Valuing Financial Instruments: A Case Study of Regis Resources Limited

This report examines the compliance of Regis Resources Limited with the conceptual framework of accounting and financial reporting. The company has successfully applied the fundamental qualitative characteristics of relevance and representational faithfulness in its annual financial statements. It has ensured the verifiability, comparability, timeliness, and understandability of financial information through its financial statements. By complying with the principles and fundamental characteristics of financial reporting, Regis Resources Limited has prepared and published a highly useful and reliable financial statement that assists its stakeholders in making efficient decisions.

ADVANCE FINANCIAL ACCOUNTING
REGIS RESOURCES
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Table of Contents
Introduction...................................................................................................................... 3
Conceptual framework along with measurement issues..................................................5
Fundamental qualitative characteristics (understanding of relevance as well as
representational faithfulness)...........................................................................................6
Conclusion....................................................................................................................... 8
Reference List.................................................................................................................. 9
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Introduction
The current study is conducted with the aim of shedding light on different accounting
concepts, conceptual framework, issue of measurement and the fundamental qualitative
characteristics associated with financial reporting practices. In order to meet the
purpose of the current study, an Australian company named Regis Resources Limited is
selected and its latest annual report is reviewed. This study also includes a conclusion
by stating the significance of accounting concepts, and compliance with the conceptual
framework as well as the fundamental qualitative characteristics of financial reporting to
ensure the truthfulness and reliability of the annual financial statements to the
stakeholders or users of such statements.
Regis Resources Limited is an Australian gold exploration and production company. It
was established in the year 1986 and since its incorporation, it is operating successfully.
It uses to operate its business with a highly effective and a team of proven management
which has a successful track record associated with the development of mid-sized gold
operations in Australia and Africa. Regis Resources Limited is a pure gold miner of
Australia involved in two gold projects such as McPhillamys Gold Project and Duketon
Gold Project in the Central Western region and in North Eastern Goldfields of WA
(Western Australia) of NSW (New South Wales) respectively. This both these two
projects Regis Resources have own hundred percent interests (bloomberg.com, 2019).
In the financial year 2018, the company becomes able to increase its net profit from
business than the previous financial year and have generated $174,231,000 net profit in
this year (regisresources.com.au, 2019).
Description of the accounting concept
Accounting concepts means a set of accounting rules that are required to be applied as
well as followed in an appropriate manner while preparing annual or periodic accounts
and financial statements. In accordance with business and operational structure,
different types of accounting concepts are used by different business organisations
(Horngren et al. 2012). As per the annual report of Regis Resources Limited, this
company follows going concern concept for accounting purpose and the purpose of
preparing periodic financial statements. According to the going concern accounting
concept, Regis Resources Limited prepares its periodic financial statements by
assuming that it will remain in the market and will continue its business operations in the
coming financial years. Under this assumption, Regis Resources uses to recognise its
revenue and expenses that could be deferred to the future financial period as it is
continuing its business operations. Otherwise, the expenses that are recognised would
be accelerated into the current period. According to the going concern concept of
accounting, a company (here, Regis Resources) prepares its accounts by considering
its business operations in a growing and well-maintained way and its ability to continue
its business operations in the coming future. Furthermore, going concern concept of
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accounting refers that Regis Resources is not operating its business where it could be
forced to stop or halt its operations or to liquidate its every asset in next few years at a
price lower than the market rate. As per the going concern nature of the company, its
directors are responsible to assess its ability in continuing as a going concern which
includes disclosing (if applicable) all the matters related or reflecting the company’s
nature as going concern as well as using going concern accounting basis unless they
either intend to cease its operations or to liquidate the company
(regisresources.com.au, 2019).
While considering going concern assumption as the company’s accounting concept, its
accountant i.e. the accountants of Regis Resources use to justify the procedure of
deferring few expenses after recognising them until the next financial year. The
accountant of the company uses to do so if it presumably remains in business and uses
its assets in an effective and efficient and way. Regis Resources is considered as an
Australian going concern as it is continuing its business operations successfully with
growth profit generation and there is no such significant information on the contrary to
its business operations. For instance, if Regis Resources fails to pay off its obligations
those are financial in nature, the obligations those are arises due to substantial selling
of assets and debt restructuring then it will not be treated as going concern (George-
Silviu and Melinda-Timea, 2015).
Some examples evidencing that Regis Resources Limited is following going concern
concept of accounting are given below –
 Positive and increasing revenue, gross profit, profit before tax, as well as net
profit
 Increase in net assets which reflects its increasing capability to meet its debts
through assets
 Increase in current and non-current liabilities which denotes continuous business
operations of Regis Resources for which it uses to raise external finance
 Huge increase in total equity in 2018 (financial year) than the previous year
 The huge growth in of cash and cash equivalent balance at the end of the
financial year 2018 compared to the previous financial year
 Sufficiency of liquid cash in hand and increased cash inflow (net) from its
operating activities
Some other examples identifying Regis Resources is following the going concern
concept for accounting purposes as well as for preparing periodic financial statements
to include its independent auditors’ identification through their independent audit report,
and the recognition of revenue and expenses in the company’s financial statements.
The growth of issued capital, reserves and retained profit of the company also reflects
that it is applying going concern concept of accounting. The increased allocation of
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provisions, financial assets, growth in mine properties as well as the rise of
underdeveloped mine properties shown by the company through its balance sheet also
evidencing its use of going concern accounting concept for accounting and reporting
purposes. A company is required to be considered as not following the concept of going
concern are found facing financial issues such as financial loss like gross loss, and net
loss, increased liability, fall in total assets and more during few years. Thus, in the
present context of this study, it is found that during the last financial years Regis
Resources is not facing any kind of financial issues as mentioned above whereas it is
experiencing growth in revenue generation, net profit generation. It also evidences that
Regis Resources is using going concern concept of accounting in order to prepare its
annual accounts.
Conceptual framework along with measurement issues
There are some specific principles are framed in relation to the conceptual framework of
accounting which assist a company in preparing and presenting financial reports. The
three principles associated with measurement requirements under the conceptual
framework of accounting are as follows -
 Principle 1: The aim of this measurement requirement is to represent the most
relevant information regarding the reporting company’s resources those are
economic in nature in a reliable and faithful manner. Furthermore, the claims
made in against of it and the activities of a company’s board for discharging their
responsibilities as well as duties by utilising the resources of the company are
also required to be reviewed and measured properly.
 Principle 2: According to this particular principle, all the relevant and material
non-financial and financial data and information are required to be provided by a
reporting company by applying a specific method of measurement that has a
great impact on the financial statements of the reporting company.
 Principle 3: As pet principle of the conceptual framework, the costs of
measurement must be justified compared to the usefulness or benefits of
information to the existing shareholders, potential investors, lenders, and
creditors (iasplus.com, 2018).
After reviewing the annual report of Regis Resources Limited for the financial year
2018, it is found that Regis Resources has complied with every principle related to the
measurement requirements as stated under the conceptual framework of accounting.
The company has applied AASB 9 - Financial Instruments, for measuring its financial
assets or instruments. It has applied amended accounting standards for classifying and
measuring the transactions related to share-based payments. With reference to AASB 2
- Classification and Measurement of Share-based Payment Transactions, Regis
Resources Limited has faced a few issues during the process of clarifying accounting
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for few share-based payment transactions (regisresources.com.au, 2019). The
amended standard for measuring the share-based payment transactions effects on
vesting as well as non-vesting conditions of the cash-settled share-based payments on
measurement. It provides the requirement for the share-based payment transactions
with a feature of net settlement for the obligations of tax-withholding. Regis Resources
Limited also faced some issues in complying with the amended requirements for share-
based payment transactions (regisresources.com.au, 2019). The modification or
amendment of this particular accounting standard of share-based payment transactions
has changed the classification mode form the cash-settled transactions to equity-settled
transactions. Furthermore, while complying with the new accounting standard on leases
i.e. AASB 16 – Leases, Regis Resources Limited has faced some issues in order to
quantify the effect this newly developed accounting standard. Although, the company
has applied AASB 16 – Leases for re-measurement of its lease-related liabilities in
order to adjust the right-of-use asset successfully (regisresources.com.au, 2019). In
order to value the financial instruments, the company has applied fair value
measurement technique and for level one, it has calculated the fair value of its assets
by using the quoted prices prevailing in the active markets. The fair value of the
company’s assets is estimated by using the inputs for assets or liabilities
(regisresources.com.au, 2019). For the financial instruments which are carried by Regis
Resources Limited at fair values and on a recurring basis, are determined whether
transfers of such instruments have occurred in between different hierarchy levels by re-
assessing the categorisation of such financial instruments at the end of every reporting
year.
Fundamental qualitative characteristics (understanding of relevance as well as
representational faithfulness)
In order to make financial statements optimally useful for a company's stakeholders, the
statements must embody a set of qualitative characteristics that are fundamental in
nature. The fundamental characteristics developed for the Conceptual Framework of
accounting and financial reporting include relevance and representational faithfulness.
Both these two fundamental characteristics use to denote the degree of usefulness of
financial information provided by a reporting entity through its annual financial
statements. As per the Conceptual Framework of financial reporting, a reporting entity
must focus on the usefulness and relevance of its financial information before
presenting it for the users. In accordance with the fundamental qualitative
characteristics of financial reporting, the financial data and information a reporting entity
publish become useful only it stands as relevant and represents faithfully. Relevance
refers to relevant information and data of the reporting company’s accounts and
financials that are capable of making a difference of opinion framed by the users of such
reporting company’s annual financial statements. Relevant financial information of a
company is capable to influence the decision-making process as well as the final
decision of the users of financial reports. The characteristic of relevance requires every
financial data and information to be economic in nature and also associated with an
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economic decision. Otherwise, the information becomes irrelevant and useless. A
company’s financial information becomes useful if it consists of confirmatory and
predictive value. Predictive value helps a company’s stakeholders to predict future
outcomes in relation to the company and confirmatory value enables them to check and
confirm earlier predictions or evaluations. In relevance, a vital aspect is materiality of
financial information. As per the annual report of Regis Resources Limited for the
financial year has met each of the requirements in order to ensure the relevance of
financial data and information it has presented through its annual financial statements
(Barth, 2013).
The 2nd fundamental qualitative characteristic of Conceptual Framework of accounting
and financial reporting is faithful representation or representational faithfulness. This
particular characteristic stands for the accuracy of financial information a company
presents through its annual financial statements in front of the stakeholders. The
information must be able to represent what exactly it purports to represent. Faithful
representation of financial information must represent the exact image of the financial
condition of a reporting company and the things happened actually within the company
while continuing business operations which led the company to generate profit. There
are three characteristics of faithful representation such as i) Completeness (adequate or
full disclosure of all the necessary and significant financial information), ii) Neutrality
(fairness as well as freedom and from any kind of bias), and iii) Free from errors and
manipulations (absence of inaccuracies, and omissions) (accountingverse.com, 2019).
Regis Resources Limited has acted in full compliance with this fundamental qualitative
characteristic while preparing and presenting its annual financial reports for its
stakeholders. The company has presented every necessary and material financial
information and data in a complete manner by considering fairness and freedom of
those data and information from any kind of manipulation, errors, and bias. Regis
Resources has also performed accordingly with one of its major responsibility of
representing financial information to its stakeholders as optimally useful and supportive
for effective decision making (Zeff, 2013).
For enhancing the degree of application of the two above explained fundamental
qualitative characteristics Regis Resources has ensured verifiability, comparability,
timeliness along with understandability of its financial information through its financial
statements. In respect of ensuring comparability of financial information, Regis
Resources has prepared its financial statements for enabling the users of these
statements to compare it within its own as well as across the other companies. For
ensuring verifiability, Regis Resources has assured its stakeholders regarding the
faithfulness and accuracy of financial data and information it has represented in-front of
the users of its annual financial statements. Moreover, the company has ensured the
timeliness of financial information by providing such information on-time to the users or
its stakeholders to assist them in making the most effective decisions (Flower, 2018). By
ensuring the understandability of financial data and information, Regis Resources has
helped its stakeholders in a proper comprehensive manner. It has helped the users of
its financial reports by providing them reasonable understanding and knowledge of its
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economic activities during a financial year. At last, after reviewing Regis Resources
Limited’s latest annual report, it is quite often to make a statement that Regis Resources
has successfully complied with the principles and fundamental characteristics of
financial reporting. It has prepared and published a highly useful and reliable financial
statement by ensuring the relevance of financial information and their faithful
representation.
Conclusion
Every business organisation, irrespective of its size, operating scale and business
structure must follow the conceptual framework of accounting and financial reporting to
enhance the usefulness and reliability of financial statements towards its stakeholders.
In this study, it is discussed that Regis Resources Limited has complied well with each
of the requirement of the conceptual framework of accounting and financial reporting.
Though the company has faced a few issues in relation to measurement, it has
overcome these issues successfully while preparing its annual accounts. The company
has applied going concern concept of accounting which is justified because the
company is continuing its operations in a very successful manner in terms of revenue
and profit generation. Regis Resources Limited has met both the fundamental
qualitative characteristic of financial reporting to prepare a highly useful, relevant,
reliable, and informative financial report regarding its regular business operations. The
financial information of Regis Resources Limited as published by the company through
its annual financial statements are significant and hold faithfulness that assists its
shareholders, potential investors, creditors, and others to make a most efficient
decision.
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Reference List
Accountingtools.com. 2019. The Going Concern Principle. Viewed on 15th January 2019
<https://www.accountingtools.com/articles/2017/5/14/the-going-concern-principle>
Accountingverse.com. 2019. Qualitative Characteristics of Financial Information.
Viewed on 15th January 2019
https://www.accountingverse.com/financial-accounting/introduction/qualitative-
characteristics.html
Barth, M.E., 2013. Measurement in financial reporting: The need for
concepts. Accounting Horizons, 28(2), pp.331-352.
Bloomberg.com. 2019. Company Overview of Regis Resources Limited. Viewed on 15th
January 2019 <https://www.bloomberg.com/research/stocks/private/snapshot.asp?
privcapId=881366>
Deloitte. 2019. Conceptual Framework - Measurement principles. Viewed on 15th
January 2019
<https://www.iasplus.com/en/meeting-notes/iasb/2013/february/cf-measurement>
Flower, J., 2018. Global financial reporting. Macmillan International Higher Education.
George-Silviu, C. and Melinda-Timea, F., 2015. New audit reporting challenges:
auditing the going concern basis of accounting. Procedia Economics and Finance, 32,
pp.216-224.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R. and Willett, R.,
2012. Accounting. Pearson Higher Education AU.
Regis Resources Limited. 2019. Annual Report 2018. Viewed on 15th January 2019
<https://www.regisresources.com.au/category/9-annual-reports-2.html>
Regis Resources Limited. 2019. Home. Viewed on 15th January 2019
<https://www.regisresources.com.au/General/about-regis-resources.html>
Zeff, S.A., 2013. The objectives of financial reporting: a historical survey and
analysis. Accounting and Business Research, 43(4), pp.262-327.
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