Accounting and Financial Reporting

This document provides answers to questions related to changes in accounting standards and requirements for financial statements in Australia.

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
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2ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Answer to Question 1:................................................................................................................3
Answer to Question 2:................................................................................................................5
References::................................................................................................................................9

3ACCOUNTING AND FINANCIAL REPORTING
ANSWER TO QUESTION 1:
CHANGES IN ACCOUNTING STANDARD BY AASB FROM 1 DECEMBER
2018 TO 31 MARCH 2019
AUSTRALIAN
Aasb 2019-X
Amendments to
Australian
Accounting Standards
(24th January 2019):
Consequential
amendments for
supporting the financial
reporting conceptual
framework of AASB are
mentioned in the above-
stated standard. In
addition, AASB has
allowed scope for
comments regarding any
flaw associated with the
consequential
amendments due by 22nd
March 2019. The
conceptual framework
application would be
restricted to for-private
sector firms having public
accountability and other
not-for-profit
organisations voluntarily
electing to apply the
conceptual framework
(Aasb.gov.au, 2019).
Onerous contracts- Cost
of fulfilling a contract
(8th January 2019):
The onerous contracts
intend for amendment of
137 for specifying that
the expense of meeting a
contract obligation takes
into account incremental
costs. These costs mainly
include the material costs
and assignment of other
costs having direct
relationship with the
contract like the
depreciation charge for
any equipment that an
organisation uses in order
to fulfil contracts
(Aasb.gov.au, 2019).
Right-of-Use Assets
of Not-for-Profit
Lessees (20th
December 2018):
AASB has planned to
make amendment of a
standard would provide a
temporary alternative for
not-for-profit lessees for
gauging the right-of-use
assets under
concessionary leases at
acquired prices, instead of
using fair value. In case;
it is approved timely, the
standard would be
published on 24th
December (Aasb.gov.au,
2019). In this context, it
needs to be mentioned
that concessionary leases
are leases having below
market-terms
significantly and
conditions for allowing
the organisation in
furthering its objectives.
The standard of the draft
is dependent on “AASB
Exposure Draft ED 286

4ACCOUNTING AND FINANCIAL REPORTING
Amendments to
Australian Accounting
Standards- Right-of-Use
Assets of Not-for-Profit
Entities”. The main
objective of this draft is to
provide additional
disclosures to AASB 16.
The proposed
amendments would
provide additional
information to the users
of the financial statements
regarding the
concessionary leases and
right-of-use assets when
fair value information is
not present.
New Australian
Accounting Standards
(20th December 2018):
AASB has clarified
business definition as
well as material definition
with the help of two new
amending standards. The
business definition has
been clarified in “AASB
3 Business
Combinations” for
assisting organisations in
ascertaining whether a
transaction needs to be
accounted in the form of
business combination or
asset acquisition. On the
other hand, “AASB 2018-
7” provides clarification
to material definition as
well its application
throughout AASB
standards and other
pronouncements. These
amendments would be
made in “AASB 101
Presentation of Financial
Statements”. Both the
standards would be
effective for yearly
periods starting from or
after 1st January 2020
(Aasb.gov.au, 2019).
Survey results regarding
the importance of special
purpose financial
statements (13th
December 2018):
For knowing about the
usefulness of special
purpose financial
statements, a survey has
been conducted, in which
78% of the primary users
have stated that if the
statements fail to take
into account measurement
and recognition
requirements in standards,
this would result in an
issue that should be
addressed. Additional
transitional relief would
be needed for helping in
equity and consolidation
accounting (Aasb.gov.au,
2019).

5ACCOUNTING AND FINANCIAL REPORTING
ANSWER TO QUESTION 2
AASB 101 requires all listed Australian entities to develop their financial statements
in a way that they adhere to the current legislations and regulations. One such regulation is
the representation of “general purpose financial statements”, which could be contrasted
between the existing and previous years from the organisational perspective. Therefore, this
specific standard denotes the total requirements required to represent the financial statements
along with guiding the structure and primary needs for the content (Aasb.gov.au, 2019).
Correction 1:
After the financial statements of Whirl Limited are evaluated, it has been identified
that the accountant did not segregate the items effectively before presenting the same to the
users of the financial reports. It could be observed that the categorisation of assets is not
divided into two distinct sections that include current assets and non-current assets.
Therefore, the assets are to be segregated into current assets and non-current assets.
Correction 2:
In a similar fashion like assets, the liabilities of a firm are needed to be segregated
into current liabilities and non-liabilities, which are missing in the financial statements of
Whirl Limited (Standard, 2015).
Correction 3:
From “Paragraphs 66-76 of AASB 101”, it is possible to categorise assets and
liabilities for short-term as well as long-term. In addition, the inventories related to work-in-
process, finished goods and raw materials have to be represented in one head, while
receivables should be disclosed separately. Such transactions would be considered as the
input product parts, which are of immense significance in the manufacturing process.
Correction 4:
Moreover, “Paragraph 54 of AASB 101” needs the equity method to be used for
share investments. However, in the provided information, Whirl Limited has not recorded
share investments at cost, which could be seen from the provided statement of profit or loss.
Therefore, the organisation needs to utilise this method for recognising its equity investment.

6ACCOUNTING AND FINANCIAL REPORTING
Correction 5:
It has been found that both deferred and current tax liabilities are considered together
in the financial statements of Whirl Limited. In this regard, “Points (n) and (o) of Paragraph
54 of AASB 101” requires the recognition of these liabilities separately.
Correction 6:
It is necessary to classify receivables into short-term and long-term receivables.
Hence, if appropriate separation of such liabilities is made coupled with considerable
disclosure, it becomes easy for the management of Whirl Limited to gather necessary
information, which could be provided to the financial report users for representing a fair view
of the financial condition.
Correction 7:
It has been identified from the statement of profit or loss of Whirl Limited that
dividend payment is reported in the statement itself. However, it should not be reported as
business expense. Instead, the dividend payment is to be disclosed in the equity section in the
balance sheet statement of the organisation (Henderson et al., 2015). Correction 8:
The accountant of Whirl Limited needs to represent accumulated depreciation by
subtracting the same from non-current assets rather than disclosing as liability, which it has
made in its financial statements.
Correction 9:
From the statement of change in equity of Whirl Limited, it could be seen that Whirl
Limited has disclosed its shares issued. However, no classification of the issued shares has
been made. According to AASB 101, shares used under employee long-term incentive plans
and shares issued under dividend reinvestment plan have to be disclosed separately
Correction 10:
From the income statement of Whirl Limited, it could be seen that insurance expense
and prepaid insurance are disclosed separately. However, prepaid insurance needs to be
deducted from insurance expense to arrive at the net insurance expense and accordingly, only
a single value needs to be disclosed in the income statement.

7ACCOUNTING AND FINANCIAL REPORTING
Correction 11:
The accountant of the organisation has to report dividend payable per share in the
financial report. With the help of such information, it would be possible for the shareholders
to gain a clear understanding of their return on investment.
Correction 12:
The accountant has not segregated the expenses into direct expenses and operating
expenses. The income statement needs to be prepared by computing gross income, which is
obtained by subtracting cost of sales from revenue. After this, the other expenses have to be
categorised as operating expenses, which would be added together and then subtracted from
gross income to arrive at operating income. Finally, finance cost and tax expense need to be
subtracted from operating income for arriving at net profit or profit for the year.

8ACCOUNTING AND FINANCIAL REPORTING
REFERENCES::
Aasb.gov.au. (2019). Retrieved 31 March 2019, from https://www.aasb.gov.au/News/Fatal-
flaw-review-draft---Proposed-Standard-AASB-2019-X-Amendments-to-Australian-
Accounting-Standards---References-to-the-Conceptual-Framework?newsID=310721
Aasb.gov.au. News. (2019). Retrieved 31 March 2019, from
https://www.aasb.gov.au/News.aspx
Aasb.gov.au. (2019). News. Retrieved 31 March 2019, from
https://www.aasb.gov.au/News/Right-of-use-assets-of-not-for-profit-lessees?
newsID=310716
Aasb.gov.au. (2019). News . Retrieved 31 March 2019, from
https://www.aasb.gov.au/News/New-Australian-Accounting-Standards?
newsID=310717
Aasb.gov.au. (2019). News . Retrieved 31 March 2019, from
https://www.aasb.gov.au/News/How-special-are-special-purpose-financial-
statements---For-profit-User-and-Preparer-Survey-Results?newsID=310714
Aasb.gov.au. (2019). Retrieved 31 March 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Standard, I. A. (2015). Presentation of Financial Statements. Balance Sheet, 54, 80A.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial
accounting. Pearson Higher Education AU.