Contemporary Issues in Accounting: Analysis of Armour Energy's Compliance with Conceptual Framework

The report aims at the analysis of various aspects of conceptual framework in respect to Armour Energy. It involves analyzing the conformity of the company with the measurement requirement of conceptual framework, compliance with both the fundamental and enhancing qualitative characteristics of conceptual framework, credibility of the financial statements of Armour Energy for the purpose of decision-making, and whether the users need more than basic accounting knowledge for analyzing the financial statements of the company.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The report aims at the analysis of various aspects of conceptual framework in respect to Armour
Energy. The first of the report involves in analyzingd the conformity of the company with the
measurement requirement of conceptual framework. The next parts of the report involves in the
analysis of the compliance of the company with both the fundamental and enhancing qualitative
characteristics of conceptual framework. The next part shows the credibility of the financial
statements of Armour Energy for the purpose of decision-making. The last part of the report
analyzes whether the users need more than basic accounting knowledge for analyzing the
financial statements of the company.

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Table of Contents
Introduction......................................................................................................................................3
Measurement Requirement of Conceptual Framework...................................................................3
Compliance with the Fundamental Qualitative Characteristics.......................................................5
Compliance with the Enhancing Qualitative Characteristics..........................................................8
Use of the Report to Make Decisions............................................................................................10
Requirement of Basic Knowledge for the Analysis of the Company............................................14
Conclusion.....................................................................................................................................16
References......................................................................................................................................18

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Introduction
It is needed for the companies to make necessary compliance with the accounting
standards and regulations at the time to conduct their financial reporting related operations. In
this manner, they are able to avoid the accounting and financial reporting related problems in
their business operations. This is also applicable for the Australian Securities Exchange (ASX)
listed companies as they are also needed to comply with the necessary standards of accounting
conceptual framework. In Australia, the presence of an accounting conceptual formwork can be
seen provide by International Financial Reporting Standards (IFRS) and the companies must
comply with the standards of this. The main aim of this report is to analyze and evaluate the level
of compliance with different segments of accounting conceptual formwork by one of the ASX
listed companies, Armour Energy.
Measurement Requirement of Conceptual Framework
According to the conceptual framework, it is needed for the companies to take into
account the measurement requirements in the process of financial reporting; and it is also needed
for Armour Energy to consider the same. They are discussed below.
According to the conceptual framework, the companies are needed to adopt two
measurement bases in order to report their assets and liabilities; they are Historical Cost and
Current or Fair Value (aasb.gov.au 2018).
According to the conceptual framework, an asset can be considered as a resource that the
business entities control and it develops as a result of the past event and from the future
economic benefits. On the other hand, liability can be considered as a present obligation of the

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business organizations due to the result of any past event causing the outflow of the resources of
the entity. Equity can be considered as the residual interest in the assets of the company after the
deduction of all of their liabilities.
At the same time, the companies are needed to take into consideration the recognition of
the elements of the financial statements. There are two specific conditions that the companies are
needed to consider at the time of the recognition of the elements of the financial statements.
First, they need to be recognized in case it is probable that any future benefit associated with the
item will follow or flow from the business entity. Second, these items need to be recognized in
case they have a specific cost value that can be measured reliably.
According to the 2018 Annual Report of Armour Energy, the company has used both the
historical costs and fair value for measuring their assets and liabilities.

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(Source: wcsecure.weblink.com.au 2018)
As per the above discussion, the firm has used both historical cost and fair value for their
assets and liabilities based on their business requirements. Under the process of historical cost,
Armour Energy has measured their assets and liabilities based on the historical cost that provides
the monetary information about the assets, liabilities, income, expenses at the time of their
transaction event (aasb.gov.au 2018). On the other hand, under the process of fair value, the
company has measured some of their assets and liabilities based on the current value of them that
provide the monetary information at the measurement date (aasb.gov.au 2018).
At the same time, the company is needed to consider certain other aspects at the time of
the selection of measurement basis. One factor is relevance. It can be seen from the annual report
of Armour Energy that the company has given the information for the years 2017 and 2018. It
can also be seen that the company has also complied with the principles of Australian
Accounting Standard, IFRS, Australian Equivalents to International Financial Reporting
Standards (AIFRS) and IFRS. All these compliances ensures the faithful representation of the
financial information of the company (aasb.gov.au 2018).
Compliance with the Fundamental Qualitative Characteristics
As per the conceptual framework, there are three fundamental qualitative characteristics;
they are Relevance and Faithful Representation. These are discussed below:

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Relevance: Relevant financial information has the ability for making positive impact in the
decision making process of the users. For this basis, financial information must have both the
predictive and confirmatory value. In the presence of the predictive values, the users can predict
the future outcome (Barth 2013). According to the 2018 annual report of Armour Energy, the
users can predict the future performance of the company from the provided financial information
for the years 2018 and 2017.
(Source: wcsecure.weblink.com.au 2018)
After that, the financial information has confirmatory value in case the users become able
in providing the feedback about previous accounting incidents. It can be seen from the annual
report of Armour Energy that the users can get information about the previous year that is 2017
(Barth 2013).

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(Source: wcsecure.weblink.com.au 2018)
Faithful Representation: Faithfully represented financial information helps the users in
effective decision-making process. In order to be faithfully represented, financial information
must be complete, neutral and free from errors (Henry and Leone 2015). According to the 2018
annual report of Armour Energy, the company has made compliance with all the necessary
standards of Australian Accounting Standards, IFRS, AIFRS and others. The compliance of all
these aspects has ensured the faithful representation of the financial information of Armour
Energy.

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(Source: wcsecure.weblink.com.au 2018)
Compliance with the Enhancing Qualitative Characteristics
According to the accounting conceptual framework, there are four enhancing qualitative
characteristics of financial information; they are Comparability, Verifiability, Timeliness and
Understandability. These are discussed below:
Comparability: In the presence of this particular characteristic, the users become able in
identifying and understanding the similarities and differences in the financial items of the
companies (Palea 2013). It can be seen from the 2018 Annual Report of Armour Energy that the
firm has given all of their financial information for the year 2018 and 2017 in simple tabular
formats. In this process, the users of the financial statements can compare the financial
information of Armour Energy with the other companies and with the other timeframe of the
same company. In this context, the name of AGL Energy can mentioned that is another company
operating in the same industry. As per the 2018 Annual Report of AGL Limited, the company
also complies with the principles and standards of IFRS and Corporations Act 2001. For this
reason, the investors of Armour Energy can compare the financial statements with the financial

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statements of AGL Limited; such as statement of financial position, statement of cash flow,
statement of profit and loss and others. This aspect supports the presence of comparability
characteristics in the financial statements of the company.
(Source: wcsecure.weblink.com.au 2018)
Verifiability: In the presence of this specific qualitative characteristic, the users of the financial
information can apply their knowledge and independent observation to each to consensus
(Abernathy et al. 2014). Verification can be direct and indirect. It can be seen from the 2018
Annual Report of Armour Energy that the company has provided the required financial notes to
the financial statements in their annual report. For this reason, the users can apply their
knowledge to directly or indirectly verify the accounting information of the company.
Timeliness: This qualitative characteristic ensures the delivery of the required financial
information at the time of decision-making. Older information is less effective in the decision-
making process (Kim, Kraft and Ryan 2013). It can be seen that the company has provided all
the financial information for the year 2018 and 2017 that is most recent for the company. In this

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aspect, it is needed to mention about the Corporations Act 2001. Corporations Act 2001 is
considered as the act of Commonwealth of Australia that develops the laws and regulations that
the business organizations are required to be complied with at the federal and interstate level.
Armour Energy has complied with the regulations of Corporations Act 2001 and it supports the
presence of timeliness characteristics in the financial statements of the company.
Understandability: This qualitative characteristic helps the companies in classifying,
characterizing and presenting the financial information in clear and concise manner so that it
become understandable for the users (Carraher and Van Auken 2013). As per the 2018 Annual
Report of Armour Energy, the company has provided all the required financial information in
simple manner. In addition, they have also provided the required justification and clarification of
their accounting treatments under the notes to the financial statements. All these aspects makes it
understandable for the users.
Use of the Report to Make Decisions
In order to use the financial statements of the companies for the purpose of decision-
making, the financial statements must comply with three major objectives of conceptual
framework; they are discussed below.
As per the first objective, it is required for the business organizations to provide the users
with the required information about the financial position and all the economic resources; and
this information can be found in the statement of financial position of the companies (Cheng et
al. 2014).

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(Source: wcsecure.weblink.com.au 2018)
(Source: wcsecure.weblink.com.au 2018)

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It can be seen from the above table that Armour Energy has provided all the information
about their financial position and economic resources in the statements of financial position; and
it can be ascertained from the statements of financial position of the company. It is provided
below:
(Source: wcsecure.weblink.com.au 2018)
According to the next objective of conceptual framework, the companies are needed to
provide the information about the changes in economic resources and financial performance of
the companies (Weil, Schipper and Francis 2013).

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(Source: wcsecure.weblink.com.au 2018)
It can be seen from the above table that the firm has provided the information related to
the change in the financial position in the statement of change in equity (Sharma and Panigrahi
2013).
According to the third objective of conceptual framework, it is needed for the companies
to provide all the information about the cash flow.

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(Source: wcsecure.weblink.com.au 2018)
According to the above table, the company has given all the information related to their
business cash flow. Thus, the above discussion indicates towards the fact that Armour Energy
has provided all the financial information of their business through different financial statements
for the decision-making purpose of the users. Thus, it can be seen that the users can use the
financial reports of the company to make decisions.
Requirement of Basic Knowledge for the Analysis of the Company
According to the conceptual framework, the users need the basic knowledge of
accounting for underatsding the financial statements of the companies. According to the 2018
Annual Report of Armour Energy, the company has provided the financial information in the
simple format by complying with the necessary standards and principles (Nobes 2014). In
addition, they have provide the required justification and clarification about the major items of

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financial statements in the notes to the financial statements. In the presence of all these aspect,
the basic accounting knowledge of the uses is sufficient to know the accounting and financial
reporting related transactions of the company. This is enough to analyze the financial position of
the company (Nobes 2014).
Following are the examples of justification and clarification provided by the company so
that the users can assess them with their knowledge:

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Conclusion
As per the above study, Armour Energy has made compliance with all the measurement
requirements of conceptual framework in their financial reporting. It can also be observed from
the above discussion that the company has complied with both the fundamental as well as

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enhancing qualitative characteristics of conceptual framework in the process of financial
reporting. In addition, the company has provided the required financial information through
various financial statements and thus, the users can use these statements for the purpose of
decision making.

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References
Aasb.gov.au., 2018. Conceptual Framework for Financial Reporting. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 22 Nov.
2018].
Abernathy, J.L., Beyer, B., Masli, A. and Stefaniak, C., 2014. The association between
characteristics of audit committee accounting experts, audit committee chairs, and financial
reporting timeliness. Advances in Accounting, 30(2), pp.283-297.
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by
small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international
integrated reporting framework: key issues and future research opportunities. Journal of
International Financial Management & Accounting, 25(1), pp.90-119.
Henry, E. and Leone, A.J., 2015. Measuring qualitative information in capital markets research:
Comparison of alternative methodologies to measure disclosure tone. The Accounting
Review, 91(1), pp.153-178.
Kim, S., Kraft, P. and Ryan, S.G., 2013. Financial statement comparability and credit
risk. Review of Accounting Studies, 18(3), pp.783-823.
Nobes, C., 2014. International classification of financial reporting. Routledge.

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Palea, V., 2013. IAS/IFRS and financial reporting quality: lessons from the European
experience. China Journal of Accounting Research, 6(4), pp.247-263.
Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on
data mining techniques. arXiv preprint arXiv:1309.3944.
Wcsecure.weblink.com.au., 2018. 2018 Annual Report. [online] Available at:
https://wcsecure.weblink.com.au/pdf/AJQ/02039996.pdf [Accessed 22 Nov. 2018].
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.