Accounting Theory and Issues.
Added on 2020-03-16
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Accounting Theory and Issues1
Executive SummaryThe report has been prepared in order to provide an understanding of the accountingpolicies in developing the financial reports. The accounting policies and procedures adoptedby Woolworths Limited in developing its financial statements are analyzed in the presentreport. It has been examined from the report that the company prepares high quality financialreports as per the conceptual accounting framework principle. The company has disclosessignificant information in its financial reports regarding the accounting policies adopted formeasuring the value of each of its financial elements. There are some issues of concerndiscussed as red flags in the report that need to be addressed by the company in future forenhancing the understandability of its financial reports to users. 2
ContentsIntroduction................................................................................................................................4Section 1: Identify Key Accounting Policies.............................................................................4Section 2: Assess Accounting Flexibility..................................................................................5Section 3: Evaluate Accounting Strategy...................................................................................6Section 4: Evaluate the Quality of Disclosure...........................................................................9Section 5: Identify Potential Red Flags....................................................................................11Section 6: Compliant With Conceptual Framework................................................................13Conclusion................................................................................................................................13References................................................................................................................................153
IntroductionThe financial reports are developed by business entities by taking into considerationthe significant accounting policies and procedures. The accounting policies can be describedas the particular rules and procedures implemented by business entities in development of itsgeneral purpose financial statements (Horngren et al., 2012). In this context, this reportpresents an evaluation of the accounting policies and estimates used by an ASX listedcompany, that is, Woolworths Limited, an Australian retail giant. The report analyses themajor accounting policies of the company used in developing financial statements. Inaddition to this, the comparison of the accounting policies of the company is undertaken withone of its major competitors for identifying the accounting strategy used by Woolworths forachieving competitiveness. Also, the issues of concern in the financial reports of the companyare also discussed as red flags in the report. At last, the compliance of the annual disclosuresof the company as per the conceptual accounting framework is evaluated in the report.Section 1: Identify Key Accounting PoliciesThe Woolworths Limited develops and published its consolidated financial reports onthe basis of principle of consolidation. As per the principle of consolation, a business entityneeds to develop consolidated statements by integrating the financial information of all itsassociated groups of subsidiaries to represent a single economic entity. The consolidatedfinancial statements are developed by the company in accordance with the Corporations Act2001, AASB and IFRS standards. The financial facts and figures are presented in Australiandollars as per the ASIC Class Order 98/100. The company has adopted the use of historicalcost principle for measurement of its financial instruments except sale derivatives financialassets and some liabilities that are measured at fair value (Woolworths: Annual Report,2016). The company has applied the relevant AASB standards for disclosing the informationrelated to its cash flows, operating leases and segment disclosures (Hoffman, 2016). The company has implemented the required accounting policies in relation tovaluation of inventories, financing costs, trade receivables, derivatives, property, plant andequipment and other financial instruments. In addition to this, the company has alsoimplements significant accounting policies for risk management in order to mitigate the risksarising from its daily operational activities. The major risks identified by the treasury functionof the company are market risk, liquidity and credit risk. The Board of Directors has4
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