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.
• Your analysis may include the following:
• 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 Corporate Reporting.

The process of accounting is one of the major aspects in the business organizations as the financial success of the organizations vastly depend on it (DRURY, 2013). In the process of carrying on various accounting works of the organizations, the accountants need to comply with all the accounting rules, regulations and principles. In the recant years, different kinds of accounting issues can be seen; like the issues of the adoption and implementation of the accounting principles, issues of the development of the profession of accounting, issues regarding the sustainability and corporate governance in the process of accounting and many others.

Due to these accounting issues, the accountants all over the world are facing many kinds of accounting troubles (Henderson et al., 2015). The main objective of this report is to analyze and evaluate the various aspects of temporary issues in the process of accounting. For the purpose of this report, two Australian large corporations are chosen. They are Wesfarmers Limited and Woolworths Limited. The present report takes an honest attempt to analyze various aspects of contemporary accounting issues with the help of these two companies.

Wesfarners and Woolworths are two of the largest business corporation of Australia. Established in the year of 1914, Wesfarmers has become the largest supermarket chain of Australia. The various business operations of Wesfarmers include supermarket, hotel, liquor, departmental store, home convenience, office supplies and many others (Wesfarmers.com.au, 2017).

One of another largest corporation of Australia is Woolworths Limited. The company was established in the year of 1924. Woolworths has become one of the major companies of Australia with the help of its diversified business strategies. The business operations of Woolworths include supermarket chain, departmental stores, stationary shops, music shops, DVD shops and many others (Woolworths.com.au, 2017).

Compliance of Wesfarmers and Woolworths with Required Standards

Wesfarmers

From the annual report of the company, it can be understood that Wesfarners uses to follow the principle of Australian Accounting Standard Board (AASB) as the conceptual framework of their accounting works. On the other hand, Wesfarners complies with the rules the exposure draft of International Accounting Standard Board (IASB). Director’s report and the individual Auditor’s report are two of the major parts of the annual report of Wesfarners. The name of the chairperson and managing director of the company are MA Chaney AO and RJB Goyder AO respectively. In the financial report, the directors of the company state that all the financial statements of Wesfarners are well complied with the rules of Corporation Act 2001 (Wesfarmers.com.au, 2017).

As per the above picture, the independent auditors audit all the financial statements of the company. The latest annual report of Wesfarmers states that “the financial statements and notes comply with International Financial Reporting Standards as discloses in the notes to the financial statements on page 91 of the 2016 Annual Report”. All the directors of Wesfarmers also declared that the financial statement of Wesfarmers have been developed as per the regulations of section 295A of the Corporation Act 2001. It is stated in the annual report of Wesfarmers that Ernst & Young was the audit partner of the company for the year 2016. The auditor’s report of the company states that all the financial statements of the company are true and fair. As per the auditor report. “The financial statements of the company are complying with Australian Accounting Standard and the Corporations Regulations 2001”.

Hence, from the above discussion, it can be seen that Wesfarmers follows the principles and regulation of AASB, IASB and the Corporation Act 2001 at the time of preparing their financial statements.

Woolworths

In case of Wesfarmers, there is not any exception of this fact that director’s report and the auditor’s report are two of the most crucial parts of the annual report of Woolworths. The name of the chairperson and the managing director cum CEO of Woolworths are Gordon Grains and Brad Banducci respectively (wow2016ar.qreports.com.au, 2017).

From the above declaration of the directors, it can be seen that the financial condition of Woolworths is good as they will be able to pay all of their financial obligations and dues. In the declaration report, the director say, “the attached financial statements are in compliance with International Financial Reporting Standards”. On the other hand, as per the opinions of the directors of the company, all the financial statements and financial notes of the company are prepared as per the rules and regulations of the Corporation Act 2001. All the financial statements of Woolworths are well complied with the principles of the Australian Accounting Standard. From the latest annual report of Woolworths, it can be seen that the individual audit partner of the company were Deloitte.

As per the above report of the independence auditors of Woolworths, all the financial statements of Woolworths well follow the rules and regulations of the accounting standards. In this case, the remuneration report of the director is an important aspect. It can be seen from the auditor’s report, the remuneration report of the auditors are prepared by following the regulations of Corporation Act 2001 section 300A. From the financial report of Woolworths, it can also be observed that all the leases of the company follow the standard lease principles. In the process of recognition of leases in the balance sheets, Woolworths follows the rules of IAS 17. Hence, from the above discussion, it can be said that the financial statements of Woolworths comply with the rules of AASB, IAS 17, Corporation Act 2001 section 300A and others.

Prudence

Prudence is an important aspect in the process of accounting of the companies. The presence of prudence in the accounting conceptual framework aims to address the presented disparities in the process of corporate reporting of the businesses (Barker, 2015). On a more precise note, prudence addresses the disparities in the financial statements after addressing the issues in fair representation and accountability of the financial statements of the companies. These two organizations apply the strategies of prudence by increasing the level of simplicity in the financial statements and by improving the level of understandability of the users of the financial statements.

It can be understood that, the presented disparities in the financial statements of the companies are the major concerns in the fair representation of the financial statements. Prudence is presented after considering the various requirements of AASB and IASB standards with the help of IFRS (Barker, 2015). The concept of Prudence and Liability help to bring improvement in the annual report by deriving a suitable conclusion. This total process helps in the process of financial decision-making. Hence, the main aim or objective of prudence is to bring fairness in the representation of the financial reports of the companies. Apart from this, prudence provides a fair view of the financial position of the companies along with various operational aspects of the companies. Thus, from the above discussion, it can be said that one just cannot ignore the importance of prudence in accounting.

Comparing and Contrasting the Annual Reports

As per the above discussion, one fact is clear that both Wesfarmers and Woolworths comply with all the required principles rule and regulations. The above discussion about these two companies has proved that both Wesfarmers and Woolworths comply with the regulations of the Companies Act 2001 (Aasb.gov.au, 2017). In addition, it can be seen that all the financial statements of these two companies have been prepared by following the rules and regulation of the Australian Accounting Standard and International Financial Regulatory System. It can be seen that both Wesfarmers and Woolworths conduct their audit operations on a regular basis; but they have different audit partners.

The name of the audit partners of Wesfarmers and Woolworths are Ernst & Young and Deloitte respectively. As per the earlier discussion, it can be observed that both Wesfarmers and Woolworths release their audit report. As per the audit report of both the companies, these companies use to follow all kinds of accounting rules and regulations (aasb.gov.au, 2017). As per the 2016 annual report of the Wesfarmers, it can be seen that the net profit has dropped drastically in 2016 as compared to 2015. The net profit for the year 2016 was $ 407 million and $ 2,440 million in the year 2015. On the other hand, the net profit of Woolworths also decreased in the year 2016 as compared to 2015. The amount of net profit of Woolworths for the year 2016 and 2015 were $ 1605.6 million and $ 2607 million.

Identification of Disclosures of Wesfarmers and Woolworths

The requirements of IASB and AASB are based on the different kinds of expenses of the organizations. In case of both Wesfarmers and Woolworths, both the companies have taken the initiatives of disclosing the details of compensation of the executives and the employee benefits. All the companies in ASX that follows the rules of AASB use to disclose these details for the benefits of the employees (Stocken, 2013).

On a more precise note, the process of disclosure is required to improve the major activities of the business organizations. The main objective of the process of disclosure of both Wesfarmers and Woolworths is to improve the integrity and accountability level in the business organizations. Properly disclosed annual reports of the companies help the investors to obtain crucial information for their decision-making process. Apart from this, the process of corporate disclosure takes all the rules and regulations of AASB and IASB into consideration (Yu, 2012). Hence, it can be said that corporate disclosure is a helpful tool to support the financial decisions of the users of the financial reports. Thus, it can be said that the disclosure procedure of Wesfarmers and Woolworths is very effective.

Analysis of the Financial Statements of these Two Companies

The analysis of the financial statements of both Wesfarmers and Woolworths are discussed below:

Remuneration Report: Both Wesfarmers and Woolworths have separate remuneration committee to set the remunerations of the directors and the employees (Mayne, 2017). On the other hand, Corporate Governance Disclosure is another crucial aspect of the remuneration report of both the companies. The remuneration plans of both the companies include share plans, bonus payments, financial rewards and others (Mayne, 2014).

Plant and Equipment (PE): The amount PPE for both the companies for 2016 and 2015 are shows below:

Table 1: PE for Wesfarmers and Woolworths

(Source: as created by Author)

From the above table, it can be seen that amount of plant and equipments for both Wesfarmers and Woolworths have decreased in the year 2016 as compared to 2015. This is not a good sign for these companies as their fixed assets are on decline (Cotter, 2012).

Total Liabilities: The amount of total liabilities of Wesfarmers and Woolworths for the year 2016 and 2015 are shown under;

Table 2: Total Liabilities of Wesfarmers and Woolworths

(Source: as created by Author)

As per the above table, it can be seen that the amount of liabilities both the companies have increased over the past year. This situation implies that the financial condition of these two companies is not good. Effective financial strategies are needed for these companies.

Inventories: The amount of inventories of Wesfarmers and Woolworths for 2016 and 2015 are given below:

Table 3: Total Inventories of Wesfarmers and Woolworths

(Source: as created by Author)

Increase in the inventory is not a good sign for the companies. As per the above figure, the amount of inventory has increased for both the companies over the years that imply the bad financial condition of the companies (Zhang and Andrew, 2014).

Conclusion

From the above study, it can be understood that both Wesfarmers and Woolworths follow all the principles, rules and regulations of the accounting. The above analysis states that both Wesfarmers and Woolworths comply with the rules and regulations of Companies Act 2001 at the time of developing the financial statements of the organizations. In addition, both Wesfarmers and Woolworths comply with the principles of AASB and IFRS at the time of preparing the financial statements of the organizations. The inclusion of prudence to diminish the accounting disparities from the financial statements is a major positive initiative of these two companies. The study sheds light on the disclosure policy of these two companies. It can be seen that the financial condition of these two companies are not up to the mark as there are some major weak aspects in the financial statement like inventory, fixed assets and others. Based on the whole study, it is recommended that both Wesfarmers and Woolworths needs to develop effective financial strategies to develop the financial conditions.

References

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Wesfarmers.com.au, 2017. 2016 ANNUAL REPORT. [online] Wesfarmers.com.au. Available at: <https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2016-annual-report60d0456999c863f7bfccff00000e9025.pdf?sfvrsn=0> [Accessed 20 Apr. 2017].

Wesfarmers.com.au, 2017. Who we are. [online] Wesfarmers.com.au. Available at: <http://www.wesfarmers.com.au/who-we-are/who-we-are> [Accessed 20 Apr. 2017].

Woolworths.com.au, 2017. Annual Report 2016. [online] wow2016ar.qreports.com.au. Available at: <https://wow2016ar.qreports.com.au/xresources/pdf/wow16ar-full.pdf> [Accessed 20 Apr. 2017].

Woolworths.com.au, 2017. Woolworths Supermarket - Buy Groceries Online. [online] Woolworths Online. Available at: <https://www.woolworths.com.au/Shop/Discover/about-us> [Accessed 20 Apr. 2017].

Yu, K., 2012. Does recognition versus disclosure affect value relevance? Evidence from pension accounting. The Accounting Review, 88(3), pp.1095-1127.

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