Financial Statement Accounting Analysis 2022

Running Head: FINANCIAL STATEMENT ANALYSIS
FINANCIAL STATEMENT ANALYSIS
Name of the Student
Name of the University
Author Note

1FINANCIAL STATEMENT ANALYSIS
Table of Contents
Accounting Analysis..................................................................................................................2
Step 1- Identifying Accounting Policies................................................................................2
Step 2- Assessing Accounting Flexibility..............................................................................3
Step 3- Accounting Strategy Evaluation................................................................................3
Step 4- Disclosure Quality Evaluation...................................................................................4
Step 5- Identification of Potential Red Flags.........................................................................5
Step 6- Undo Accounting Distortions....................................................................................6
Reference....................................................................................................................................7

2FINANCIAL STATEMENT ANALYSIS
Accounting Analysis
It is important for any financial professional for knowing the way firm’s financial
statement is to be analyzed. It requires understanding of three significant areas, which are
structures of financial statements, economic characteristics of industry in which company is
operating and firm’s strategies for differentiating itself from the competitors (Hasibuan and
Syahrial 2019). Therefore, following are the steps of accounting analysis of the Harvey
Norman Holdings Limited:
Step 1- Identifying Accounting Policies
The accounting system of Harvey Norman is of retailing. The company received
income from selling its goods. Its financial report is prepared based on the historical cost,
excluding land & buildings, investment properties, debt & equity financial assets and
derivatives financial instruments that have been measured at the fair value. Moreover,
depreciation is carried out on the straight-line basis over the asset’s useful life. In addition,
residual values, useful lives as well as methods of the amortization are being reviewed and
adjusted, in case suitable, at the end of each financial year (Schroeder, Clark and Cathey
2019).
Figure 1: Depreciation of PPE
The intangible assets of company are being carried out at the cost less accumulated
impairment losses and the accumulated amortization. Moreover, the amortization of these
assets is based on the straight-line over its estimated useful lives, but not more than 8.5 years

3FINANCIAL STATEMENT ANALYSIS
(Static1.squarespace.com. 2020). The recognition of expenditure of development on
individual project are as intangible asset, when following are demonstrated by the Harvey
Norman:
Figure 2: Development Expenditure on Individual Project
The inventories of company are valued at lower of the net realizable value and cost
and it is recorded total of all rebates volume, settlement discounts and the business
development contribution.
Step 2- Assessing Accounting Flexibility
Harvey Norman is the retail company having operational multi-chain strategy, with
different retail locations and subsidiaries. It is having good degree of the flexibility in making
choice of different accounting policies as well as estimates in the certain circumstances,
which affects reported amount in consolidated financial statements. The example of this can
be seen in accounts receivables that is recorded large in amount each year from its
franchisees (Rocco, Colombo and Sciubba 2014). Moreover, there is no flexibility in costing,
as is based on weighted average. The receivables from the franchises of company have been
measured at the amortized cost. Lastly, effective interest method used by company helps in
providing flexibility for the amortization of the assets (Loughran and McDonald 2016).
Step 3- Accounting Strategy Evaluation
Adoption of accounting policies by the Harvey and Norman can be comparable to its
competitors such as Wesfarmers Limited. Harvey Norman is the leading retailer of the broad
ranges of products such as consumer electronic products, computers, cameras, furniture and