Advanced Financial Accounting.

Advanced Financial Accounting
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Contents
Introduction................................................................................................................ 3
Part 1: Description of Accounting Concepts...............................................................3
Part 2: Measurement Issues in Accounting as per the Accounting Framework...........4
Part 3: Importance of Relevance and Representational Faithfulness as per
conceptual framework................................................................................................ 6
Conclusion.................................................................................................................. 8
References................................................................................................................. 9
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Introduction
This report is prepared for examining the importance of conceptual framework of
accounting in developing financial reports. It examines the annual report of selected ASX listed
entity that is Tassal Group Limited. In this context, it has examined the accounting concepts,
measurement approaches and compliance with relevance and representational faithfulness
information of financial reporting as provided by the conceptual framework.
Part 1: Description of Accounting Concepts
 Business Entity Concept: This accounting concept has regarded that business and its
owners are two distinct entities and therefore it is highly essential that owners should
make a distinction between business and personal interest. As such, Tassal Group
Limited has presented the owner’s capital as equity and not as the company asset (Mirza,
and Knorr, 2011).
 Money Measurement Concept: This concept has regarded that business entities need to
identify record and measure the business transactions in monetary terms. For example,
Tassal Group Limited in its notes section of financial reports has stated the measurement
approaches that have been used in calculating the monetary value of its financial items
such as assets and liabilities. It has recorded and presented only those financial
transactions in the income statement or balance sheet that can be adequately expressed in
the monetary terms. The company has also expressed the items of its different asset and
liabilities in Australian Dollar. Thus, the concept has provided a base for the company to
select the accounting transactions that need to be represented within the financial
statements (International Accounting Standards Board, 2016).
 Going Concern Concept: This is the most important concept to be used by business
entities for preparation of financial reports. The concept has regarded that a business
entity need to present the financial information in manner so that it is able to assess its
continued existence in the future period of time (Needles, Powers and Crosson, 2013).
For example, Tassal Group Limited that total value of purchases of plant and machinery
is charged as depreciation on the basis of asset life and stated as expenses in the initial
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year of recognition. The company has developed its financial statements according to
concept as it has deferred many expenses and income as assets and liabilities in the
balance sheet which clearly indicates that it using going concern for reporting of assets
and liabilities (Annual report: Tassal Group Limited, 2017).
Part 2: Measurement Issues in Accounting as per the
Accounting Framework
The IASB has provided the framework for development of financial statements known as
conceptual framework of accounting. It has stated that the concept of measurement can be
regarded as approaches used for determination of monetary amounts of different finanacil
elements. The conceptual framework has regarded the following approaches that are to be used
for identification, recognition and measurement of financial items (Ashford, 2011). The
framework has provided the following measurement alternatives to be used during financial
reporting, that are, historical cost, current cost, net realizable value, value in use and fair value.
The measurement approaches other than historical cost are included in the current valuation
model. Therefore, it can be said that the conceptual framework has provided tow major methods
of measuring the value of assets and liabilities that are, historical cost and current valuation
model (Conceptual framework: Measurements and elements of financial statements, 2013).
However, the measurement approach provided by the framework is associated with the
issue of inconsistency as business entities are adopting the use of various types of measurement
methods for recording and measuring the value of their assets and liabilities. There are certain
accounting standards that provide choices to the business entities to either measure their assets at
cost or fair value basis. As such, IAS 16 for property, plant and equipment and IAS 40 for
investment properly present a selection choice between cost and fair value method of
measurement. There are also some accounting standards that lead to use of mixed measurement
method for measuring the value of financial items such as the standards on financial instruments
and hedge accounting. Thus, it can be said that the lack of an agreed and common basis for
measurement has restricted the advancement of the accounting standards (Gassen and
Schwedler, 2010).
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