Advance Financial Accounting: Accounting Concepts and Measurement Debate in Spark New Zealand's Annual Report

Advance financial accounting
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Contents
Introduction......................................................................................................................................3
Description of accounting concepts used by Spark New Zealand to prepare the annual report......3
Measurement Debate in Accounting in Reference to the Conceptual Framework and Examples
from the Selected Company.............................................................................................................7
Understanding of Relevance and Representational Faithfulness of Conceptual Accounting
Framework.....................................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13
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Introduction
The business entities are required to develop and provide high quality financial reports
for communicating its key financial results and figures to the end-users such as investors,
creditor, lenders and others. It is highly necessary that the business develop the financial reports
in compliance with the relevant accounting standards and policies to ensure that high quality
information is disclosed as it provides basis for the end-users to take various type of decisions.
The IASB (International Accounting Standards Board) has provided the conceptual accounting
frameworks in this context for ensuring that business entities worldwide develop high quality
financial reports by complying with the accounting concepts and principles provided by it. The
AASB (Australian Accounting Standards Board) also complies with the IASB standards and thus
have directed the business entities to follow the principles of conceptual accounting framework
in development of their financial reports.
This report has been prepared in the context of examining the annual report of a selected
ASX listed entity, that is, Spark New Zealand Foreign Exempt, a telecommunication company
involves in providing telephone and internet services across New Zealand. This report examines
the accounting concepts used by the company in addition with the measurement issues faced as
stated by the conceptual accounting framework. Also, it has discussed the importance of
relevance and representational faithfulness in the financial accounting framework as provided by
the conceptual accounting framework with the use of examples from the selected company.
Description of accounting concepts used by Spark New Zealand to prepare the annual
report
There are various accounting methods and valuation techniques available to perform
accounting of same financial items. So, it is very important to bring in uniformity and
consistency in recording the accounting transaction so that book of accounts maintain by
companies all over the world can have some sort of comparability. In order to maintain the
uniformity and consistency in books of accounts, international accounting bodies have developed
certain rules or principles and they are classified as accountings concepts and conventions. The
role of accounting concepts is to provide the basic accounting assumptions, rules and principles
to the accountants which act as the basis for recording accounting transactions and preparation of
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financial statements (Mirza and Knorr, 2011). Below are some important accounting concepts
that are mandatory for the companies all over the world to apply while performing the process of
financial reporting:
Business Entity Concept: As per this accounting concept, it is assumed that business enterprise
and business owners are two separate bodies or entity and it is important to keep personal
transactions and business transactions separate. It can be understand from the example that,
Spark New Zealand has shown owner’s capital or share capital under heading equity and liability
not as the asset of the company.
Money Measurement Concept: As per this accounting concept it is mandatory for all entities to
record only those transactions that can be measured in terms of money and should record them in
Country’s Currency. For example, company established in Australia will use Australian Dollar to
record all the transactions. It means company cannot record transactions that cannot be expressed
in books of accounts. In case of Spark New Zealand, all the transactions have been shown in
Australian Dollar and there are no transactions that have expressed as non monetary items. The
purpose of this accounting concept is to help the accountants to know what transactions have to
be recorded and what not to record (Needles, Powers and Crosson, 2013).
Going Concern Concept: This concept states that entity will continue forever for an indefinite
time period and it cannot be liquidated unless there is requirement to do so. This concept is most
important accounting concept as it provides the basis for calculating the value of assets and
liabilities. It can be understood from example that total value of purchases of plant and
machinery is being charged as depreciation up to the life of asset not as the expense in first year
itself. Spark New Zealand has followed this accounting concept as it deferred many expenses
and income in form of assets and liabilities in the balance which is a clear indication that
company based its accounting process through using going concern concept (Wahlen, Baginski
and Bradshaw, 2017).
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