Advance Financial Accounting - Assignment

Running head: Advance Financial Accounting
Advance Financial Accounting
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1ADVANCE FINANCIAL ACCOUNTING
Table of Contents
1.1 Introduction..........................................................................................................................3
1.2 Discussion............................................................................................................................3
1.2.1 The entity is a reporting entity or not............................................................................3
1.2.2 Relevance and representational faithfulness.................................................................7
1.3 Conclusion..........................................................................................................................10

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Executive Summary
Reporting entity is the type of entity which uses the concept of General Purpose Financial
Reporting for their dependent user ad follows the Australian Accounting Standard along with
Corporation Regulations 2001. The reporting entity must also follow the concepts of
relevancy and representational faithfulness while preparing the consolidated financial
statement to present a true picture of their previous performance in front of the dependent
users. This report analyses whether Elders Limited is a reporting entity or not and whether
they use the concepts if relevance and representational faithfulness or not.

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1.1 Introduction
A reporting entity follows the General Purpose Financial Reporting concept to help
their dependent user to evaluate their annual performance and then take decisions regarding
the investment purpose. The company should follow the standards of AASB and Corporation
Regulations 2001 while preparing the financial statement. The company must follow the
concept of relevant and representational faithfulness while providing the information for
preparation of annual report because it helps the entity to present a true picture of their
performance in front of their dependent users without any biasness or illegal motive. This
report shows that the company Elders Limited is a reporting entity and they follows the
concepts of relevancy and faithful representation of their financial figures in the consolidated
financial report so that their dependent users trust is retained and also they get a true picture
of company’s performance and previous strategies the company have used to gain the sales
revenue. The detailed report is presented below regarding the criteria of an entity to become a
reporting entity and how relevancy and representational faithfulness in necessary for
companies to report their financial statements to the dependent users.
1.2 Discussion
1.2.1 The entity is a reporting entity or not
Any entity is called reporting when it has many users whose decision depends on the
result of the financial report. These users are the shareholders of the company, members,
creditors, potential investors and employees of the company. These entities make GPFR
(General Purpose Financial Report). Such kinds of reporting entities are major public
companies, public interest entities like educational institutes and those major private
companies in addition to external shareholders which cannot access any other financial
information apart from annual report of the company. The entities are known as a reporting

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entity only when they prepares GPFR following all the Australian Accounting Standards
while preparing their financial report of their company (VIDEN Group 2020).
According to AASB, reporting entity consists of many concepts and which must be
analyzed before finding about the criteria of an entity to become a reporting entity. The entity
must come under the legal entity concept and for the public sectors, the accountability of the
appointed official and elected representatives. The individual reporting entities are
recognized with their dependent users for their financial report. Reporting entities are not
dependent on any sector within which the entity is operated (Carini et al. 2018). Regardless
the purpose of the business for the entity. The boundaries of every reporting entity was also
used to determine whether or not the entity is a reporting entity and that process involves the
identification with reference to functional uses for which the reporting entity’s resources are
deployed and designated (Karğın 2013). These information regarding the entity allow the
users to get the clear of the performance of the entity and also estimate their past decision
regarding the usage of the resources. Reporting entity may operate as an individual or as
group where the entity may control or get controlled to achieve the goal (Draft 2015).
The criteria for being a reporting entity is to find out whether there is any dependent
user exist for the entity or not. The entity who have dependent users for general purpose
financial reports which are the first step to get identified as reporting entity. However, this
step may not be available for all the reporting entities. Then the next step for the
identification is the separation of the management form economic interest. The dependent
users of the entity can evaluate the resource and take decision on the basis of separated
management with economic interest of the entity and the spread of membership. The users of
the entity also exist due to this criteria as well (Cîrstea, A., 2014). The next criteria is the
importance given by the entity towards the economic and political situation because here also
the users are dependent on the GPFR. These reporting entities wants to make a good position

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in the market by balancing the operations with the economic and political situation inside the
organization. The last criteria is the financial character of the entity. The financial character
generally depicts the size or the indebtedness of that specific entity. If the entity size or
indebtedness of the entity is large then the entity will have more dependent users for
evaluating the performance of that entity (Accountingexplanation.com 2020).
Elders Limited is one of an Australian agribusiness. Elders Limited provides goods
and services which are related to agriculture to the primary and small producers in Australia
and in New Zealand. They have shares listed in the Australian Security Exchange where only
major company’s shares are listed (CEOpedia | Management online 2020). This entity
operates under the agribusiness industry. In the webpage of Elders Limited, there is a section
of investors which includes all the information which the investors in the market are interest
to gather regarding this entity. This confirms that the entity has dependent users who are
interested in evaluating the past performance and their decisions regarding the usefulness of
the resources and how the resources are deployed. Elders Limited also posts their
consolidated annual report which gives the investors a clear of the entity’s performance and
take certain decision regarding their investment in the entity (BusinessDictionary.com 2020).
The financial reports of the entity consists the notes of the consolidated financial statements
where the elaborated information of the consolidated annual report can be obtained and
Elders Limited also prepare GPFR for the declaration of their profit into the market. The
company also follows the Australian Accounting Standards and the Corporations Regulations
2001 which also fulfils all such criteria for being a reporting entity. This entity also has
separate in management and economic interests and the economic contribution is also good
enough to keep the investors happy and increase their expectations form the entity (Ifrs.org
2020). The size of the entity is also large which signifies that the dependent users must be
able to evaluate the performance of the entity. All these criteria of being a reporting entity is

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fulfilled by Elders Limited which states that this entity is also one of a reporting entity which
has dependent users who are dependent on the annual report of the entity to take decision
whether to invest or not (Inc.com 2020).
Source: Elders Limited Annual Financial report
Source: Elders Limited Annual Financial report

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1.2.2 Relevance and representational faithfulness
Relevance of financial statements of any reporting entity is considered as the
information which is generated from the accounting system which should have a high impact
on the decision making for user who is perusing the information. The information which is
delivered to the user more quickly is the most relevant information. The relevance of the
financial statement is important in accounting for example a company controller has decided
to issue the financial statement of the company in three days rather in three weeks which
makes it deliver the financial statement to the external and internal party more quickly and
make the financial statement more relevant. The sales department of any company can also
use the sales report to show the relevance of how a higher capacity machine is not necessary
when the industrial engineering manager asked for extra installation of machine (Accounting-
simplified.com 2020).
The representational faithfulness of the reporting entity depends upon the concept that
the figures represented in the financial statement of the report are very accurate and reflects
the true picture of the business. This faithfulness of representing the financial statements with
true and relevant figures must be applied in every financial reports every time (Cleartax.in
2020). The entity which faithfully represent their financial statement has to follow other
attributes also like providing complete additional information regarding every transaction to
the user in the financial report, the financial report must be free from any error or biasness
and the financial report must not contain any purposefully converted figures to show the
customers a better financial position or to show a worse financial position to avoid the
income tax liability in a particular financial year (Wallstreet Mojo 2020).

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Elders Limited represents their financial statements in a relevant and faithful manner.
This point is justified by the fact that the reporting entity represents their financial figures in
the financial statements depicts a true picture of their company (Abraham and Shrives 2014).
The Elders Limited Company also displays many elaborated information in their notes to the
consolidated financial statement. Notes to the consolidated financial statement in the annual
report 2019 of Elders Limited like information regarding Key management personnel,
contingent liabilities, investments in controlled entities, contributed equity, financial
instrument, financial instrument and etc. The faithful representation of the financial statement
of Elders Limited is shown by the relevant and true figures in the consolidated financial
report (Investors.elderslimited.com 2020). This can be justified by the fact that the entity has
reflected the exact figures in the financial statement which it has performed in the previous
year for example the sales revenue of the Elders Limited which are represented in the annual
report of 2019 is 288,774 and it show that the revenue has also increased than the previous
sales revenue. When the performance of Elders Limited Company is evaluated it was clear
from the report that it has met their sales revenue and earned enough revenue which has
represented exact figure in their annual report. The profit/loss after income tax is also
representing the true figure of their financial statement. Hence, the reporting entity Elders
Limited follows the relevant and representing faithfulness concept while preparing their
consolidated financial report without any biasness and fraud (Aasb.gov.au 2020).

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Source: Elders Limited Annual Financial report
Between relevant and representation of faithfulness, entities should opt for faithful
representation because then the company can be able to represent their financial figures with
a true figure and without biasness because relevance of the financial statement means to
provide the annual report frequently whenever there is any need of the evaluation of financial
position for the Elders Limited and it may bias the annual financial figures the company as
the frequent need of the annual report will make the situation complex for auditor to evaluate
the complicated information and prepare annual report every time (Varsity by Zerodha 2020).
While preparing the balance sheet with detailed notes to the consolidated financial statements
by maintaining the actual and true figures of the financial position always requires time
(Business-standard.com 2020). However if the company teds to maintain the relevancy of
their representation then it would be difficult to maintain the faithful representation of the
data. Elders Limited seems to be accessing the Faithful representation of their data because
they are preparing consolidated financial report which need core knowledge and in-depth
research of all the subsidiary performances every time (Legislation.gov.au 2020). Taking
research time by the auditor in necessary for the company as they want to show the exact
financial position to the dependent users so that there will be more retention of the customers,
increased trust over them and more investments from outside. However, the company cannot

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take long time to report their financial statement and they have to maintain a time span which
represents the relevancy of their financial statement. If only one concept is needed to be
chosen by the entities over another then the entity must choose to be faithful while
representing their financial statements (Vuran 2013).
1.3 Conclusion
Form the above discussion it can be concluded that Elders Limited is one of a
reporting entity and they present their financial report following all the Australian
Accounting Standards and Corporation Regulations 2001. The Elders Limited is a reporting
entity as it follows the General Purpose Financial Reporting concept. The entity has
dependent users who evaluates the company performance and their past strategies by looking
at the consolidated financial report and then takes decision of whether to invest in the
company or not. Elders Limited also presents their consolidated financial report by following
the concepts of relevant and faithful representation of the financial statement. They research
accordingly in a faithful manner and then report the financial statement with exact and true
figures to the external and internal users without biased information to get more investments
by showing a positive figure or decrease the income tax liability by showing a negative figure
in the financial statement. However, when it is asked which concept does Elders Limited
follows for their representation of the financial statement it is seen that they follow mostly the
concept regarding being representation of faithfulness.

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