Contemporary Issues in Accounting: A Review of Airxpanders, Inc. Annual Report

This article reviews Airxpanders, Inc. annual report for compliance with conceptual frameworks and fundamental and enhancing qualitative characteristics of financial statements. It concludes that the company has met the measurement requirements of the conceptual frameworks and has complied with the fundamental and enhancing qualitative characteristics of financial statements. The statement that users only need basic knowledge to analyze financial statements is partially correct. In-depth knowledge is required for sound decision-making.

CONTEMPORARY
ISSUES IN
ACCOUNTING

1
By student name
Professor
University
Date: 25 April 2018.
1 | P a g e

2
Contents
Answer to Question 1..................................................................................................................................3
Answer to Question 2..................................................................................................................................4
Answer to Question 3..................................................................................................................................5
Answer to Question 4..................................................................................................................................9
Answer to Question 5..................................................................................................................................9
References.................................................................................................................................................10
2 | P a g e

3
Answer to Question 1
Conceptual frameworks is a set of all the interlinked objectives and fundamentals used in the
preparation of the financial statements which are required to be complied with in order to prepare a
sound and reliable financial statements. The main purpose of the conceptual framework is to disclose
honestly all the information which are relevant to the economic resources of the organization being
reported. These also reflect the diligence of the entity, its management and the board in discharging
their responsibilities.
In the given case we are required to observe the annual report of the company in the sector of
Healthcare Equipment and Services, Airxpanders, Inc. We have considered its current annual report for
the financial year 2017 in order to review its compliance with the measurement requirements of the
conceptual frameworks (Dichev, 2017). It has been observed that the company has disclosed the
relevant information about the fundamentals of the business of the company and also related laws and
regulations, which has been clearly disclosed by the company in its financial statements, for instance,
manufacturing, products, intellectual properties, etc. along with the claims of the company.
The company has disclosed all the information required for the in depth knowledge about the financial
status of the company which is very much evident from the content of the information being disclosed.
Hence we can conclude that the company has met the measurement requirements of the conceptual
frameworks (Alexander, 2016).
3 | P a g e

4
Answer to Question 2
There are mainly four fundamental qualitative characteristics in a financial statement. These are
understandability, relevance, reliability and comparability. The financial statement should be
understandable by its users, the information should be presented in the financial statements clearly
with all the relevant and additional information and footnotes. The information disclosed in the financial
statements must be relevant to the users’ needs and requirements, moreover the information being
stated must be reliable, and that is to say, the information must be free from material misstatements,
errors or omissions (Choy, 2018). Further the financial statements must be comparable to the financial
statements of the other period or years or with the financial statements of other organizations.
We have observed that the financial statements of Airxpanders, Inc. have complied with the
fundamental qualitative characteristics of the financial statements, since the information disclosed are
understandable with all additional footnotes. The financial statements are comparable since the
financial results are presented in a comparative manner of the current as well as the preceding financial
year (Linden & Freeman, 2017).
4 | P a g e

5
From the above data it is evident that the data is comparable.
Answer to Question 3
The financial statements of an organization must along with the fundamental qualitative characteristics
contain the enhancing qualitative characteristics. These enhancing qualitative characteristics of a
financial statements are verifiability, understandability, timeliness and comparability. These
characteristics makes a financial statements more reliable and increases transparency as required by the
shareholders. The presence of these characteristics not only increases the usefulness of the information
given in the financial statements but also increases the faithful representation of such information.
Moreover, the financial statements gains credibility with the characteristics of verifiability (Defond &
Lennox, 2017). Timeliness refers to the availability of the financial statements to the users, investors and
the lenders of the organization for the purpose of making decisions at the right time.
In the annual report of Airxpanders, Inc. we have observed, that the company has given proper
disclosures as required in the financial statements which increases the verifiability as well as reliability of
the investors and other users on the financial statements. From the following data it is very much clear
that the company has given all the required information.
5 | P a g e

6
6 | P a g e

7
The company also have the characteristics of timeliness and comparative characteristics. The financial
statements of the company have been made available to the users and investors on time so that the
decision making process can be undertaken by the investors on a timely basis (Goldmann, 2016). The
financial figures have been represented in the annual report on a comparative basis which is very much
evident on the basis of following extract of the financial statements of Airxpanders, Inc.
7 | P a g e

8
8 | P a g e

9
Answer to Question 4
In the above questions we have discussed the various fundamental qualitative characteristics as well as
the enhancing qualitative characteristics required in a financial statement. These characteristics
increases the viability and credibility of the financial statements of a company. The investors on the
basis of which makes all the decisions. Moreover, it becomes the most useful and reliable basis for the
creditors as well as the lenders in making various decisions relating to finance and money matters
(Lessambo, 2018).
In case of Airxpanders Inc., we have discussed above the presence of the fundamental as well as the
enhancing qualitative characteristics which makes the financial statements more transparent, reliable
and verifiable for all the users of such information such as the investors, lenders, creditors as well as the
potential investors. The company has given detailed disclosures on the relevant matters. Also, the
comparative information makes it more convenient for the creditors and lenders to compare the current
year performance of the company with the previous years’ to analyse the financial status of the
company.
9 | P a g e

10
10 | P a g e

11
Answer to Question 5
The given statement that the users need only a basic knowledge to analyse the financial statements of
the company is not completely correct. In order to understand the financial statements completely, a
user needs to have skills in relation to the analysis of the financial statements. This makes it more sound
and understandable for the users. Having the basic accounting knowledge might provide the users with
the overview of the company by reading the financial statements while a complete understanding of
these statements will guide the users and investors in their investing and decision making process
(Knechel & Salterio, 2016). It will enable them to compare the results of the company not only with the
company’s past performance but also with the results of other companies of the same sector as well as
the other sectors in depth. In no way can any investor just read the financial statements and make
sound decisions on the basis of the overview of the results of a company.
Hence, with a careful reading of the above discussion, we can conclude that the statement given is
partially correct. Crucial decisions cannot be made just on the basis of basic accounting knowledge, in
such cases in depth and sound knowledge is required.
11 | P a g e

12
12 | P a g e

13
The analysis of the above data requires in depth knowledge of accounting, just a basic knoeledge of
accounts will not suffice.
13 | P a g e

14
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.
Ecological Economics, p. 145.
Defond, M. & Lennox, C., 2017. Do PCAOB Inspections Improve the Quality of Internal Control Audits?.
Journal of Accounting Research, 55(3), pp. 591-627.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4(3), pp. 103-112.
Knechel, W. & Salterio, S., 2016. Auditing:Assurance and Risk. fourth ed. New York: Routledge.
Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and
Forensics, 3(1), pp. 183-202.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), pp. 353-379.
14 | P a g e