Preliminary Analysis of AASB Financial Statements

Preliminary Analysis Findings 3 (i) Critical evaluation of the General Purpose of Preparing Financial Statements 3 (ii)Analysis of the Accounting Treatment for Financial Statements 3 (iii) Evaluation of the Measurement and Disclosure for Business Combinations 4 (iv)Accounting for Group Structure 5 (v) Proposed Business Strategies 6 (vi)Comparison of fixed-format with flexible format of financial position 6 References 8 1. Preliminary Analysis Findings (i) Critical evaluation of the General Purpose of Preparing Financial Statements The main purpose of developing

Advance Corporate Reporting
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Contents
1. Background..............................................................................................................................................3
2. Scope.......................................................................................................................................................3
3. Preliminary Analysis Findings..................................................................................................................3
(i) Critical evaluation of the General Purpose of Preparing Financial Statements...................................3
(ii)Analysis of the Accounting Treatment for Financial Statements under the AASB Standard................4
(iii) Evaluation of the Measurement and Disclosure for Business Combinations.....................................4
(iv)Accounting for Group Structure.........................................................................................................5
(v) Proposed Business Strategies.............................................................................................................6
(vi)Comparison of fixed-format with flexible format of financial position...............................................6
References...................................................................................................................................................8
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1. Background
Wesfarmers has its origination in 1914 and is presently known to be one of the largest
listed companies of the country. The company is headquartered within Western Australia and is
involved in conducting diverse business operations that includes home improvement, apparel and
general merchandise, office supplies, operating industrial divisions and also have businesses in
chemicals, energy, fertilizers and industrial and safety products. Wesfarmers is known to be
leading brand within the supermarket sector of Australia which is estimated to grow at a rapid
pace in size on an annual basis due to rising demand of premium food products (Wesfarmers,
2019).
2. Scope
The present report is being developed for the purpose of analyzing and reviewing the
corporate reporting practices adopted by a selected case study organization. It has adopted the
use of examining the general purpose financial statements of the selected corporation for
identifying the accounting treatment used and evaluating the measurement and disclosure for
business combinations. This has done for the purpose of developing a deep insight into the
accounting processes and methods used within the selected corporations. The business
corporation selected for the purpose is Wesfarmers Limited. The theme selected for the purpose
is corporate reporting that helps in examining the financial position of the selected firm that
determines its prospects for future growth and development.
3. Preliminary Analysis Findings
(i) Critical evaluation of the General Purpose of Preparing Financial
Statements
The main purpose of developing the financial statements by the businesses is to guide the
decision-making process of the end users. The business firms tend to develop different types of
financial statements such as balance sheet, income statements and statement of equity and cash
flows to provide important and required information to the primary users of the financial
information. The above set of financial statements are known as general purpose as they are
intended to satisfy the needs and requirements of diverse group of people for various types of
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business activities. Wesfarmers has also developed and disclosed all the above stated financial
statements in its annual report as a form of financial reporting to communicate its financial
performance to all its relevant stakeholders (Wesfarmers Annual report, 2018).
(ii)Analysis of the Accounting Treatment for Financial Statements under the
AASB Standard
The AASB (Australian Accounting Standards Board) has directed the business entities to
comply with IFRS standards and implement the accounting processes and principles directed by
these standards. Wesfarmers is an ASX listed entity and develops its financial reports as per the
AASB standards that are in accordance with IFRS. The AASB standard 101 has been developed
for the purpose of providing guidance to business entities regarding the presentation and
disclosure of the general purpose financial reports. The standard has provides structure to be
followed for corporate reporting and stated the specific accounting concepts and principle to be
adopted for recognition, measurement amid disclosure of specific transactions within the
financial statements (Henderson, 2015).
(iii) Evaluation of the Measurement and Disclosure for Business Combinations
The Australian Accounting Standard 3 has been developed for providing guidance in
relation to recognition and measurement of business combinations as per the section 334 of the
Corporations Act 2001. Business combination can be defined as a transaction in which an
acquirer gains control over another business that is acquired and promoting the business growth
and development. As per the AASB standard 3, an acquirer shall measure the acquired assets and
liabilities assumed at their fair values on the date of acquisition. The acquirer in turn needs to
measure the assets acquired and the liabilities assumed in a business combination as per other
AASB standards. Also, as per the AASB 3 standard, the acquirer is required to disclose the
information in the financial statements that aids the general users for examining the effect of a
business combination on the financial position of a firm during or after the end of the reporting
period (AASB Standards 3, 2015).
Subsequently, it has been identified by examining the financial report of Wesfarmers
limited that it has acquired 100 per cent of Home Retail Group Plc’s Holdings for about £340
million. The company has acquired homebase that is an UK entity and is involved in operating
home improvement and retail business within the country. The acquired assets and liabilities
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assumed at fair values and they are disclosed during the current reporting period as per the
AASB 3 standard (Wesfarmers Annual report, 2016). The disclosure provided by Wesfarmers as
per the standard in the financial report of the company is depicted as follows:
(Source: Wesfarmers Annual report, 2016)
(iv)Accounting for Group Structure
The business entities operating in a group from having a major holding company and
other subsidiary companies are known to develop and present consolidated group accounts in
which the assets, liabilities, income and expenses of the parent company and its subsidiaries are
presented as a single economic entity (Birt, 2019). Wesfarmers Limited also operates in a group
form and thus develops the general purpose report in a consolidated form as per the AASB and
corporations act 2001.The consolidated accounts has been prepared by elimination of all the
inter-company balances, income, expenses, profits and losses have been eliminated. The
acquisition of subsidiaries is accounted by the use of acquisition method of accounting
(Wesfarmers Annual report, 2018).
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(Source: Wesfarmers Annual report, 2018)
(v) Proposed Business Strategies
As analyzed from the annual report of the company, Wesfarmers is having strategic
excellence and has attained competitive position in the supermarkets sector of Australia owing to
its diverse business segments and high sales revenue. The analysis of the accounting information
provided by the company in relevance to business combination it is recommended that it should
adopt the use of acquisition and other means of strategic investment for driving its business
growth and development in the long-term (Hubbard, 2014).
(vi)Comparison of fixed-format with flexible format of financial position
The classification of assets and liabilities under a flexible format of financial position is
done as per the standard guidelines provide by the IASB. The entity does not have any flexibility
in adopting changes in the fixed format and this in turn leads to increasing the comparability and
understandability of the financial information across the entities. On the other hand, in flexible
format of statement of financial position the entities have the permission to select the information
that is relevant for it in comparison to presentation of financial statements that are generally
presented by all the entities (Henderson, 2015).
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References
AASB Standards 3. 2015. Business Combinations. [Online]. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf [Accessed on: 28
September 2019].
Birt, J. 2019. Accounting: Business Reporting for Decision Making. US: John Wiley & Sons.
Henderson, S. 2015. Issues in Financial Accounting. US: Pearson Higher Education AU.
Hubbard, G. 2014. Strategic Management. Australia: Pearson Australia.
Wesfarmers Annual report. 2016. [Online]. Available at:
https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=8
[Accessed on: 28 September 2019].
Wesfarmers Annual report. 2018. [Online]. Available at:
https://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-annual-
report.pdf?sfvrsn=0 [Accessed on: 28 September 2019].
Wesfarmers. 2019. Who we are. [Online]. Available at: https://www.wesfarmers.com.au/who-
we-are/who-we-are [Accessed on: 28 September 2019].
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