Advanced Financial Accounting

This document provides a deep analysis of accounting concepts used in financial statements, measurement issues in accounting, and fundamental qualitative characteristics. It focuses on the company Altium Ltd. and its annual report for the year 2017. The document covers topics such as accrual concept, conservatism concept, consistency concept, economic entity concept, going concern concept, materiality concept, and dual aspects. It also discusses the measurement principles used by the company and the relevance and faithful representation of financial information. Suitable for students studying Advanced Financial Accounting.

1
Advanced Financial Accounting
Student name
Student ID

2
Contents
Introduction:......................................................................................................................................3
Accounting concepts used:...........................................................................................................3
Issues in measurement in accounting:.......................................................................................7
Fundamental qualitative characteristics:...................................................................................9
Conclusion:......................................................................................................................................12
References:......................................................................................................................................15

3
Introduction:
We have selected the company “ Altium Ltd. (ALU)” for review. The company has
been covered under “ information technology” and listed with ASX. For deep analysis
we have taken most recent available annual report of the company for the review
which is for the year ended 2017. In this report we will deeply discuss the accounting
concepts that has been used for preparation of financial statement and the issues
that has been arose in respect of the measurement concept regarding the assets &
liabilities. We will further discuss the qualitative characteristic of an organization and
how the relevancy faithful representation has been fulfilling by yet selected company
at the time of relational financial report for the shareholders or stakeholders (Annual
report, 2019). Operating activity of Altium Ltd. (ALU) has consist of sales as well as
development of computer software mainly for design of electronic products since
they deal with industry of “information technology”.
Accounting concepts used:
The annual report of the company has been prepared using the applicable
accounting concepts which are necessary to provide the true & fair view in respect of
the financial position of any entity. There has seen some significant change in the
stated financial year in respect of the state of affair of the consolidated financial
statement:
 Altium Ltd. (ALU) has acquired 100% shares in transfer BV (reseller of
company’s product) in the year 30th August 2016
 Altium Ltd. (ALU) has acquired 100% shares in premium EDA solution ltd.
(reseller of company’s product) on 16th January,2017.

4
Every treatment and analysis of financial statement has been made in accordance
with the applicable rules & GAAP which ensures that the following accounting
concepts has been thoroughly used by the company while preparation of financial
statement:
 Accrual concept – it clearly depicts that the company has reported the
revenue in their books of accounts as & when the revenue was earned as well
as expenses so incurred have been reported in the books by the company as
& when assets have been consumed. This concept requires to book the
revenue & expense as & when they become due even though the same is yet
to be receive or paid subject to the assurance that they pertain to the specific
accounting period (Bragg, S. and Bragg, S. (2019).
In the sated case of Altium Ltd. (ALU)”, the annual report shows that all
income & expenses have been reported using accrual base concept of
accounting. This can be said because the amount of revenue & expenses
reported in the income statements difference from the amount mentioned in
cash flow statement which is based on cash basis. Also ,the auditors have
certified in the auditor’s report that income statement have been prepared by
the company using accrual base of accounting concepts.
 Conservatism concepts- this concept requires to recognize the revenue so
generated in the accounting year only when there seems to be reasonable
certainty that the revenue shall be recognised however expense should be
reported in the books of account when there has been rational option that
these expenses have been incurred in the specified period. As the name

5
suggest the accounting concepts is more conservative for preparing the
financial statement.
In the stated case of Altium Ltd. (ALU)”, based on annual report it has been depicted
that the company have recognized the expenses so incurred and liabilities so arises
when there seems to be uncertainty about the outcome and regarding the revenue &
assets, the selected company has recognized the same when they assured of
money received.
 Consistence concept – this concept requires to use the same method of
accounting principle on consistent base by every organization. The change
should be done if required by the rules & regulation and new version for the
same have been issued by regulatory authority with a view to provide fair
about the reporting. This accounting concept in result helps the reader to
understand the trend used by organization to record the transactions mainly in
respect of the operating activities. Such as depreciation method and method
used for recognition of inventory are consistent for several years.
In the stated case of Altium Ltd. (ALU)”, based on annual report it has been
depicted that the company financial report has been prepared following the
consistent principle. The company is consistently using WDV method for
depreciation on assets. Further, AASB has issued some revised, new or
amended standards for the consolidated entity that has been considered
mandatory for the current period i.e. 2017 for Altium Limited. The company
has adopted the mandatory amended standard to comply with the rules &
regulation (Bragg, S. and Bragg, S. (2019). Additionally, some revised, new or
amended standards for the consolidated entity which are not mandatorily to
be adopted has not been adopted for the year 2017 since adoption of the

6
same did not have any mandatory impact on the financial position of the
company. The following have been recently adopted by Altium Limited as they
are relevant for the consolidated entity:
 AASB 2012-3 (offsetting financial liabilities & financial assets)
 AASB 2013-3 (disclosure regarding financial assets recoverable amount)
 AASB 2013-5 (investment entities)
 AASB 2014-1
 Economic entity concept- this accounting principle requires that transaction
recorded for running the activities must be treated separated from the owner.
In nutshell, the entity finance should be kept separated from the owner of
the entity. In the stated case of Altium Ltd. (ALU)”, this accounting principle
has been properly complied.
 Going concern concept this principle works on the assumption that the
company will remain into the operating activities foe long term as the business
continuity is favourable. This concept ensures the ability of the company to
remain in the market by way of providing their product or service in
forthcoming nears future. This concept is essential as t ensure company
ability to pay off their debt as well as prepay or accrue expenses.
In the stated case of Altium Ltd. (ALU)”, the company has reported their
assets at historical value which is one of the clues that company is working on
going concern concepts and will remain in function in near future.
 Materiality concepts – this concept states that there can be instance to ignore
the accounting standard if it has been pretended that net impact of the same
has very small impact or no impact that may misled the reader of financial
statement (Bragg, S. and Bragg, S. (2019). For instance, any transaction of

7
small size which are not traceable at the time of preparing financial statement
can be ignore provided the same does not have any material impact in the
financial information for reader of the company.
 Dual Aspects- this accounting concept is basis as well as very essential for
recording of the transaction to prepare the financial statement of any
organization. This requires that every transaction have two impact and must
be recorded in two different respective account. This concept arises from the
accrual base accounting concepts to increase the reliability of financial report.
The equation for the same is Assets = liability & equity.
Altium Ltd. (ALU) is maintain their accounts as per dual principle of
accounting hence provide true & fair view of the financial position of the
company.
Issues in measurement in accounting:
Accordance with para 4.54 of IASB, it has been if measurement principle is required
for determine the value for the elements of financial statements such as determine
the value of assets at which the same must be recognized in report to provide true &
view of financial position of the company. Currently historical cost or current cost
has been used by the companies for the measurement purpose. However, ASBJ has
raise issue in binary base of measurement since they found the same insufficient to
meet the AASB object & fins them not material to provide the realistic picture of the
assets using the current measurement principles. Debates stated and based on
debates it has been suggested by IASB to consider the following for measurement
purpose:
 Cost base
 Fair value or prevailing market price

8
 Other cash flow base
In regarding to measurement principle that need to be accepted by every company
for reporting of assets & liabilities has been stated at individual fair stands that has
been classified as below in 3 categories
Level 1 it states to use quoted market price (M.P) as prevalent in the market. The
same can be recognised by analysis of active market for the identical liabilities &
assets under consideration for measurement on the date of measurement.
Level 2 this input seems to be concerned regarding noticeable market place based
on efforts or can say unobservable inputs which are in connection with the relevant
or available market date for the assets & liability under consideration for
measurement on that date.
Level3 input have been in concern with the date available in the market that has can
be used only when there seems to be minimum market activity on the date of
measurement for the identical assets & liabilities under consideration.
In the case of selected company “ Altium limited”, the following facts regarding the
measurement have been found as per the analysis of annual report of the company:
The company yhas been using historical cost convention method while preparing the
financial statement excluding for the revaluation of available for sale financial assets,
investment properties, measuring the liabilities & assets at fair value, also for certain
category of PPE i.e. plant, property & equipment as well as derivative financial
instrument.

9
Excluding comments shows that three treatment on the financial statement has not
been made using historical cost converting by the selected company “ Altium
limited”.
Regarding the amended AASB 9 for the financial instrument, there is introduction of
new rules in respect of hedge accoutring as well as there is new rule for impairment
of financial assets by the company. The selected company “ Altium limited”, has yet
to adopt the same from July 2018 taking annual report 2017 as base. As on date the
company has been undertaking the detailed assessment for the classification as well
as measurement of the debt instrument, financial assets, which are classified as
AFS i.e. available for sale on as accounting period ended 2017.
Fundamental qualitative characteristics:
One can recognize the quality of financial statement based on deep analysis of the
fundamental qualitative characteristic that includes the following
Relevance-
Information which has been stated in the financial statement of the company must be
relevant which in result can enable the reader or user to make correct decision. The
information which are relevant to be shown as per regulation must be taken in the
report. The stated information has been capable for making difference in regard to
the decision to be made by reader of report. This “ relevance” states that financial
information so included should be in relation to the economic decision otherwise it
would be useless (Bragg, S. and Bragg, S. (2019). It has further been stated that the
provided information is consider as useful only if they are either predictive value or
conformity value. Predictive value helps the user to make prediction about the

10
financial position based on available information and conformity value enables the
user to proper check, analyse as well as make confirmation made earlier.
The concept “ materiality” is one of the concepts used in understanding the “
Relevance” which states that any information that have been material for one
information may not be have materiality for other organization. An information is
stated as material when the same have influence on the decision making of reader.
In case of selected company “Altium limited”, all items reported in the financial report
are in realistic way. The data provide material information so that reader can
understand & make decision regarding the financial strength of the company. In
case of Altium limited, the annual report states that item have been categorised
significant which have direct material mast on the decision making & are found
material for any type of decision for the reader. These significant items include
disposal cost, assets impairment business integration & similar events that have
occurred outside the group & having significant impact on the financial information
(Anon, (2019). In nutshell, it can be said that every information or data available in
the financial statement of the company would be stated as relevant when the same
has been found proficient to manipulate the decision choice or have influence to
make any decision by user or investor.
Faithful representation- this sates that financial report of the company has been
produces in a manner or in compliance which can accurately states or reflect about
the condition or financial strength of the entity. For instance, if amount receivables
the balance sheet is of $ 605 m then it must be accurate asper the books of
accounts so maintains & documentation. In nutshell, the financial statement nest
depicts what present in financial statement is in line with e=what happened or in line

11
with the documentations. For deep analysis the faithful representation has been
further divided as below:
 Completeness
 Free from errors
 Neutrality
The annual report of the stated company clearly depicts the compliance of Faithful
representation. (Annual Report, 2018). The same has been further ensure by the
auditors. They have clearly reported in their report that on the bias of the audit
conducted by them and books of accounts maintained by the company the financial
report has present fair and material aspects in regard to all the items presented in
the financial statement (Accounting-simplified.com. (2019).
both above are considered important however if we must take one as better, we will
go with faithful representations (Ifrs.org. (2019). This is mainly due to more emphasis
on the characteristic of faithful representation that been briefly discussed below:
Completeness-
It requires that information so mentioned in the financial statements must provide
clear picture or provide complete information to depict the fair view regarding the
financial performance or financial strength of the entity (Bragg, S. and Bragg, S.
(2019). This states that no material information is omitted that have direct effect on
the decision making. E.g.: a loan amount shown in the financial statement would be
considered as incomplete information unless additional information regarding the
interest rate, period of loan is stated properly in the notes to accounts.
Neutrality- it ensures that the information stated in the report provides the actual
scenario of the company without any bias or any type of amplifying in the actual

12
result. For example, annual report can be made worse by the management to
prevent from the tax liability. (Accounting-simplified.com. (2019).
Free from errors.- it requires to ensure that the information so profiled the annual
report is free from any type of error that may have material impact of the decision
making or which may lead to mislead the users of financial statement.
In the stated case of “Altium limited” the annual report states that the financial
statement has been properly made in accordance with required principles as well as
rules & regulations. Auditors has also unqualified the report stating that financial
statement has been providing true & fair view regarding the financial statement or
financial position of the company (Ifrs.org. (2019). In nutshell it can be said the three
would be faithful representation only when the financial annual reporting of the
company is complete, neutral as well as free from errors.
Conclusion:
Based on the discussion made above for the selected company “Altium limited”, it
can be said that the company has uses all accounting concepts for creation of
financial statement with a view to provide true fair view in respect of the financial
statement of the company .this in result helps the user to deeply understand & make
the investment decision wisely as per their convenient.
Regarding the measurement issue, we all are aware that the measurement of assets
& liabilities has both direct or indirect impact on everyone. This is because base
used for measurement must be sound to predict true value of assets & liabilities &
resultant led to provide fair view about the financial position of the company. Fake
representation of assets & liability based on wrong measurement principle may led to
mislead the user or readers. Here in the stated case, the company uses historical

13
cost convention method and adopted new, amended standard as discussed where
required by the rules & regulation for compliance purposes.
At the end in respect of fundamental qualitative characteristic of financial statement
of the selected company, it can be said that the information is relevant as well
purports to faithful representation as the same are free from error or biasness.
An investor or the user of the financial statements is the person who does not have
an intense knowledge about the preparation of the financial statements; therefore, an
auditor is employed so that he is able to express an unbiased opinion on the
financial aspects reported in the annual accounts of the company. And the opinion
expressed by the auditor is unqualified. This is in the sense that he believes that all
the data contained in the financial statements are true and there is nothing that has
either been left out or which needs some reporting. No business transaction has
been left unreported and there are no false claims and there is nothing that requires
some reporting in the financial accounts of the company. All the financial assets and
the liabilities have been classified as the financial liabilities and have been reported
their respective fair values and the profits and the losses have been reported in the
statement of profit and loss. Further, all the derivatives have been reported as the
hedging instruments in an effective edge (Bragg, S. (2019). The company also
classifies its financial liabilities at their initial recognised amounts. The main issue
with the measurement of this is the fact that the real consequences could be every
different from the approximations that have been made. Regarding the investments
made in the subsidiaries, the company requires the use of the value in use of these
investments. These calculations and the workings require the company to estimate
the future cash flows that are expected to rise from the investment along with the

14
application of the apt discount rates for the purposes of calculating the present
values.
Regarding measurement, there is always a question from the outsiders since fair
value sis something that can be questioned.

15
References:
Annualreports.com. (2019). [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_ALU_2017
.pdf [Accessed 22 May 2019].
Annualreports.com. (2019). Altium Limited - AnnualReports.com. [online] Available
at: http://www.annualreports.com/Company/altium-limited [Accessed 22 May
2019].
accountingverse.com. (2019). Qualitative Characteristics of Financial Information -
AccountingVerse. [online] Available at: https://www.accountingverse.com/financial-
accounting/introduction/qualitative-characteristics.html [Accessed 19 May 2019].
Bragg, S. and Bragg, S. (2019). Basic accounting concepts. [online]
AccountingTools. Available at: https://www.accountingtools.com/articles/basic-
accounting-concepts.html [Accessed 19 May 2019].
Bragg, S. and Bragg, S. (2019). The qualitative characteristics of financial
statements. [online] AccountingTools. Available at:
https://www.accountingtools.com/articles/what-are-the-qualitative-characteristics-of-
financial-statem.html [Accessed 19 May 2019].
Ir.jameshardie.com.au. (2019). James Hardie Investor Relations - Annual Reports.
[online] Available at: https://ir.jameshardie.com.au/jh/artable.jsp [Accessed 19 May
2019].
Kfknowledgebank.kaplan.co.uk. (2019). Qualitative charateristics. [online] Available
at: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/The%20Qualitative

16
%20Characteristics%20of%20Financial%20Information.aspx [Accessed 19 May
2019].
Aasb.gov.au. (2019). • AASB. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB7_08-
05_COMPdec13_01-14.pdf [Accessed 23 May 2019].
Accounting-simplified.com. (2019). Accrued Expense | Accounting Entries &
Examples. [online] Available at: https://accounting-simplified.com/accrued-
expense.html [Accessed 23 May 2019].
Accounting-simplified.com. (2019). Faithful Representation | Accounting Concept &
Examples. [online] Available at: https://accounting-simplified.com/financial-
accounting/accounting-concepts-and-principles/faithful-representation.html
[Accessed 23 May 2019].
Altium.com. (2019). [online] Available at: https://www.altium.com/resources/investor-
announcement/4e_-_prelimiary_final_report_full_year_results_-
_final_signed_1_1.pdf [Accessed 23 May 2019].
Altium.com. (2019). Annual Reports - PCB Design Tools - EDA Software - Altium.
[online] Available at:
https://www.altium.com/company/investor-relations/publications-and-reports/
annual-reports [Accessed 23 May 2019].
Corporate Finance Institute. (2019). Qualitative Characteristics of Accounting
Information - Overview, Guide. [online] Available at:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/
qualitative-characteristics-of-accounting-information/ [Accessed 23 May 2019].

17
Iasplus.com. (2019). Conceptual framework — Measurements and elements of
financial statements (IASB only). [online] Available at:
https://www.iasplus.com/en/meeting-notes/iasb/2013/march/cf [Accessed 23
May 2019].
Iasplus.com. (2019). Conceptual Framework for Financial Reporting 2018. [online]
Available at: https://www.iasplus.com/en/standards/other/framework [Accessed
23 May 2019].
Pwc.in. (2019). PWC. [online] Available at:
https://www.pwc.in/assets/pdfs/publications/2016/ind-as-pocket-guide-2016.pdf
[Accessed 23 May 2019].
Singh, J. (2019). Going Concern Concept in Accounting (Assumptions, Top
Examples). [online] Wallstreetmojo.com. Available at:
https://www.wallstreetmojo.com/going-concern-concept/ [Accessed 23 May
2019].
Study.com. (2019). [online] Available at:
https://study.com/academy/lesson/challenges-in-measuring-assets-liabilities-
equities.html [Accessed 23 May 2019].