HI6025 Accounting Theory and Current Issue

Added on - 30 Oct 2019

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Running head: ACCOUNTING THEORY AND CURRENT ISSUESAccounting Theory and Current Issues
ACCOUNTING THEORY AND CURRENT ISSUESExecutive SummaryThe report aimed at examining the accounting policies and estimates used by an AustralianSecurities Exchange (ASX) listed company named A-Cap Resources Ltd. Based on thisexamination, the accounting policies of the company were listed and thereby its accountingflexibility have been evaluated. Moreover, the policies used by its competitors especially BossResources Limited was were evaluated as well as o compared. Furthermore, any unexplainedchange or possibility of red flags was considered for the company to determine its accountingposition. The company’s accounting quality was critically evaluated by identifying variouspressures being experienced during operations. In the later part, an investigative report on theaccounting strategy of its management and choices of reporting strategy were evaluatedaccording to the information presented in the annual reports. This evaluation was performed byidentifying the key accounting policies, assessing accounting flexibility, evaluating itsaccounting strategy and disclosure quality.Page2
ACCOUNTING THEORY AND CURRENT ISSUESTable of ContentsExecutive Summary.........................................................................................................................2Introduction......................................................................................................................................5A. Assessment of Accounting Policies and Estimates of A-Cap Resources Limited.....................6A.1. Accounting Policies and Estimates Used by the Company.................................................6A.2. Flexibility.............................................................................................................................7A.3. Determining the Usage of Accounting Policies and Estimates by its Competitors.............7A.4. Comparison of Accounting Policies and Estimates.............................................................8A.5. Agreement Regarding the Policies and Estimates...............................................................9A.6. Determination of Whether Accounting Strategy is Hiding or Revealing..........................10A.7. Possibility of Red flags or Questionable Number in the Accounting Report....................11A.8. Explanation about the Accounting Positions.....................................................................11B. Critical Evaluation of Accounting Quality...............................................................................14B.1. Pressures that Influence the Accounting Standard-Setting Environment..........................14B.2. Implication of the Company Making Accounting Disclosures..........................................15B.3. Understanding the Possible Implications Making Accounting Choices and Disclosures.16C.1. Identification of Key Accounting Policies.........................................................................16C.2. Assessing Accounting Flexibility......................................................................................17C.3. Evaluating Accounting Strategy........................................................................................17C.4. Evaluation of the Quality of Disclosure.............................................................................18C.5. Identification of Potential Red Flags.................................................................................19C.6. Compliance with the Conceptual Framework....................................................................19Conclusion.....................................................................................................................................20References......................................................................................................................................21Bibliography..................................................................................................................................24Page3
ACCOUNTING THEORY AND CURRENT ISSUESIntroductionA-Cap Resources Limited is an Australian based company, which deals with uraniumexploration. The ASX code of the company is ACB and it’s headquarter is located in Australia.However, it mainly operates in Botswana by the ASX code of A-CAP. It is a resource basedcompany, which specifically deals with uranium and coal projects as well (A-Cap, 2017). It hasone of the largest uranium deposits in the entire world and always focuses on gaining higherlevel of competitive advantage over the competitors. Moreover, the company emphasizesdeveloping process design and underlying infrastructure, which supports in conducting miningprojects successfully in the entire world. Its vision is to enhance uranium projects towardsdevelopmental activities and accordingly setting policies towards providing maximum benefitsshareholders (A-Cap, 2017a).Emphasizing the issue, the report intends to evaluate the accounting policies and estimates of A-Cap Resources Limited. This has been performed by simply accessing the annual reports of thecompany from where variousaccounting related information is obtained and likewise included inthis report. Thus, initially, annual reports for two financial years of the company have beenexplored that helped in identifying key accounting policies of the selected ASX listed company.Thereafter, critical evaluation of the company’s accounting quality is undertaken by consideringvarious pressures it faces during operations and the implications of accounting disclosures. In thelater part, an investigative report is prepared identifying chief key accounting policies of thecompany, assessing accounting flexibility, evaluating business or operational strategy and qualityof disclosure, identifying its possible red flags and thereby accommodating with the conceptualframework.Page4
ACCOUNTING THEORY AND CURRENT ISSUESA. Assessment of Accounting Policies and Estimates of A-Cap Resources LimitedA.1. Accounting Policies and Estimates Used by the CompanyThere are various accounting policies and estimates that have been considered by A-CapResources Limited and its management team based on the standards of Corporations Act 2001and Australian Accounting Standards Board (AASB). Adhering to these standards, the companyhas been able to comply with the international standards of financing as well. It is the materialaccounting policies that adopted by the company to prepare the financial statements on the basisof historical costs and the value of its assets and liabilities. It also consolidates its financialstatements according to the ‘principles of consolidation’, incorporating all its subsidiaries andparent company’s liabilities and assets (A-CAP Resources Limited, 2015). Apart from the boardremuneration policy, which has been stated in the annual reports, the company is also involvedinto executing share trading policy. In addition, remuneration policy is also implemented todesign the packages of remuneration in a way so that the skilled employees are retained for alonger time. In contrast, the company also uses share trading policy, which focuses on regulatingthe shares and the securities being issued. Adhering to International Financial ReportingStandards (IFRS) from the year 2005 resulted into making significant changes specifically in theaccounting policy, covering assets’ impairment and payments based on shares as well as incometax. The expense for income tax was then based on the adjusted accounting profit (A-CAPResources Limited, 2004).With respect to the estimates, A-Cap Resources Limited uses mineral resource and otherresource estimates according to the Localised Uniform Conditioning (LUC) approach. LUC isused by the company to control and develop the method of mining. Any further change in thePage5
ACCOUNTING THEORY AND CURRENT ISSUEScost estimates is accounted based on the underlying prospects. Therefore, accounting estimatesare generally made by the company based on historical information and recent trends ofestimating the liability of withholding tax (A-CAP Resources Limited, 2016).A.2. FlexibilityAccording to the annual reports of A-Cap Resources Limited for 2 years, which have beenexplored and assessed in a detailed way, it has been apparent that there are various phasesthrough which the company’s policies and estimates are reviewed on a timely basis. Thiseventually results into designing effective accounting policies that prove to be highly beneficialfor the shareholders and the company as a whole (A-CAP Resources Limited, 2016). Therefore,it can be opined that the accounting policies/estimates used by the firm can be changed or revisedas and when required, giving ample time and opportunities to make optimum utilization of theavailable resources.A.3. Determining the Usage of Accounting Policies and Estimates by its CompetitorsBoss Resources Limited is regarded as one of the chief competitors of A-CAP ResourcesLimited. Based on the information provided in the 2016 annual report of Boss ResourcesLimited, it can be stated that the accounting standards being followed by the company weresimilar to that of A-CAP Resources Limited. As per the remuneration policy is concerned, it canbe observed that the Board of Directors of Boss Resources Limited usually make independentdecisions associated with remunerations policies based on the current trends of the competitorsin the respective markets. However, differences in the estimates can be witnessed within BossResources Limited, as the company not only focused on corporate governance, but also onPage6
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