Contemporary Issues In Accounting: A Case Study of Dominos Pizza

This report examines the compliance of the financial reports of conceptual accounting framework with the characteristics of the conceptual accounting framework of Dominos Pizza. It analyzes the compliance of the company with the fundamental and enhancing characteristics of financial reporting and provides recommendations for improvement.

Contemporary Issues In Accounting
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Executive Summary
The report analyses and reviews the financial reporting of Dominos Pizza for examining
its compliance with conceptual accounting framework. It has been obtained from the report that
the company has met the objective of the framework effectively and also provided all the
required information to the target audience. However, it needs to adopt some changes in its
financial reporting format to make it more understandable by the end-users.
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Contents
Introduction....................................................................................................................................4
General Purpose of Financial Reporting Met by Dominos Pizaa.............................................4
Use of General Purpose Financial Reports in Meeting the Varying Needs of the Target
Audience.........................................................................................................................................5
Criteria of Recognition of Financial Elements in Dominos Pizza.............................................6
Fundamental Characteristics of Financial Reporting Complied by Dominos Pizza...............6
Enhancing Characteristics of Financial Reporting Complied by Dominos Pizza...................6
Recommendations..........................................................................................................................7
Conclusion......................................................................................................................................7
References.......................................................................................................................................8
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Introduction
This report aims to provide an adequate understanding of the conceptual accounting
framework that is mainly developed by the IASB for providing a theoretical basis to accounting.
In this context, the report has examined the compliance of the financial reports of conceptual
accounting framework with the characteristics of the conceptual accounting framework of a
selected business entity. The business entity selected for the evaluation purpose is Dominos
Pizza, an American world-recognized chain of pizza restaurant having about 13,800 locations
across the world. The company operates on a global level and therefore it is required by it to
adopt the use of standardized accounting practices as provided by IASB for ensuring its
successful growth in various countries of its operations.
General Purpose of Financial Reporting Met by Dominos Pizaa
The conceptual accounting framework developed by the IASB has laid to the foundation
and development of general purpose of financial disclosure of information by the business
entities. The major objective of developing financial reports is to disclose sufficient financial
information to the end-users of financial reports to guide them in their decision-making process.
The end-users of the financial information are investors, creditors, lenders, buyers, financial
analysts and other stakeholders of a business entity. As per the general objective of framework,
Dominos Pizza have developed and disclosed all the relevant materialistic information about its
financial performance in the financial review section of its annual report. The required financial
information is disclosed through the preparation ad presentation of general purpose financial
statements that are developed with the application of principle of consolidation (Dominos Pizza:
Annual Report, 2016).
The company discloses its financial information in an integrated manner comprising the
performance of its various subsidiaries. This enables the investors to gain an overview of the
performance of the company in an integrated manner that guides them in taking accurate
investment decisions by analyzing the financial growth prospects of the company as a single
economic entity. It has developed and disclosed effectively all the general purpose financial
statements as per the IASB standards that are, cash flows balance sheet, income statement, equity
and cash flow statement (Dominos Pizza: Annual Report, 2016). The relevant accounting
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principles and rules applied for the preparation of the financial statements are also disclosed in
the notes to the financial statement section that has provided a relative brief summary of the
accounting policies (Psaros and Trotman, 2004).
Use of General Purpose Financial Reports in Meeting the Varying Needs
of the Target Audience
The review of the financial reports of Dominos Pizza assures that it has disclosed all the
materialistic facts and information for meeting the different needs of the target audience. The
financial statement developed in a consolidated manner has provided all the required information
about the different financial elements such as assets, liabilities and equity. This helps the target
audience to gain an overview of the capital structure of the company and the proportion of assets,
liabilities and equity. The target audience needs to gain an overview of the proportion of current
assets in relation to the current liabilities for assessing its future growth prospects. Also, the
analysis of proportion of debt and equity is essential for investors to determine the financial
leverage on the company. This can be calculated through the use of current and debt ratio by
using the value of financial elements. The current and debt ratio of the company for the year
2016 is calculated through the use of following formula:
Current ratio=Current Assets/Current Liabilities
Current ratio= 495,873/ 403,698
Current ratio=1.23
Debt ratio=Total Debt/Total Equity
Debt ratio= 2,195,740/ (1,883,143)
Debt ratio= (1.16)
Therefore, it can be stated that company is not at present in good financial position as it is
having stockholder deficit as analyzed from its financial reports (Dominos Pizza: Annual Report,
2016). Also, the information about the income and expenditure can be gained through the use of
income statement that also predicts its future financial growth (McDaniel, Martin and Maines,
2002).
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Criteria of Recognition of Financial Elements in Dominos Pizza
The notes to financial statements section of the company has stated the information in
relation to the criteria of recognition used for different financial elements. The financial elements
that are able to provide future economic benefit to the company are only recognized such as
assets, liabilities, income and expenses (Mazhambe, 2014). The revenue is recognized for the
retail sales realized from its franchised stores and is measured at a percentage of retail sales as
stated in the franchise agreement. The long-term and intangible assets are recognized at cost and
the financial liabilities and income tax are also recognized through the use of historical cost
method (Dominos Pizza: Annual Report, 2016).
Fundamental Characteristics of Financial Reporting Complied by
Dominos Pizza
The fundamental characteristics of financial reporting are relevance and faithful
presentation of information. Dominos Pizza as per relevant characteristics has provided realistic
information having a confirmatory value and a predictive value based on use of accounting
estimates and assumptions. The confirmatory value of different financial elements is presented in
the financial statements and the relevant accounting practices used in their preparation are also
disclosed in the financial report. The predictive value is used for those financial elements whose
value is calculated by the use of some accounting estimates and assumptions (Maines and
Wahlen, 2006). The company has also faithfully presented financial information by ensuring that
it is complete, neutral and error-free as stated by carrying out auditing of the financial statements
in accordance with the Public Company Accounting Oversight Board. This is done to assure that
financial statements are free from materialistic error and therefore have faithful presentation
(Dominos Pizza: Annual Report, 2016).
Enhancing Characteristics of Financial Reporting Complied by Dominos
Pizza
The enhancing characteristics of financial information are that it should be verifiable,
understandable, comparable and timely (Gerber and Van der Merwe, 2014). Dominos Pizza has
disclosed sufficient quantitative information in the financial reports and the method used for the
calculation to verify the value of financial elements. It is also understandable as notes section has
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provided the detail about the accounting principle used for developing financial reports. Also, it
is comparable as the financial information in the consolidated financial statement of the current
year can be compared with that of the previous year to reflect the percentage increase or
decrease. At last, the financial information is also disclosed in a timely manner that is on an
annual basis to ensure that investors utilize the current information for decision-making
(Dominos Pizza: Annual Report, 2016).
Recommendations
It is recommended to the company on the basis of the overall evaluation of its financial
report that it should present a systematic flow of information. The financial report of the
company is a bit complex to be easily understood by the end-users who lack sufficient financial
information. Thus, the report need to be more synchronized with systematic flow of information
so that readers cane easily analyzes the overall financial position of the company.
Conclusion
It can be stated from the overall discussion held in the report that Dominos Pizza is
complying with conceptual accounting framework effectively. Although, it need to make certain
changes like developing it in a easy format to meet the varying interests of the end-users.
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References
Dominos Pizza: Annual Report 2016. 2016. [Online]. Available at:
file:///C:/Users/Prashant/Desktop/2016_Annual_Report_DPZ.pdf [Accessed on: 17 April 2018].
Gerber, M. C., Gerber, A. J., and Van der Merwe, A. J. 2014. An Analysis of Fundamental
Concepts in the Conceptual Framework Using Ontology Technologies. South African Journal of
Economic & Management Sciences 17 (4), pp. 396–411.
Gore, R., and Zimmerman, D. 2007. Building the Foundations of Financial Reporting: The
Conceptual Framework. The CPA Journal 77(8), pp. 30–34.
Maines, L. and Wahlen, J. 2006. The Nature of Accounting Information Reliability: Inferences
from Archival and Experimental Research. Accounting Horizons 20(4), pp. 399- 425.
Mazhambe, Z. 2014. Review of International Accounting Standards Board (IASB) Proposed
New Conceptual Framework. Journal of Modern Accounting and Auditing 10 (8), pp. 835-845.
McDaniel, L., Martin, R. and Maines, L. 2002. Evaluating Financial Reporting Quality: the
Effects of Financial Expertise vs. Financial Literacy. The Accounting Review 77, pp.139-167.
Psaros, J. and Trotman, K. 2004. The Impact of the Type of Accounting Standards on Preparers’
Judgments. Abacus 40(1), pp. 76-93.
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