Advanced Financial Accounting

This assessment analyzes the financial statements of Santos ltd for the year 2018 and examines the accounting concepts followed by the company. It also discusses the conceptual framework of accounting, measurement of assets and liabilities, issues faced in measurement, and the fundamental characteristics of useful information in financial statements.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Introduction........................................................................................................................2
Important Accounting Concepts Followed.........................................................................2
Conceptual Framework of Accounting..............................................................................3
Measurement of Assets and Liabilities of thee Business..................................................4
Issues faced in Measurement............................................................................................5
Fundamental Characteristic of Useful Information............................................................5
Conclusion.........................................................................................................................6
Reference..........................................................................................................................7

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Introduction
The main purpose of the assessment is to analyse the business of Santos ltd by
assessing the financial statements which is prepared by the management of the
company for the year 2018. The analysis is conducted in order to evaluate the use of
accounting concepts for the purpose of reporting key financial information of the
business. The analysis would further be conducting a detailed analysis of the
information which is presented in the financial statements and the conceptual
framework which is followed by the business for the purpose of reporting important
information relating to the business (Jung, Lee and Weber 2014). The assessment
would be identifying important accounting concepts which is followed by business. The
study also aims to identify the qualitative characteristic which are present in the annual
report which is prepared by the business.
In accounting the use of account concepts is important for the purpose of
preparing annual reports of the business and the same needs to be disclosed in the
financial reports which is prepared by the business. The accounting concepts which are
followed by a business helps the management of the company to preparing the financial
statements while following conceptual framework. The company which is considered is
engaged in the business of providing energy to the residents of Australia and the
company is known to be one of the leading businesses which is operating in the energy
sector (Santos.com. 2019).
Important Accounting Concepts Followed
The management of Santos ltd has prepared the financial statement following the
generally accepted reporting framework. Some of the important accounting concepts
which is followed by the management of the company are listed below:
 Going Concern Principle: The principle of going concern is considered to be
one of the fundamental concepts which is applied for the purpose of preparing
the financial statements of the business. The principle states that the business
would be operating for the foreseeable future without any intention of closing the
business. This is considered to be one of the fundamental concept as the
investors relies on this concept while making investments in a business and that
too for a long-term period (Iatridis and Dimitras 2013). The annual report of the
Santos ltd shows that the management of the company has followed this concept
while preparing the financial statements of the business as no disclosure is
provided regarding the going concern principle of the business. As per the
guidelines of accounting, if any situation, the going concern principle is affected,
the management of the company is expected to appropriately report the same in
the annual report of the business.
 Double entry Concept: This is also one of the fundamental concept which is
used for the purpose of preparing the financial statements of the business. It can
be said that this concept is the basis on which financial statement and even
accounting process is conducted. The concept states that every transaction
which a business undertakes would have a double effect. It can increase the

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value of one account and decrease the value of another. This results in balancing
effect which is seen in the balance sheet prepared by the business
(Dimitropoulos et al. 2013). The annual report of Santos ltd shows that the
management of the company has adhered to double entry concept for the
purpose of reporting financial information of the business.
 Separate Entity Concept: This is another concept which states that the owners
of the business are different from that of the business itself. This concept further
states that the business is capable to enter into contracts in its own name and
therefore has a legal existence of its own. The business of Santos ltd
appropriately follows such a concept as the business has enter into several
contracts in the name of the company and not in the name of the shareholders or
directors of the business.
 Cost Concept: This concept states that all the assets which are acquired by the
business should be recognised initially at cost so that the same reflect
appropriately the value at which the asset was actually purchased by the
business. The cost concept is followed by the business in order to ensure
whether the users are aware of the value at which the assets are purchased by
the business. The annual report of Santos ltd shows that the management has
follows cost concept while preparing the financial statements of the business as
the assets which were purchased by the business were initially measured at
costs of the business.
 Consistency Concept: This concept states that the management of the
company needs to focus on following the same principles year after year for the
purpose of reporting financial information of the business. The consistency
concept also makes it clear that the management of the company needs to
maintain consistency while reporting key financial information for the business.
The annual report of Santos ltd shows that the management follows consistency
concept in terms of depreciation policies, impairment policies which is followed
by the management of the company.
Conceptual Framework of Accounting
The conceptual framework of accounting binds all the concepts of accounting
and appropriate helps the management of the company to prepare a financial statement
showing all relevant information of the business. This framework is delivered by the
financial accounting standard board, a self-governing entity that works to ensure that
the financial statements which is prepared by the business are appropriate and whether
the same follows all relevant accounting standards for the purpose of reporting. Further
accounting theory can be supposed as of the rational perceptive that aids to assess and
direct accounting practices (Schaltegger and Burritt 2017). Accounting theory as
supervisory standards growth also aids to construct innovative accounting practices and
events.
The idea of conceptual framework relates to a guideline which needs to be
followed by every accounting expert who have the responsibility of preparing the
financial statements of the business. The conceptual framework was introduced so that
a level of consistency can be brought about in accounting practices around the world.

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The most logical application of the framework is to prepare the financial statement in a
manner which can be easily understood by the users providing them with accurate
information and the same can also be consistent with accounting practices around the
world. The annual report of Santos ltd shows that the management of the company
follows the conceptual framework for the purpose of reporting important information
relating to the business.
Measurement of Assets and Liabilities of thee Business
The assets and liabilities of the business are represented in the balance sheet of
the business and for such a purpose proper valuation of the assets and liabilities needs
to be shown. This makes the measurement for the assets and liabilities very important
as the same helps in representing the financial position of the business. In order to
value the assets and liabilities of the business two popular concepts are used and the
same are explained below in details:
 Historical Method: The most common method which is used in appropriately
measuring the costs of the business is by following the historical costs method
which allows the business to record the asset or liability at the initial cost of
acquisition of the business. In other words, the assets and liabilities are
recognised at the amount at which the asset was actually acquired by the
business (Weil, Schipper and Francis 2013). The annual report of the business
shows that the management of the company follows historical cost method for
the assets recognition initially and then the same are measured at market value.
The notes to account section shows that the management of Santos ltd follows
Historical costs method.
 Fair Value Accounting: This is also one of the important accounting policies for
measuring the assets and liabilities of the business. This method allows the
management of the company to measure the assets and liabilities of the
business at market value so that the same are up to dated with the market value.
This help them to show all the market value of the asset and liabilities so this
help the user to get the more proper information of the liquidity of the company
as it has recorded all the value as per the market so the user can able to judge
the balance sheet. The annual reports of Santos ltd shows that the management
utilizes the fair value accounting system for representing the assets and liabilities
of the business in the annual reports of the business (Kaplan and Atkinson
2015).
Issues faced in Measurement
There are certain issues which are faced by a business while measuring the
assets and liabilities of the business. Some of the issues which can be faced by the
business in terms of measurement of assets and liabilities are listed below in details:
 Matching: The management of the company needs to adhere to dual concept of
accounting for the purpose of reporting and measuring the assets liabilities of the
business. The recording for the assets and liabilities should be such that the

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same contribute to the conceptual framework requirements of a business. The
business of Santos ltd need to provide appropriate information relating to the
items which are related to each other and whether appropriate information is
provided in this respect or not.
 Evidence: The measurement criteria is generally based on certain assumption
and estimates. These assumptions or estimates should have a proper basis and
should not be random in nature as the same would lead to inappropriate
presentation of financial information of the business (Christensen et al. 2015). In
certain cases, management of the company tend to follow accounting principles
and standards and therefore in case the same is used proper disclosure is
required in the financial statement of the company. The annual report of Santos
ltd shows that the management of the company has appropriately represented
the items in the financial statements which needed to be recorded.
 Income Recognition: The nature of the income which is generated by the
business should be ascertained by the management of the company before
undertaking any decision regarding measurement criteria which is followed by
the business. The most important aspect in this issue is that proper disclosures
are required to be provided to the business so that appropriate recognition of
income can be done (Hribar, Kravet and Wilson 2014). The annual report of the
business appropriately shows the income recognition criteria which is followed by
the business for the purpose of reporting important information of the business.
 Consistency: The measurement criteria which is used by the management of
the company needs to be consistently followed in future as well for the purpose
of reporting financial information in the annual report of the business. This issue
does not arise in case a business follows the same measurement criteria year
after such as the depreciation policies which is followed by business for showing
depreciation charges in the financial statement of the business.
Fundamental Characteristic of Useful Information
The financial statement is prepared by the management of a company for
appropriately representing the financial performance of a business to the users of the
financial statements so that they can take appropriate decisions on the basis of the
same. It is therefore very important that the financial statement include relevant
information so that the users can understand and interpret the same. The main purpose
of the conceptual framework which was devised by the IASB was to provide an
appropriate framework for the businesses to present the financial information in such a
manner that the same can be interpreted by the users and on the basis of the same, the
users can take important decisions relating to the business. The information which are
shown in the annual reports should be appropriate and relevant as per the requirement
of conceptual framework of accounting (Glaum et al. 2013). Therefore, in order to
improve the quality of reporting in a business, the conceptual framework requires
businesses to adhere to fundamental characteristic of financial information. The
fundamental characteristic which should be present in a financial statement so that the
same represent quality reporting framework are listed below in details:

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 Relevance: The principle of relevance requires businesses to report that
information which are relevant to the nature of the business and are clear in
terms of meanings which can be derived from the same. The information must be
of relevant nature as the same are considered by the users of the financial
statements to take major decisions regarding investment decisions in the
business. This the basic principle which is anticipated from the business following
conceptual framework of accounting (Chen, Miao and Shevlin 2015). In the case
of Santos ltd, the management has followed AASB standards for which
disclosures are also provided which makes the information relevant and
accurate. In addition to this, proper disclosures are also provided by the
business. In addition to this, the management of the company has adhered to all
relevant reporting requirements so that the financial statements are appropriately
represented.
 Faithful representation: The information which is presented in the annual report
should be accurate as it is to be noted that banks provides financial assistance
after analyzing such information and shareholders also invests their funds after
the analysis (Simnett and Huggins 2015). The accuracy of the information which
is shown in the annual report is also important for the users of the financial
statements as it’s a question of investment of money. The audit report makes it
clear that the financial statements are accurate which means that this condition is
also met by the management. In the case of Santos ltd, the auditor of the
business confirms that the management of the company has followed relevant
standards while reporting the financial position of the business.
Conclusion
The analysis which is conducted above shows that the management of Santos
ltd has adhered to all relevant accounting standards and regulations while preparing the
financial statements of the business. The annual report of the business further shows
that the management consistently follows conceptual framework for reporting key
financial information of the business. The discussion above also identifies some of the
issues which are faced by the management for the purpose of reporting key financial
information relating to the business especially assets and liabilities of the business. The
discussion also shows key accounting concepts which are used by the management of
the company for the purpose of reporting important transactions and forming the annual
report of the business.

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