Analysis of Accounting Concepts and AASB 16 for Healius Healthcare Company

This report analyzes the accounting concepts used by Healius Healthcare Company and the application of AASB 16. It discusses the impact of AASB 16 on the financial statements of the company and provides a detailed explanation of the changes made to the accounting standard. The report also includes a table of commitments for the company's lease agreements.

Running head: ACCOUNTING
Accounting
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Discussion and Analysis..................................................................................................................2
Accounting Concepts...................................................................................................................2
AASB 16......................................................................................................................................4
Application of AASB 16 from AASB 117..................................................................................6
Conclusion.......................................................................................................................................9
References..................................................................................................................................10
Appendix....................................................................................................................................12

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Introduction
Accounting concepts and principles are the key basis upon which the financial statement
of a company is prepared. The company that has been taken into consideration for the purpose of
analysis is the Healius Healthcare Company that has been considered. The important accounting
concepts that has been used by the company wile preparing the financial statement of the
company has been well outlined and presented in the financial statement of the company. The
application of the AASB 16 that comes into effect from the 1st January, 2019 has been well taken
into consideration. The application of AASB 16 and the effect of the implication of the same on
the financial statement of the company will be taken into analysis of the report. AASB 117 will
be scrapped in the year 2018. The primary purpose of this accounting standard was to provide
the users of the financial statements with information about the impact of the company’s lease
agreements on financial position, objectives and the cash flows of the organisation for a
particular year. The application of the same will be done by all the companies for the purpose of
reporting and classifying all the lease transactions carried on by the company.
Discussion and Analysis
Accounting Concepts
Like many of the corporate entities conducting business in the modern day business
environment, Healius also prepares its annual financial statements using different accounting
concepts. The primary of them is the going concern concept. This concept suggests that every
business conducts its business with the intention to carry on with it for the foreseeable future and
not shut it down at the earliest available opportunity (Enofe et al. 2013). As suggested by the
2019 annual reports of the organisation, the directors analyse the ability of the entity in

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continuing as a going concern at the time of preparing the financial statements (Healius.com.au
2019). As it has not been suggested that the company plans to liquidate or wind itself up in the
near future, the statements suggest that Healius is a going concern that will conduct its business
for the foreseeable future. Another important concept which has been used by Healius in its
financial statements is the accrual concept. This concept states that any revenues or
expenditures or related obligations are to be recognised in the books of accounts as and when
they occur. It means that an expenditure already incurred in the current year should be
recognised in this year itself and not when the payment related to the expenditure is made by the
business. In its financial statements, Healius has recorded various items like current and non-
current trade payables and accruals. Although the payment for them would not be made in 2019
itself, they have been included the financial statements due to their existing obligation in the
current year. This improves the reliability of the financial statements (Azmi and Mohamed
2014).The next relevant concept that has been used is the consistency concept. This suggests that
an accounting concept that has been adopted in a particular year should be followed in the future
accounting periods as well. This is to ensure that the financial results obtained in different years
are due to the same underlying assumptions and principles that were followed (Peterson,
Schmardebeck and Wilks 2015). Any change in the accounting methods used in the treatment of
any particular item should be stated in the financial statements. The consistency concept is also
related to the recommendations and suggestions of the governing body guiding the preparation of
the financial statements. Particular items like leases, assets and contingencies should be recorded
in a manner that is consistent with the suggestions of the AASB. Otherwise, they would lead to
the company being penalised for not following accepted guidelines in preparing the financial
statements (Healius.com.au 2019). The materiality concept has also been used appropriately by

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the entity in preparing its financial statements. This concept suggests that items that are
presented in the financial statements should be recorded in a manner that is a proper reflection of
the impact that they have would have on the entity as a whole (Eilifsen and Messier Jr 2014).
This is the reason why the purchase of a minor office item like a pen is treated as a petty expense
and not as the purchase of an asset to be used in the business. In case of Healius, the materiality
concept has been appropriately applied in the identification of the appropriate assets and
classifying them on the basis of the impact that they are likely to have on the organisation as a
whole. Every specific asset has not been mentioned while the changes in the fair values of the
prominent assets have been stated appropriately (Healius.com.au 2019). Irrelevant assets have
been omitted from the financial statements to the highest possible extent. The conservatism
concept has also been applied by Healius in preparing its financial statements. This concept
suggests that as soon as the entity has knowledge about the non-accrual or non-realisation of an
asset, it should immediately mention the same in the financial statements or stop recording that
particular item in its books of accounts (Mora and Walker 2015). This is to ensure that the
information provided by the financial statements is a representation of the true and fair view of
the financial position of the firm. Due to this concept, Healius has made a separate mention of
the contingent liabilities separately in the financial statements and classified them as work
related or property related payments. This informs the shareholders that the liabilities may or
may not be received at the future date.
AASB 16
A lease is an agreement in which a company or an individual, known as the lessee,
obtains the right to use an asset for a specific period of time and makes lease payments in
exchange for the same. The AASB 16 has been the guiding accounting standard in relation to the

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recognition, measurement, disclosure and presentation of leases and their related agreements
entered into by a company in a particular financial year. The primary purpose of this accounting
standard was to provide the users of the financial statements with information about the impact
of the company’s lease agreements on financial position, objectives and the cash flows of the
organisation for a particular year. The accounting aspects that are related to the leases were
guided by the Accounting Standard AASB 117. Previously, the provisions of AASB 16
suggested that the leases related to some of the assets like property and equipment were to be
recognised as off-balance sheet items. This meant that there was no mention of these particular
leases in the balance sheets of an entity. Leases were classified as either operating or financial
leases on the basis of their nature (Ifrs.org. 2019). This nature was determined using a complex
set of rules. The new amendments made to this standard have been in effect from 1 January
2019. As per the latest amendments, the entities should recognise all of their assets and liabilities
in the balance sheet (Aasb.gov.au. 2019). This makes sure that the along with the value of the
leases, the books of accounts reflect the right to use a particular asset by the company. The
classification of the leases of a company as either financial leases or operating leases has been
omitted and in its place, most of the lease agreements are capitalised in the balance sheet. This is
done by recognising the lease liability that needs to be paid and the right to use an asset from the
lease, which is stated as an asset in the books of accounts. Paragraph 51 of AASB 16 suggests
that the new amendments that have been made are aimed at helping users in assessing the
position of an entity through the information provided about the leases in the financial
statements, notes to accounts, income statement and the statement of the cash flows of an entity
for a particular year.

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The changes have been required to be implemented by the organisations who have
entered into a lease agreement in a given financial year for which the financial statements are
being prepared. In case of Healius, the company has stated that the implementation of AASB 16
in preparing the financial statements is expected to increase its underlying NPAT for the
financial year 2020 (Healius.com.au 2019). In the financial reports of 2019, the company has
suggested that it has not adopted the AASB 16 for accounting for leases as it is not required to do
the same. In the notes to the accounts, the company has stated the impact that adopting AASB 16
would have on its future endeavours. It suggests that the changes suggested by the AASB 16
would remove the distinction between most of the lease assets of the company except for leases
that are short term in nature and of those related to assets which are low in terms of value. From
1 July 2019, the company will begin to measure the value of its liabilities on the basis of the
future lease payments that it will be required to pay (Healius.com.au 2019). With regards to the
right-of-use assets approach, the largest valued assets would be calculated on the basis of the
present value of the assets using the discount rates applicable on the date of transition. Any
accumulated depreciation or amortisation on the assets would be removed from the value of the
assets. Due to the adoption of AASB 16, the company estimates that the value of the liabilities
would go up by $1.2 billion and Right-of-use assets would approximately go up by $1.1 billion
(Healius.com.au. 2019). The company expects to recognise this adjusted amount as its net loss in
the financial statements prepared at the end of the year.
Application of AASB 16 from AASB 117
The application of the AASB 16 that comes into effect from the 1st January, 2019 has
been well taken into consideration by the Healius Company. The application of AASB 16 and
the effect of the implication of the same on the financial statement of the company has been well

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considered in the financial report presented by the company (Niescho 2018). The old standard
that guides companies for leases that is AASB 117, will be scrapped in the year 2018 and the
application of the same will be done by all the companies for the purpose of reporting and
classifying all the lease transactions carried on by the company. The company has stated that due
to the adoption of the new applicable accounting standard AASB 16, will increase the estimates
that have been made by the company and that the value of the liabilities reported in the financial
statement would go up by $1.2 billion (Brumm and Liu 2019). The Right-of-use assets would
approximately go up by $1.1 billion (Healius.com.au. 2019). The company will be recognizing
the adjusted amount as its net loss in the financial statements prepared at the end of the year after
the application of new accounting standard in the current year. The key operating lease that are
directly attributed with the company are specially in the field of the premises for various medical
centres, pathology, imaging sites and other corporate offices that the company has taken on a
lease basis and the tenure of the lease varies from asset classification which is usually in time
period of one year to twenty years of time frame. There are other various equipment like the
diagnostic imagining equipment that the company has considered for the purpose of better
operational work is also taken on a lease who time period are currently between one-five years of
period (Healius.com.au 2019). A key snapshot of the commitment for the various expenditures
that would be incurred by the company for the stated time period has been well defined in the
table given below:

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The new accounting standard is comparatively presented in a more detailed manner
whereby the company will be able to clearly differentiate between operating and finance lease
that are carried on by the companies (Davern et al., 2019). The company has clearly stated that
the effective date for annual reporting period begins or after 1st January 2019 for AASB 16
Leases. However, the application of the standard will be done on the financial statement of the
company that will be for the stated period 30Th June 2020. The classification of lease can be
better done whereby the company has tgo either classify the lease as an asset and liability in the
financial statement of the company as per the AASB 16, which is conceptually clear than the
AASB 117 stating the requirements and disclosures that the company must make for the purpose
of classifying expenses. Further short terms leases that are currently less for than a period of time
which is lower than one year of time period and low in value can be treated as an operating
expenses and be directly reported in the income statement of the company for the stated time
period.

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Conclusion
The accounting concepts used by the Healius Company has helped the accounting
information users such as the stakeholders of the company well related the accounting principles
with appropriate accounting standard in order to assess the materiality of the financial statement
presented. The old standard that guides companies for leases that is AASB 117, will be scrapped
in the year 2018 and the application of the same will be done by all the companies for the
purpose of reporting and classifying all the lease transactions carried on by the company. The
application of the AASB 16 would be a comprehensive and a detailed lease application
accounting standard that would be helping the company in better classification, reporting and
making necessary disclosures about the lease that is reported in the books of accounts.

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References
Aasb.gov.au. 2019. [Online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB16_02-16.pdf [Accessed 25 Sep.
2019].
Azmi, A.H. and Mohamed, N., 2014. Readiness of Malaysian public sector employees in moving
towards accrual accounting for improve accountability: The case of Ministry of Education
(MOE). Procedia-Social and Behavioral Sciences, 164, pp.106-111.
Brumm, L. and Liu, J., 2019. New leasing accounting standard. Taxation in Australia, 53(8),
p.449.
Davern, M., Gyles, N., Potter, B. and Yang, V., 2019. Implementing AASB 15 revenue from
contracts with customers: the preparer perspective. Accounting Research Journal, (just-
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Eilifsen, A. and Messier Jr, W.F., 2014. Materiality guidance of the major public accounting
firms. Auditing: A Journal of Practice & Theory, 34(2), pp.3-26.
Enofe, A.E., Maugham, C., Otuya, S. and Ovie, C., 2013. Audit report and going concern
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https://www.healius.com.au/globalassets/corporate/pdfs/annual-reports/2018/final-2018-ar-
8545_phc_ar18_all_lr.pdf [Accessed 25 Sep. 2019].

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Healius.com.au. 2019. [Online] Available at:
https://www.healius.com.au/globalassets/corporate/pdfs/asx-announcements/2019/annual-report-
to-shareholders-1963669.pdf [Accessed 25 Sep. 2019].
Ifrs.org. (2019). [Online] Available at: https://www.ifrs.org/-/media/project/leases/ifrs/published-
documents/ifrs16-effects-analysis.pdf [Accessed 25 Sep. 2019].
Limited, P. 2019. Annual Reports | Healius Limited. [online] Healius.com.au. Available at:
https://www.healius.com.au/invest-in-us/reports/annual-reports/ [Accessed 25 Sep. 2019].
Mora, A. and Walker, M., 2015. The implications of research on accounting conservatism for
accounting standard setting. Accounting and Business Research, 45(5), pp.620-650.
Niescho, C., 2018. Triple whammy. Company Director, 34(5), p.62.
Peterson, K., Schmardebeck, R. and Wilks, T.J., 2015. The earnings quality and information
processing effects of accounting consistency. The accounting review, 90(6), pp.2483-2514.

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Appendix

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