Financial Statement Analysis and Reporting

This assignment examines a case study about a company's financial reporting practices. It requires an in-depth analysis of the presented information, evaluating its transparency, comparability, and relevance to users who rely on these reports for decision-making. The analysis should also consider recommendations for improving the clarity and accessibility of the financial statements for diverse audiences.

By student name
Professor
University
Date: 25 September 2017.

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Executive Summary
The financial statements should meet the requirements of the end user and should
enhance the qualitative aspect of the financials. In the given assignment, the objective of the
general purpose financial statements has been asked for and then the qualitative characteristics of
the financial information enclosed in the report. Further, here one of the companies listed on
ASX has been chosen for analysis on PPE, the disclosure requirements, the annual report and
how it fulfills the requirements of the users and further more recommendations have also been
provided in order to improve the level of information being provided in the financials.
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Contents
Executive Summary…………………………………………………………………...1
Introduction……………………………………………………………………………3
Question No. (a)……………………………………………………………………….4
Question No. (b)……………………………………………………………………….5
Question No. (c)……………………………………………………………………….7
Question No. (d)………………………………………………………………………9
Conclusion/Recommendation………………………………………………………..11
Refrences.....……………………………………………………………………….....12
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Introduction
The companies have to prepare the financial statements as per the conceptual framework and
present the requisite information on the company’s financials to both the internal and the external
users, which can help them to take the economic and financial decisions (Félix, 2017) Internal
users include employees, the director, the customers, the creditors, debtors, etc. whereas the
external users include the financial institutions, banks, the government, tax authorities, etc.
Further, one of the companies Wesfarmers listed on ASX has been analysed for disclosure
aspects on PPE and how it fulfills the disclosure and qualitative information requirements of the
user.
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Question No. (a)
The general-purpose financial statement aims at providing the relevant and reliable
information and that can meet the requirement of recognition, definition, assets, liabilities, etc.
The users of information do not only need the data on resources of the company but how they are
being optimally utilised to the best benefit of the company. General-purpose financial statements
also aim at disclosure of all the critical and valuable information on the company and its claims
and the major and significant changes that the company might have gone through which may
have an impact on the decisions. It also aims at finding out the reasons for the changes in the
cash flow of the company through the statement of comprehensive income and the cash flow
statement. Not only quantitative but the qualitative information is also required to complete the
image of total changes in the company’s claims and resources. For this purpose, the company
prepares the statement of changes in equity. (Bae, 2017)
Qualitative characteristics of financial reporting is equally important as the financial
report itself as it helps in useful decision-making. It becomes more relevant and useful when it is
timely, understandable, comparable and verifiable. The major aspects of this includes faithful
representation of the financial data based on which decisions can be taken and it should be fairly
material in the circumstances of the case. Comparability of the data means it can be easily
compared with the prior period, with the other company in the same industry, with the budgeted
data, and therefore it should be prepared in the same fashion. Further timeliness means it should
come at the right time and not after the decision is already taken or at the last minute or else it
will lose its relevance. (Jones, 2017) The 3rd qualitative aspect, which is verifiability, denotes that
the financial statement should give a reasonable assurance to the users about the status of the
company and should impart the information, which it purports to represent. The 4th and the last
aspect of qualitative information is the understandability of the data which means that it should
not be complex and should be easy to read and convenient to interpret. It should not be
misleading and incomplete as this may have severe impact on the decisions taken. Generally, the
financial reports is being prepared for a user having reasonable knowledge or finance and who
can interpret it with
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diligence.
Question No. (b)
The company chosen for analysis here is Wesfarmers Limited which is one of the major
Australian conglomerate dealing in retail, coal mining, fertilizer, chemical, etc. It founded in
1914 and is currently listed on the Australian Stock exchange. (Jones, 2017) Depreciation is a
major non-cash expense of the company, which can have a huge bearing on the financial results
of the company. As a result, the disclosure in financial statements w.r.t. property plant and
equipment becomes very critical considering its impact. As per AASB 116, the company is
required to disclosure some of the significant information on PPE in the financial statements like
the method of depreciation used, the change in the policy of depreciation, the addition to the
gross and net block from the year, the retirement and write off in the blocks during the year, what
is the class of the assets and the major category of assets which will form a part of the PPE, the
impact of foreign exchange fluctuations on the PPE, etc. In addition, important is the disclosure
of the management estimates and judgements taken in this respect and whether there is a change
in the estimated useful life by the management. (Raiborn, et al., 2016) All this has been taken
care by the management while preparing the financial statements which is evident from the
below snapshots which pertain to the PPE section of annual report of 2016.
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The company has also disclosed the the funds used in buying the assets as well as the sale
proceeds from the sale of property, plant and equipment via the cash flow statement in cash flow
from investing activities. (Murray & Markey‐Towler, 2017). The company has clearly disclosed
that it uses the straight line method of depreciation and the useful lives being used for various
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block of assets like 20-40 years for buildings, whereas 3-40 years for vehicles and plants and
equipment’s, land being non depreciable. It has also shown the previous year’s data points,
which help in comparison. (Knechel & Salterio, 2016) The company has also disclosed the inter
unit transfers, the inter entity transfer and the impact of foreign currency movement which needs
to be adjusted at year-end. Thus, overall it meets the criteria of disclosure requirements in all the
respects.
Question No. (c)
Based on the findings of the information being disclosed in the financial statements for the
property plant and equipment in the financials above, the company has disclosed all the
fundamental disclosures and information namely relevant and faithful representation of the
information on the basis of which the users of the financial statements can take decisions. (Fay &
Negangard, 2017) Moreover, all the material information namely the addition the retirements for
the has been disclosed separately. These mainly comprise of vehicles, leasehold improvements,
and plant and equipment is and is $ 984 Mn and $ 1,104 Mn for the year 2016 and 2015
respectively. In addition, disclosed is the information on the finance costs being incurred on the
major capital projects, these are being capitalized with the construction costs and forms part of
the borrowing cost. This complies with the standards on Accounting & IFRS, which says that the
finance costs being incurred on the qualifying asset should be capitalized with the value of the
asset. Further, the basis of calculation of the interest rate has also been shown.
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Besides that, it also fulfils one of the enhancing qualitative characteristics of the financial
statements being comparability. (Das, 2017) In each of the excerpts, the data pertaining to the
last financial year which was reported in the last year’s annual report has also been given in a
readable and easily interpretable format which enables the user to get better understanding of the
financial report and thus enable comparability to do the run rate analysis and what is quantum of
change as compared to last year and what is the reason of such change. (Gooley, 2016)
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Question No. (d)
Based on the findings we had in part c, the disclosures being made in the company financials
with respect to Property, plant and equipment, the same fulfils most of the objectives of the
general purpose financial reporting. It has been prepared and presented in accordance with the
relevant laws and regulations, the International Accounting Standards and IFRS, which renders it
useable and reliable and can be used by both the internal and the external users of the financial
statement to take decisions. It has made all the necessary disclosures on the PPE being the
method of depreciation used, the class of assets in the company, the change in accounting
estimate, if any, the rates of depreciation used, the estimated useful life of the class of assets,
what are the basic assumptions in PPE, the movement of cash flows in respect of PPE over the
year and finally the management estimates and assumptions.
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The improvements that the company can make in terms of PPE is making the data presented in a
more simpler way as every other person cannot interpret it in the way and manner it is presented.
(Grenier, 2017)The company should move away from complexities and try to make the data
short and relevant to the circumstances, Furthermore, for those who want in-depth analysis and
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information on the company, the management can present the methods by which it manages the
PPE, the method of forecasting the requirements of PPE, etc. This would make the users to take
the decision more promptly.
Conclusion/Recommendations:
In the given case study, we saw that the company has presented all the material
information is an accurate and transparent manner, which enables the user to rely on such
reports. It has also tried to keep the data points comparable, relevant and easily interpretable and
published its financials within the right time making the information timely. Thus, it is the
responsibility of the management to make financial statements as per the conceptual framework
and make it relevant to the user.
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References
Bae, S., 2017. The Association Between Corporate Tax Avoidance And Audit Efforts: Evidence
From Korea. Journal of Applied Business Research, 33(1), pp. 153-172.
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of
Social Science Studies, 2(2), pp. 10-17.
Fay, R. & Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of
fraud. Journal of Accounting Education, Volume 38, pp. 37-49.
Félix, M., 2017. A study on the expected impact of IFRS 17 on the transparency of financial
statements of insurance companies. MASTER THESIS, pp. 1-69.
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Gooley, J., 2016. Principles of Australian Contract Law. Australia: Lexis Nexis.
Grenier, J., 2017. Encouraging Professional Skepticism in the Industry Specialization Era.
Journal of Business Ethics, 142(2), pp. 241-256.
Jones, P., 2017. Statistical Sampling and Risk Analysis in Auditing. NY: Routledge.
Knechel, W. & Salterio, S., 2016. Auditing:Assurance and Risk. fourth ed. New York:
Routledge.
Murray, C. & Markey‐Towler, B., 2017. A Theory of Return-Seeking Firms. SSRN, pp. 1-14.
Raiborn, C., Butler, J. & Martin, K., 2016. The internal audit function: A prerequisite for Good
Governance. Journal of Corporate Accounting and Finance, 28(2), pp. 10-21.
Sonu, C., Ahn, H. & Choi, A., 2017. Audit fee pressure and audit risk: evidence from the
financial crisis of 2008. Asia-Pacific Journal of Accounting & Economics , 24(1-2), pp. 127-144.
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