presence of this characteristic in the financial statements of Woolworths, various investors and creditors of the company become able to understand the major items of financial statements in more clear way.

Conclusion

According to the above discussion, in the development of various financial statements, Woolworths Limited follows the principles and standers of the conceptual framework of AASB. Apart from this, for the recognition of various financial aspects, Woolworths follows the principle and standards of IFRS and Corporation Act 2001. The above discussion shows that Woolworths has satisfied the major objectives of the conceptual framework of AASB. In addition, the company has also been able to recognize their various financial aspects like revenue, assets, liabilities and others In case of recognition, Woolworths uses fair value accounting. Most importantly, Woolworths has been able in the satisfaction of the major qualitative characteristics of conceptual framework in order to enhance the quality of it.

References

About Us - Woolworths Group. (2017). Woolworthsgroup.com.au. Retrieved 2 December 2017, from https://www.woolworthsgroup.com.au/page/about-us/

Annual Report 2017. (2017). Woolworthsgroup.com.au. Retrieved 2 December 2017, from https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf

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

Company details - WOW - ASX - Australian Securities Exchange. (2017). Australian Securities Exchange - www.asx.com.au. Retrieved 2 December 2017, from http://m.asx.com.au/m/company-info.xhtml?issuerCode=WOW

Conceptual Framework for Financial Reporting. (2017). Aasb.gov.au. Retrieved 2 December 2017, from http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf

Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. (2017). Fasb.org. Retrieved 2 December 2017, from http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true

Conceptual Framework: Objectives and Qualitative Characteristics. (2017). Ey.com. Retrieved 2 December 2017, from http://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$FILE/Supplement_86_GL_IFRS.pdf

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial accounting. Pearson Higher Education AU.