Understanding Accounting Concepts and Measurement Issues in Advanced Financial Accounting

This report provides an in-depth understanding of accounting concepts and measurement issues in advanced financial accounting. It discusses the relevance and faithful representation of financial information, as well as the specific accounting policies adopted by Woolworths Group Limited. The report also explores the conceptual framework and the challenges faced in measuring different accounts.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial accounting
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ADVANCED FINANCIAL ACCOUNTING
Table of Contents
Introduction:..............................................................................................................................2
Discussion:...............................................................................................................................2
Description of accounting concepts:.....................................................................................2
Measurement issue and conceptual framework:................................................................6
Fundamental qualitative characteristics- Understanding of relevance and
representation faithfulness:....................................................................................................9
Conclusion:.............................................................................................................................11
References list:......................................................................................................................12

ADVANCED FINANCIAL ACCOUNTING
Introduction:
The report elucidates the understanding of the accounting concepts and the
guidance provided by such concepts in formulating the accounting policies by the
organization. The conceptual framework and the issues faced by the organization in
measuring different accounts is also presented in the report. In addition to this the
fundamental qualitative characteristics in relation to the representation faithfulness
and understanding of relevance is also demonstrated in the report. All the concepts
have been explained in reference to the company listed on the ASX. The chosen
company for the purpose of analysis is Woolworths group Limited which is the
largest retailer operating in Australia with some of the most trusted and recognized
brands. It is a diverse group of retail business on a journey of becoming organization
that is led by purpose and focuses on key priorities that helps in improving the
satisfaction of customers (Woolworthsgroup.com.au 2019). The preparation and
presentation of the financial statements of every organization is based on the
principles of the accounting concepts along with forming the estimates and
judgment. Evaluation of the concepts and the relevance of the financial information
have been done by collecting the facts and figures from the financial report of the
latest financial year.
Discussion:
Description of accounting concepts:
In this section of report, the concepts of accounting and its implication for
determining the assumptions and measurement along with estimates have been
illustrated by referring to the financial report of Woolworth’s group limited. Accounting
concepts can be defined as the assumptions, postulates or the conditions that is

ADVANCED FINANCIAL ACCOUNTING
used for basing the accounting statements and records of the organization. There
are several concepts of accounting and some specific accounting concepts are used
by the organization depending upon their suitability and the environment in which it is
carrying out its operation. Basically, accounting concept is the set of rules that are
followed by the organization in preparing their financial statements.
The accounting policies of the Woolworths group provides an explanation of
the basis on which the consolidated financial statements have been prepared and
the measurement of the financial liabilities, assets, comprehensive income and
derivative liabilities and assets are done. There is consistent application of the
accounting policies by the group in all the periods that is presented in the financial
statements. In addition to this, the application of the accounting policies are done by
making judgment, estimates and assumptions impacting the amounts reflected in the
financial report. All the judgments, estimates and assumptions are based on
historical experiences that are adjusted for the factors that are reasonable under
certain circumstances and for the current market conditions. A high degree of
complexity is involved in forming the judgment and estimates along with carrying
significant risk of material adjustments in the carrying value of liabilities and assets.
From the financial report of Woolworths limited, it can be observed that there
is a separate section of the specific accounting policies that are adopted by the
group with each of them is described in the respective notes to the financial
statements. Some of the accounting policies in relation to the particular account are
discussed below:
Inventories- Valuation of inventories by Woolworth’s group is done at lower
of either net realizable value or cost. Determination if net realizable value is done as

ADVANCED FINANCIAL ACCOUNTING
the estimated selling price by deducting the estimated selling expenses in the
ordinary course of doing business. In addition to this, determination of cost is done
on the weighted average basis.
Foreign currencies- Recognition of any foreign exchange difference is done
in the comprehensive income with some of such differences are exchange difference
that arise from monetary items and difference arising on translation of foreign
operation.
Financial instruments- The previous accounting standards for measuring the
financial instruments are replaced by the new standard AASB 9 financial
instruments. A new model of impairment for the financial instruments is introduced
by the standard along with the category of new measurement fair value through the
comprehensive income for certain instruments of debt.
Leases- The new lease standard requires the leased assets and liabilities to
be separately represented in the balance sheet. Recognition of the depreciation
charge will be done for the right of use assets and recognition of interest expense on
leased liabilities. Under the existing requirements of the lease, classification of lease
is done based on the nature of lease either as operating lease that is not recognized
in the consolidated statement of financial position and financial lease that is
recognized on the consolidated statements of financial position (Williams and
Ravenscroft 2015).
Goods and service tax- Recognition of assets, revenue and expenses are
done at net of GST except whereas the incurred GST cannot be recovered from
taxation authority. Payables and receivables are stated by including the amount of
GST. In addition to this, the components of cash flow of GST that arises from

ADVANCED FINANCIAL ACCOUNTING
financing and investing activities and are payable to or recoverable from taxation
authorities are classified as operating cash flow (Alrazi et al. 2015).
Transition- The application of AASB 16 is done by the group using the
approach of modified retrospective. Therefore, recognition of cumulative effect of the
standard is done by making adjustments to the opening balance of retained
earnings. A lease by lease basis can be elected by the group when applying the
modified retrospective approach for the application of practical expedients on
transition.
Issued standard forming the basis of accounting policies:
(Source: Woolworthsgroup.com.au 2019)
The above table represents the standard and any amendments to the
standard that is applicable for the early adoption. Recognition of any revision to the
accounting policies are made in the period in which the revision of estimates are
done. Some other significant accounting policies includes in relation to the account
such as trade receivable, financing cost, impairment of trade and other receivables,

ADVANCED FINANCIAL ACCOUNTING
property, plant and equipment, intangible assets, impairment of non financial
instruments and other derivatives instruments.
Measurement issue and conceptual framework:
The preparer of the financial statements are assisted with the help of objective
of conceptual framework for gaining an understanding of the accounting standards
and its interpretation. Conceptual framework can be defined as the set of ideas and
objective that helps in creation of consistent set of policies and rues that provides
assistance in the preparation of the financial statements for the users such as
creditors or investors. A basis of consistency and discussion is provided to the
practitioners with the help of adoption of the conceptual framework. An organization
can employ several basis of measuring the financial statements that is provided by
the International accounting standard board and such basis of measurements can be
employed in different combination and varying degrees. The accounting standard
board usually provided five basis of measurement with such measurement basis
consisting of present value of future cash flows, historical cost, current cost and net
realizable value (Cannon and Bedard 2016). It is observed from the financial report
of Woolworth group limited that the consolidated financial statements have been
prepared on the basis of historical cost except for some financial assets that is
measured at fair value. There are some significant agency arrangements which the
group has entered into and for certain legal formal agency arrangements; the
comparative period of sales is represented by the group. That is the recognition of
share of the agency sale of group is done as revenue that is generated from the sale
of goods and services. In addition to this, measurement of the non monetary
liabilities sand assets is done at the historical cost at the applicable rate at the date

ADVANCED FINANCIAL ACCOUNTING
of transactions (Woolworthsgroup.com.au 2019). It is the management of
organization that is responsible for making estimates and assumptions based on the
factors that are reasonable on the basis of certain grounds and circumstances.
Fair value measurement of financial instruments:
(Source: Woolworthsgroup.com.au 2019)
The table above provides information to the users about the determination of
fair value of the financial liabilities and assets with such assets and liabilities are
grouped into level 1 to level 3 on the basis of degree to which the input of the fair
value measurements is observed. The carrying value of financial assets, cash and
cash equivalent, bank, financial liabilities that are non interest bearing and banks
approximates their fair value.
Recognition of derivative financial instruments is done at fair value when the
company has entered into the derivative contract. Recognition of any loss and gain
resulting from the remeasurement to the fair value is done immediately in the
consolidated statements of profit and loss.

ADVANCED FINANCIAL ACCOUNTING
Under significant accounting policies, recognition of the return on plan assets and
net defined benefit of liability comprising of actuarial losses and gain is done in the
period of their occurrence and they are not reclassified to profit and loss and are
recognized directly into the statement of comprehensive income
(Woolworthsgroup.com.au 2019).
In relation to significant accounting policies, recognition of borrowing is done
by the group initially at the fair value by deducting the transaction cost and
subsequently stating them at the amortized cost. Over the period of borrowings,
recognition of any difference between the redemption value and cost is done in the
consolidated statement of profit and loss. Measurement of the equity instrument of
the group is done at fair value and any change in the value is recognized in the
financial statements. The exposure of the group to the risk of equity rice in respect of
investment made in some group is not regarded as material and accordingly the risk
has not been hedged.
With regard to the significant accounting policies, classification of noncurrent
assets as held for sale is done when through the sale transactions; their carrying
amount will be principally recovered. Measurement of such assets is done lower of
the fair value less cost to sell or lower of their carrying amount ( Barker and Teixeira
2018).
For any initial or subsequent writing down of the assets to the fair value by
deducting cost to sell results in the recognition of the impairment loss, Recognition of
the gain and loss by the sale of assets that is not previously recognized is done at
the date of recognition.

ADVANCED FINANCIAL ACCOUNTING
Fundamental qualitative characteristics- Understanding of relevance and
representation faithfulness:
Investors and users of the financial report are provided with an in depth and
adequate insight into the financial information presented b the company using the
fundamental characteristics of relevance and faithful representation. The relevance
of information that is presented based on the accounting concepts is considerably
impacted by the quality of assets and liabilities along with the future flow of cash. In
addition to this, the basis of measurement providing relevant financial information is
affected by material inconsistency and material uncertainty. The management of
organization some specific factors along with the cost constraints basis for
determining the measurement basis of liabilities, assets, income and expenses
(Woolworthsgroup.com.au 2019).
Relevant information are those that helps in creating difference between the
decisions made by the investors and when the information has got confirmatory and
predictive value, then it is considered that the information disclosed is relevant. The
information presented in the financial report is considered to be faithfully represented
when such information is free from errors and is complete and neutral. Moreover, the
faithful presentation of information presented in the annual report is impacted by the
level of material uncertainty (Iasplus.com 2013). Nonetheless, some of the factors
such as timeliness, verifiability, comparability and understanding helps in enhancing
the qualitative characteristics of the information presented.
All the financial measures adopted by Woolworths for measuring some
specific accounts is done according to the relevant accounting standard that cannot
be directly compared with the measures of other companies. The prepared annual
report of the company for the financial year 2018 is considered to be effective

ADVANCED FINANCIAL ACCOUNTING
because the group has adopted the amended and relevant accounting standards.
From the analysis of the financial report of Woolworths, it is ascertained that the
users of the financial statements would be able to gain an understanding of the
accounting treatments and their basis of measurements that is summarized by
significant accounting policies. For the users, the items presented in the statement of
financial position and the cash flow statement is of relevance as they form the basis
of their investment decisions. Furthermore, the accounting policies used by the
reporting segments of the group is of great relevance to the users as there is a
detailed explanation of the financial information considering the size and nature of
incidences (Woolworthsgroup.com.au 2019). The financial report of the company
presents a separate disclosure of all the significant items that helps in explaining the
actual financial performance of company.
In order to comply with the disclosure requirements of the current period, all
the comparative information has been reclassified by the group and the overall
financial statements are not materially impacted by such classification. The
evaluation of the fair and true view of the financial information presented in the
financial report can also be done by referring to the opinion formed by the auditors
on the financial statements of the group. It is opined by the auditors of Woolworths
that the financial statements provides the users with a true and fair view of the
financial position and financial performance for the particular period. However, any
account that is considered by the auditors to have significant impact on the financial
performance is presented and discussed in a separate section of key audit matters
(Edgley et al. 2015). Therefore, from the analysis of the financial statements
presented in the financial report of organization, it is said that the group presents
information that are presented faithfully and are relevant.

ADVANCED FINANCIAL ACCOUNTING
From the analysis of the financial report of Woolworth limited, it has been
found that the basis of measurement is summarized with the help of accounting
policies and other significant accounting policies which assist the users in gaining an
understanding of the accounting principles and guidance that is used by the
organization (Yurisandi and Puspitasari 2015). For the user of the financial report,
the information depicted in the financial report is considered to be relevant as there
is a breakdown of the individual items that are considered to be significant in making
the investment decisions.
Conclusion:
The report prepared conducted an assessment of the accounting policies and
procedures that is formed on the basis of accounting concepts. It has been found
from the analysis of the financial report that the organization uses the relevant
accounting standards and policies where applicable. There are few basis of
measurements that is used by the organization which is indicated by the
presentation of basis of measurement for each of the specified accounts. In addition
to this, it can be inferred from the evaluation of the facts and figures presented in the
financial statements that the information contained therein provides users with
faithful presentation of information and also the presented information is relevant.

ADVANCED FINANCIAL ACCOUNTING
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