Accounting Standards and Principles

This report examines the professional judgments and implications of accounting standards and principles in the context of impairment accounting. It discusses the importance of professional judgment in preparing financial reports, the implications for users of accounting information, and the application of professional judgments in Amcor Limited's impairment testing. The report concludes with recommendations for improvement.

Running head: ACCOUNTING STANDARDS AND PRINCIPLES
Accounting Standards and Principles
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING STANDARDS AND PRINCIPLES
Table of Contents
Executive Summary...................................................................................................................2
Introduction................................................................................................................................3
Requirement a............................................................................................................................3
Requirement b............................................................................................................................4
Requirement c............................................................................................................................5
Requirement d............................................................................................................................5
Conclusion and Recommendations............................................................................................6
References..................................................................................................................................7

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Executive Summary
This report shows that professional judgements are needed for the companies because it helps
the companies in providing quality financial information to the users of financial reports. As
per this report, only property, plant and equipment is impaired in Amcor Limited in 2018
while intangible assets were not impaired. The Board of Amcor Limited has made the
appropriate professional judgements that are in line with the requirements. Moreover, they
are well-aligned with the purposes of general purpose financial reporting.

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Introduction
Financial reports provide the users with the required financial information about the
financial position and performance of the firms for the purpose of sound decision-making.
Senior managements of these firms tend to use certain estimates, judgments and models for
the preparation of their financial reports and it is suspected that they are used for not
depicting the exact financial reality (Easton and Sommers 2018). The main aim of this report
is the examination and analysis of relevant accounting treatment and disclosure of
impairment accounting in the latest annual report of Amcor Limited which is a global
packaging company based on Australia.
Requirement a
Professional Judgment in Accounting
Professional judgement is referred to the application of accumulated knowledge and
experience gained in the accounting training with the use of ethical standards that can result
in sound accounting decision-making regarding certain course of action which are
appropriate in audit engagement (Edgley 2014).
Importance of Professional Judgment in Preparing and Presenting Financial Reports
Professional judgments have major role to play in the preparation and presentation of
financial reports since the quality of accounting information largely depends in the
application of professional judgment. The use of quality information with the help of
accounting judgments facilitates in the reduction of uncertainty as well as complexity of
actions. At the same time, professional judgment provides freedom and assists in accounting
compliance. The accountants become able in using correct accounting policies as well as
accounting estimates with the help of professional judgements. All these aspects together
assist in the preparation as well as presentation of the financial reports (Danescu and Chira
2014).
Implications of the Users of Accounting Information
The users of accounting information has to face certain consequences in case the
professional judgments has not been made in the most reasonable or appropriate manner.
 The presence of inappropriate professional judgment affects the quality of accounting
information presents in the financial report since they fail to depict the actual financial

4ACCOUNTING STANDARDS AND PRINCIPLES
situation of the company. Hence, the users gain incorrect information about the
financial performance and position of the companies (Ionela 2016).
 Due to gaining incorrect accounting financial information in the presence of incorrect
professional judgement, the users will not be able in making sound investment
decision about the company since this information will fail in providing the true
picture of the financial position as well as financial performance of the company.
These are the major implications on the users of the financial statements (Ionela
2016).
Requirement b
i. It can be seen from the 2018 Annual Report of Amcor Limited that the company has
tested property, plant and equipment and intangible assets for impairment. Among
these two types of assets, Amcor Limited recorded impairment in property, plant and
equity in both 2018 and 2017. There was not impairment in intangible assets in 2018,
they recorded impairment of intangible assets in 2017 (assets.ctfassets.net 2019).
ii. The management of Amcor Limited has used certain estimates and judgments for the
determination of impairment of the assets. The estimations are as follows:
The first estimate can be seen in the foresting of future cash flows. These are done on
the basis of the company’s approved internal five-year forecasts and these cash flows
reflect the expectations of sales growth, margin, capital expenditure and cash flows,
operating cost and expectation of management about future market changes.
The second estimate is related to the application of discount rates on those cash flows.
The third estimate used in the expected long-term growth rate. As per this estimation,
the company extrapolate the cash flows beyond the period of five-year with the use of
estimated growth rate. The basis of these growth rates is each CGU’s long-term
performance in their respective markets and they are consistent with the long-term
average industry growth rate (assets.ctfassets.net 2019).
iii. In case of property, plant and equipment, the amount of impairment write down in the
years 2018 and 2017 are USD 4.5 million and USD 20.9 million respectively. Amcor
Limited did not have any impairment write downs for intangible assets in 2018, but
the write down amount in 2017 was USD 1.6 million (assets.ctfassets.net 2019).
iv. Amcor Limited has made certain disclosures in the 2018 Annual Report regarding
impairment testing in Note 2.5 of the Financial Statements. According to the
disclosure, the company undertakes the testing of property, plant and equipment and

5ACCOUNTING STANDARDS AND PRINCIPLES
intangible assets for impairment at least annually for goodwill and when there is an
indication of asset impairment. For performing this test, Amcor Limited assesses each
individual asset’s recoverable amount or each CGU’s recoverable amount. CGUs are
the lowest level for grouping assets and they produce distinct recognisable cash flows.
The company considered the recoverable value as the higher of an asset’s or CGU’s
fair market value less cost of disposal or value in use. Discounted cash flows are used
for the calculation of value-in-use (assets.ctfassets.net 2019).
Requirement c
According to ASIC, the directors are needed to ensure certain aspects while applying
professional judgements in the impairment write-downs. First, cash flows and assumptions
have considered matters like historical cash flows, economic as well as market conditions and
others (asic.gov.au 2019). According to the above section, Amcor Limited ensures the
consideration of future market changes, past experience and costs in order to forecast the
future cash flows. As per the ASIC, companies are needed to consider certain aspects for the
calculation of value in use; such as use of adequate reliable cash flows estimates, non-
consideration of increasing cash flows after five years and others (Stein 2013). The above
section shows that Amcor Limited considers the discounted cash-flows arises from the assets
for the calculation of value-in-use (asic.gov.au 2019). In addition, while considering the cash
flows more than five-years, Amcor Limited uses the estimated growth rate with the help of
extrapolation. Hence, it can be seen from the above discussion that Amcor Limited has
followed the necessary requirements of ASIC and others for the purpose of impairment
testing (Trottier 2013). This indicates that the management of Amcor Limited has used the
judgments for impairment write-downs in responsible and appropriate manner (Amiraslani,
Iatridis and Pope 2013).
Requirement d
It needs to be mentioned that there are three objectives of general purpose financial
reporting. The first objective is to provide information about the financial position of the
companies; the second objective is to provide information about the financial performance of
the companies; and the third objective is to provide information about the cash flow of the
companies for decision making purpose (Henderson et al. 2015). The earlier part of the report
discusses about the professional judgements used by Amcor Limited for impairment testing.
Application of these judgements has made it possible for Amcor Limited to disclose the

6ACCOUNTING STANDARDS AND PRINCIPLES
necessary information about the impairment testing of their assets and this leads to the correct
reporting of the value of these assets in the balance sheet (Lawrence 2013). At the same time,
Amcor Limited has disclosed all the necessary details of cash flow used for impairment
testing which is helpful for the decision-making process of the users of the financial
statements. These imply that the applied professional judgments of Amcor Limited for
impairment write downs align with the objective of general purpose financial reporting
(Schonberger 2015).
Conclusion and Recommendations
The above discussion shows that the management of Amcor Limited has properly
applied the professional judgments and estimates in impairment accounting. However,
followings are certain recommendations for further improvements:
 It is needed for the management of Amcor Limited to maintain their compliance with
the relevant accounting standards and principles for the purpose of impairment
testing and write-downs.
 The management of Amcor Limited can make a list of the assets that are impaired
along with their write down values for ease of understanding of the users.
 The management of Amcor Limited needs to be careful and should consider the
necessary aspects while making the estimates and professional judgments on
impairment testing.

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References
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset
impairment. London: Cass Business School.
Asic.gov.au. 2019. 18-159MR Major changes affecting reported net assets and profit, and
other focuses for 30 June 2018 reporting | ASIC - Australian Securities and Investments
Commission. [online] Available at: https://asic.gov.au/about-asic/news-centre/find-a-media-
release/2018-releases/18-159mr-major-changes-affecting-reported-net-assets-and-profit-and-
other-focuses-for-30-june-2018-reporting [Accessed 25 Apr. 2019].
Assets.ctfassets.net. 2019. Annual Report 2018. [online] Available at:
https://assets.ctfassets.net/f7tuyt85vtoa/Ry9ogH9cQemqGA800oiGE/cbcc6bef0d76b79be2a2
27dfc13a7e87/Amcor_Annual_Report_2018.PDF [Accessed 25 Apr. 2019].
Danescu, T. and Chira, A., 2014. Professional judgment and reticence to apply sampling
techniques. Procedia Economics and Finance, 15, pp.1253-1258.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Edgley, C., 2014. A genealogy of accounting materiality. Critical Perspectives on
Accounting, 25(3), pp.255-271.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Ionela, I.V.A.N., 2016. The importance of professional judgement applied in the context of
the International Financial Reporting Standards. The Audit Financiar journal, 14(142),
pp.1127-1127.
Lawrence, A., 2013. Individual investors and financial disclosure. Journal of Accounting and
Economics, 56(1), pp.130-147.
Schonberger, B., 2015. Real asset liquidity and asset impairments.
Stein, S.E., 2013. Do industry specialist auditors enforce more conservative recognition of
long-lived asset impairments?(Doctoral dissertation, University of Missouri--Columbia).
Trottier, K., 2013. The effect of reversibility on a manager's decision to record asset
impairments. Accounting Perspectives, 12(1), pp.1-22.