Accounting Standards in Different Political Environments

The assignment discusses the importance of maintaining a high-quality financial reporting system for businesses to achieve trust and integrity with stakeholders. It highlights the need for companies to adopt a flexible accounting framework that can accommodate changes in operational activities. The analysis of Ansell Ltd's financial reporting demonstrates that the company has effectively implemented standard accounting principles and standards, but identifies areas for improvement, such as providing more disclosure on earnings management and auditor independence.

Accounting Theory

Executive Summary
This report has been prepared for providing an understanding of the significance of
maintaining high financial reporting quality in entity public disclosure statements. The public
disclosure statements of Ansell Ltd Company are being analyzed in this context. The analysis
has revealed that the company has effectively adopted the conceptual accounting framework
principles for protection of stakeholder interests. The accounting strategies adopted have
flexibility but are developed as per the AASB standards. There is proper disclosure of the
standards adopted for measuring the value of company’s financial instruments such as assets,
liabilities and equity. In addition to this, the report has presented an evaluation of the
flexibility present in eth accounting framework of the company. The flexibility si required for
introducing new accounting policies and changes as per the external business environment.
The quality of financial disclosure is evaluated through analyzing the presence of footnotes in
the financial statements, segment disclosure, and the description of key performance
measures as per the accounting policies. The major area of concern for the company is alos
identified that requires more disclosure in the future context. These are corporate governance
policies ad managers’ discretion power in earnings management.

Contents
Introduction................................................................................................................................4
Analysis of accounting policies and estimates of Ansell Ltd....................................................4
Section 1: Identify Key Accounting Policies.........................................................................4
Section 2: Assess Accounting Flexibility...............................................................................5
Section 3: Evaluate Accounting Strategy...............................................................................6
Section 4: Evaluate the Quality of Disclosure........................................................................8
Section 5: Identify Potential Red Flags..................................................................................9
Section 6: Complaint with the Conceptual Framework.........................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

Introduction
The business corporations around the world are placing large emphasis on improving
on the quality of their financial reporting as per the IASB accounting standards. The IASB
(International Accounting Standards Board) have directed the business entities to prepare and
publish their financial reports as per the conceptual accounting framework principles. The
major principles of conceptual accounting framework are relevancy, reliability,
understandability and comparability. The compliance of all these accounting principles
during the development of financial reports will help in improving the quality of financial
reports as per the IASB standards. The conceptual accounting framework is developed on the
basis of normative theories of accounting that helps in predicting the type of accounting
approach to be adopted for resolving a particular financial issue (Knight, 2004). In this
context, the present report aims to present an evaluation of the accounting quality of a
company listed on ASX through assessing the accounting policies and estimates adopted by
it.
The assessment of accounting policies of the selected firm is carried out by evaluating
its annual reports disclosures. The assessment is carried out for developing an adequate
understanding of the various factors that impacts the development of financial statements of a
business entity. The company selected for the purpose is Ansell Limited, a recognized
Australian company that is involved in manufacturing of protective medical equipments. As
such, the report presents an investigation on the accounting reporting strategies and choices
selected by the managers of the company for evaluation of their quality and usefulness to
promote its long-term growth.
Analysis of accounting policies and estimates of Ansell Ltd
Section 1: Identify Key Accounting Policies
Ansell limited is a company which is situated in Australia, and the company along
with its subsidiaries is specialized in protection solutions. In other words it can be said that
the company is global leader in the protection solutions. The business organization is a profit
entity and deals in developing and manufacturing a wide range of clothing and hand arm
protection solutions (Ansell, 2017). The accounting policies of the firm are quite effective as
their accounting principles are based on historical cost basis except the assets and liabilities
are accounted on the basis of derivative financial instruments. In addition to this, the financial

assets which are categorized for sale are accounted on the basis of fair value. The accounting
policies of the company have been consistently followed as per AASB (Ordelheide, 2016).
IFRS 15/AASB 15 deals with the revenues from contracts with the customer, this
accounting principle establishes a framework for the company to determine the amount of
revenue and when the same will be obtained (Ansell, 2017). This framework has replaced the
existing IAS 18/AASB 118 Revenue, IAS 11/AASB 111. After its implementation in the
organization, the company has assessed the efficiency of the same realized that it is quite
effective and has no bad impacts on the financial statements.
IFRS 16/AASB 16 is another accounting policy used by the firm, this framework has
introduced a single lease accounting model. This framework has aided the lease holder to
identify the right to use the asset and liability that can represent the responsibility of making
the payments of the leased asset (Ansell, 2017). The financial statement of the company
presents a consolidated data of all the subsidiaries. The control of the parent company will
remain on subsidiaries till the date on lease ceases to exist (Marley and Pedersen, 2015). The
business organization has assessed the impact of application of IFRS 16/AASB 16 in their
accounting policy and have found no bad effect on the firm (Australia, 2011).
Section 2: Assess Accounting Flexibility
The firm is following its accounting policies based on the guidelines prescribed by the
AASB, however sometimes the management takes a flexible route to make the process easier.
For example, the carrying amount of non-current assets valued on the basis of cost, however
there are other methods prescribed by AASB. The impairment loss of the company is
identified when there is a certain increment in the income statement of the company for a
particular period (Ansell, 2017). However AASB has suggested that impairment loss occurs
when the carrying amount of a non-current asset exceeds its recoverable amount (Hussey and
Ong, 2005). The company at the time of analyzing the value of asset, discounts the estimated
future cash flows in accordance to present value, it represents current market assessment of
the time value of money and the probable risk associated with the asset.
AASB prescribed that while calculating the recoverable amount, the price of the asset
must be higher than the fair value (Walton, 2011). To remain in conformity with the
Australian generally accepted accounting principles requires the management to make
estimates that affect the reported amount of assets and liabilities, in addition to this, the
contingent assets are required to be disclosed for a particular financial period. The company

follows a flexible mode in this respect, the estimates and assumptions about the assets and
liabilities are based on historical experiences, in addition to this, various other factors are also
considered that can be rational in that particular aspect (Ansell, 2017). The results of such
estimates are reviewed on ongoing basis, whereas, AASB has prescribed to carry o evaluation
on the basis of a particular accounting period in which it affected the entity (Dagwell, Wines,
and Lambert, 2015). All this shows that management of the business organsation have a high
degree of flexibility in choosing policies. The frameworks adopted by the firm are completely
ethical and they are not breaching the code of AASB.
Section 3: Evaluate Accounting Strategy
The accounting department of a business entity holds major responsibility of
gathering, recording and analyzing the financial information. The department develops and
implements the accounting strategies for planning the future growth and development of a
business entity. The Ansell Ltd, as such is pursing growth strategy as it is actively involved in
providing its innovative protective medical equipments across the world. Therefore, its
accounting strategy is to meet the financing need of its diversified business units for
streamlining its production process. The company as such adheres to the IFRS and AASB
standard accounting principles and rules for the preparation of its consolidated financial
statements but has also incorporated some flexibility in its accounting framework. The
flexibility in the accounting framework refers to the preference given to a particular
accounting approach by a business entity during its financial reporting as compared to the
other. In this context, the positive theory of accounting states provides an explanation of the
use of a particular accounting method as compared to others. This is because the selection of
accounting methods has an impact on firm potential cash flows and therefore has implications
for managers, creditors, investors and debtors (Mirza and Ankarath, 2012).
In this context, it can be said that Ansell Limited has also implemented flexibility in
its accounting policies and estimates for maintaining its competitive position in its industrial
sector. The major competitor of the company is MCR safety, a UK company that is involved
in providing medical protective equipments and is recognized a global leader in development
of medical protective equipments. As such, there is large difference between the accounting
framework adopted by both the companies as both need to comply with their country-specific
accounting standards. The Ansell Ltd needs to comply with Corporations Act 2001 as per the
AASB standards while MCR Safety needs to develop its financial reports as per the UK
GAAP. The company however introduces some flexibility in its accounting strategies such as

that for measuring its financial instruments as per the accounting policies of its peers to
remain competitive (Kenny, 2009).
Therefore, it can be said that Ansell Ltd incorporate changes in its accounting policies
and estimates in order to meet the disclosure requirements of various countries where it
conducts its business operations. For example, there exist large differences between the IFRS
and the UK GAAP accounting standards. The annual report of Ansell Ltd implement IFRS
standards as depicted from its annual report but also need to introduce changes in its
accounting policies as per the UK GAAP principles while operating in the UK (Mirza and
Ankarath, 2012). As such, it is essential for the company to structure its accounting
transactions as per the country-specific standards for meeting its strategic objectives (Ansell,
2017).
The company has developed its strategic objective of diversifying its business
operations around the world and hence it is essential for it to comply with accounting
conventions of different countries. For example, as per the IFRS standards, Ansell Ltd, has
adopted the far value measurement model for assessing the value of its assets and liabilities.
However, as per the UK GAAP, the financial derivative should not be measured at their fair
value and therefore the company has to introduce some changes in its accounting policies for
meeting its strategic objectives. As such, the flexibility in the accounting policies and
estimates adopted by the Ansell Ltd is as per its business operations and is thus generally
acceptable. This is because they have effectively complied with the conceptual accounting
framework principles at each stage of its financial disclosure (Ansell, 2017).
Besides this, the company has also adopted an effective accounting strategy for
providing incentives to its managers. As per the company financial reports it is analyzed there
is an increase in its accrual for short-term and long-term incentives in the year 2017 as
compared to that in the year 2016. The company has implemented the use of accrual
accounting rules for determining the incentives for its managers. This is done to ensure that
incentives provided to the mangers provides them a motivating factor for maximizing the
firm value but not provide them a discretion to distort its financial performance (Pietra,
McLeay and Ronen, 2013). The accrual accounting is mainly subjective and based on
assumptions and as such provides an easy way for an entity to manage its earnings and also
providing the incentives to managers at the same time (Sheridan, 2016). The company as
such has adopted the method of earnings management as per the GAAP principles that have

helped in promoting consistency and comparability in business operations (Hussey and Ong,
2017). Thus, it can be said that the company has presented all information regarding its
financial operations in its annual reports and therefore its accounting strategy can be regarded
to be revealing (Ansell, 2017).
Section 4: Evaluate the Quality of Disclosure
The annual report presented by Ansell is quite adequate as it has covered various
aspects. The report has provided sufficient information about the purpose and vision of the
company. It has also covered the views of chairman and other executives. The financial
summary of the firm has provided a brief idea about the financial statements and the areas of
operation of the business.
The footnotes provided a summary of the accounting policies that are used by the
firm. Ansell limited has categorized its global business units into three different categories,
the industrial unit, medical unit and the single use unit. Apart from this, the footnotes also
provide the statement of compliance which represents that the financial report of the firm is
in accordance with the Australian accounting standards (Horngren et al., 2012). In addition to
this, the footnotes to financial statements also present the policies of accounting that has been
followed in the firm. (Laopodis, 2012). The rate of foreign currency in which the company
transacts is recorded at the exchange rate of each day.

Source: http://www.ansell.com/-/media/Corporate/MainWebsite/About/Investor-Center/
Annual-Report-2017/Ansell-Annual-Report-2017-FINAL.ashx?la=en
The notes have provided a wide range of information about the accounting policies
and other operation of the company. It has provided information about the financial statement
of the company and also the countries in which the company operates. The notes have
explained series of things which are consistent with the present performance of the company.
The company is working in accordance with the GAAP framework (Ansell, 2017). The
implementation of GAAP has certainly proved beneficial for the firm, as it has helped the
firm to remain in compliance with the international accounting principles. GAAP completely
reflects in the accounting policies of the firm and is quite beneficial in managing the accounts
(Thomas and Gup, 2010).
The segment disclosures have provided a detailed analysis of the firm operations. It
has explained the three segments of the firm which is medical unit, industrial unit and single
use unit individually. In addition to this it has also presented information about the operating
and closed units of the firm. Apart from this, the regional information about the company is
also explained in this section (Ansell, 2017). The region in which the company is operating is
summarized in an effective way. The domicile country of the firm is Australia and its sales

revenue in Asia Pacific region is also presented in the section as per the AASB (Dagwell,
Wines and Lambert, 2015).
Source: http://www.ansell.com/-/media/Corporate/MainWebsite/About/Investor-Center/
Annual-Report-2017/Ansell-Annual-Report-2017-FINAL.ashx?la=en
Section 5: Identify Potential Red Flags
The financial reports of Ansell Ltd have although presented and disclosed all the
relevant information but there are some issues that are identified as red flags that needs more
disclosure. There is not adequate explanation regarding the decrease in its inventories and
trade receivables from $ 14.3 million to $ 8.2 million in the year 2017 as compared to that of
the financial year 2016. Also, the company needs to provide more detailed information
regarding the manager’s incentive provided for managing the earnings. This is essential for
ensuring the transparency in its business operations in the stakeholder minds as it will provide
an analysis of the discretion provided to managers to influence the financial performance of
the company. In addition to this, it is depicted form the auditor’s report of the company that
its auditing partner is also involved in providing some non-audit services for which it receives
good compensation (Ansell, 2017) . This is the area of potential concern for the company as it
is against the AICPA Code of Conduct as per which an auditor should not maintain any

financial interest in its client for maintaining independency in its profession (Langendijk,
Swagerman and Verhoog, 2003).
Besides this issue of concerns, the company as such does not have any potential red
flag that requires disclosure of more information. There is no reported gap between its
recorded profit and the cash flow arising from its operating activities. There is no reported
use of research and development partnership used by the company for funding its activities.
There is no unexpected write-offs and also there is no reporting of related-party transactions
in the annual accounts of the company (Ansell, 2017).
Source: http://www.ansell.com/-/media/Corporate/MainWebsite/About/Investor-Center/
Annual-Report-2017/Ansell-Annual-Report-2017-FINAL.ashx?la=en
Section 6: Complaint with the Conceptual Framework
The analysis of the annual report of Ansell Ltd has depicted that it effectively
complies with all the principle of conceptual accounting framework such as relevancy,
reliability, comparability and understandability. The compliance of all these accounting
principles by the company has helped it in improving its accounting quality and achieving the
trust of all its stakeholders. The company has provided all the details regarding its accounting
strategies in its annual reports as per the IFRS and AASB standards (Wolk, Dodd and
Rozycki, 2012). The accounting disclosures are provided by the company in its annual
reports as per the Corporations Act 2001 and AASB standards. The AASB have mandated all
the business entities operating in Australia for developing their financial reporting as per the
accounting rules and conventions of conceptual accounting framework principles (Hoffman,
2016).

The selection of accounting policies and estimated by the company have possible
implications for all its stakeholders such as mangers, employees, customers and other such
people that are directly or indirectly impacted by its operational activities. As such, it is
highly essential for the company to select the appropriate accounting methods for maximizing
the value of its stakeholders. The company must select the accounting methods that
maximizes its equity base, dividends provided to the shareholders and returns generated for
its investors. However, the selection of accounting choices and policies are also largely
impacted by the political factors that came into existence when a business entity operates in
different business environment. For example, the Ansell Ltd aiming to diversifying its
operations globally have to adopt specific changes in its accounting framework as per the
political context of different countries (Henderson et al., 2015).
The political factors can cause a firm to change its accounting principles such as
incorporating the use of different deprecation method or transferring from LIFO to FIFO.
However, it is required on the part of the company to provide a full description of nay
changes adopted in its financial statements in the footnotes section (Mumba, 2013). This is
essential so that end-users are able to analyze and evacuate the adopted accounting change
properly. The managers adopt the use of accounting method that proves it to be cost-effective
under a different political environment (Bazley, Hancock and Robinson, 2014). The different
in the accounting standards adopted under different political situations exist because
accounting standards are not based on economic realities. As such, the reporting entities need
to select the accounting method that depicts its financial performance more efficiently
(Albrecht, 2010).
Conclusion
It can be stated from the overall discussion held in the report that marinating an
appropriate quality of financial reporting is essential for business entities. This is because it
helps in achieving trust and integrity in the mind of stakeholders therefore promoting its
sustainable growth and development. The analysis of financial reporting of Ansell Ltd has
demonstrated that good financial performance of the company is related with its sound
quality of financial reporting system. The company has effectively followed and implemented
all the standard accounting principles and standards as directed by the Corporations Act 2001
and AASB. The company also complies with the IFRS standards as per the accounting rules
developed for harmonization of accounting standards by IASB. The company has

implemented a flexible approach in it accounting framework so that all necessary changes
can be easily introduced in its accounting strategies as per the nature of its operational
activities. The potential area of concern is also identified in the report for Ansell Ltd that
need more disclosure in its annual report such as earnings management and auditor’s
independency. The companies though have effectively followed conceptual accounting
framework but still needs to improve its financial reporting quality in order to promote its
goodwill at an international level through resolving the identified area of concerns.

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