Advance Financial Accounting: Evaluation of Accounting Concepts and Policies Implemented by Rio Tinto Limited

Advance Financial Accounting
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Executive Summary
The main objective of the report is to present an examination of the contemporary issue
in accounting by analyzing the annual report of a selected ASX listed entity. The report in this
context has presented an evaluation of the annual report of Rio Tinto Limited to determine the
accounting method used by it for financial reporting. Also, it has examined the need of achieving
a trade-off between relevancy and faithful presentation of financial information to meet the
qualitative criteria of these two fundamental features of conceptual accounting framework. This
is essential because the presence of both the characteristic is essential in the financial reports and
as such the accounting of assets and liabilities should be done in a manner so that both the stated
criteria’s are able to be met by the business entities.
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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
1: Description of accountings concepts and their application through providing examples of real
life company namely Rio Tinto.......................................................................................................4
Going Concern Accounting Concept...........................................................................................4
Business entity concept................................................................................................................5
Accounting period and cost concept............................................................................................5
2: Analysis of Issue of Measurement in the Conceptual Framework and Example from Selected
Company..........................................................................................................................................6
3: Evaluation of Relevance and Representational Faithfulness and their Importance in
Accounting for Assets and Liabilities..............................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10
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Introduction
The conceptual accounting framework is being developed and provided by the IASB to
direct and support the business entities cross the world in selection of appropriate accounting
concepts and approach for reporting of financial information. The ASX listed entities comply
with the IASB standard and therefore also integrate the use of qualitative principles for the
development of financial reports. As such, this report presents an evaluation of the accounting
concepts and policies implemented by an ASX listed entity, that is Rio Tinto Limited, a mining
company of Australia at the time of developing its financial statements. Also, it presents a
discussion regarding the measurement issue in accounting by stating examples from the selected
ASX listed entity. The importance of relevance and faithful representation as two major criteria
of financial reporting has been evaluated in the report by the use of selected ASX listed entity.
1: Description of accountings concepts and their application through providing examples of
real life company namely Rio Tinto
Below are some major accounting concepts that have been mandatory to apply by all
entities in world:
Going Concern Accounting Concept
This accounting concept holds that entity will continue to carry its activities for an
indefinite period and will not be liquidated unless there is required to do so. The simpler
meaning of this concept is that organization has continuity of life and it is based on assumption
that organization will not be dissolved in near future. Most of other accounting concepts use this
concept as the base to define their assumptions (Needles, Powers and Crosson, 2013). In order to
understanding going concern concept, it is good to take example of Rio Tinto entity. Rio Tinto
has deferred most of its expenses instead to charge them in same period such as depreciation of
property, plant and equipment. Some other items that are based on going concern concept are
provisions, contingent liabilities and deferred taxes (Mirza and Knorr, 2011).
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