Importance of Revaluation of Assets and Fundamental Characteristics of Financial Information

This essay discusses the importance of revaluation of assets and the fundamental characteristics of financial information. It explores the relevance and faithful representation of financial information in the context of Telstra and BRISCOE Group Limited. The essay highlights the impact of these characteristics on investment decision-making.

Running head: BUSINESS ACCOUNTING
Business Accounting
Name of the Student
Name of the University
Author’s Note

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Summary
It can be seen from the first part of the essay that the management of Telstra is required to
undertake the revaluation of the property in order to ensure the faithful representation of the
financial information. After that, this essay discusses about the two main fundamental
characteristic of financial information that are relevance and faithful representation. It can be
seen from the third part of the essay that the management of BRISCOE Group Limited has
ensured the presentation of fundamental characteristic of financial information in the reporting of
inventories and property, plant and equipment which helps the investors in gaining the
information so that they can make effective investment decision about the firm.

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Table of Contents
Part 1................................................................................................................................................3
Part 2................................................................................................................................................4
Part 3................................................................................................................................................6
Part 4..............................................................................................................................................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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Part 1
Revaluation of assets is considered as a crucial aspect for the managements of the
companies because it helps in showing the fair value of the assets. For this reason, asset
revaluation is considered as the adjusted made to the recorded value of an asset in order to
accurately reflect the current market value of that particular asset (Choi et al. 2013). The vast
practice of asset revaluation can be seen in the financial system of Australia where the
availability of AASB 116 Property, Plant and Equipment can be seen for providing the
necessary guidelines on property revaluation. According to AASB 116, Paragraph 31, after the
recognition of an asset, a company is needed to carry an item of property, plant and equipment at
a revalued amount whose fair values can be measured on reliable basis (aasb.gov.au 2019). It
also states that the item needs to be carried at fair value at the revaluation date. The frequency of
revaluation is largely dependent upon the fair value changes of the item that is being evaluated
by the company (aasb.gov.au 2019).
Now, it needs to be mentioned that the revaluation of a property at fair value has certain
positive connection with the qualitative characteristic of faithful representation. Faithful
presentation is considered as a crucial qualitative characteristic which ensures that financial
statements accurately reflect the business condition (Sytnik 2014). This characteristic states that
the financial information must be presented in the true and faithful manner in order to be useful
to the users of the financial statements. For example, in case a firm shows in its statement of
financial position that it has an accounts receivable of $100,000 as of the end of the year, then
the amount should indeed have been presented in the statement of financial position of that

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company. It implies that the assets are needed to be presented at their fair value so that it reflects
the true financial reality of the company (Sytnik 2014).
According to the provided scenario of Telstra, the price of the property was $52 million
when it was bought in 2010, but the market value of the same in June 2018 has become more
than $200 million. It indicates towards the fact that there is a significant change in the market
value of that property in the current scenario. In this case, if the property is shown at the
historical cost price, it will be mere delivery of the information about the legal form of the asset
because there will not be any information on the substance of this asset. This will create a
material difference in the price of that property. However, the revaluation of the property as
suggested by the accountant will ensure that the property is reported in the financial statement at
its fair value after deducting any subsequent accumulated depreciation and subsequent
accumulated impairment losses due to the decrease or increase in the fair value of the asset
(Hodder, Hopkins and Schipper 2014). For this reason, the management of Telstra is
recommended to accept the suggestion of the accountant to revalue the property.
Part 2
According to the Australian financial regulatory framework, there are two fundamental
qualitative characteristic of accounting information in Australian business practices; they are
Relevance and Faithful Representation. These are discussed below:
Relevance – Relevant financial information has the capability to create a difference in the users’
decision-making process. For this, financial information needs to be both the predictive value
and confirmatory value. Financial information has the predictive value in case the users can use
them for predicting the firm’s future outcome (aasb.gov.au 2019). On the other hand, financial

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information has confirmatory value in case the users can gain feedback from it about the
previous evaluation. These two values have interconnection because information with predictive
value also possesses the confirmatory value. Two crucial aspects under this fundamental
qualitative characteristic are materiality and measurement uncertainty. Information can be
considered as material in case its omission can influence the decision-making process of the
primary users of general purpose financial reports that have been prepared based on the financial
information about the company (Henderson et al. 2015). Thus, materiality can be considered as a
firm-specific feature of relevance on the basis of magnitude or nature, or both, of the financial
substance of the firm. At the same time, measurement uncertainty affects the relevance of
financial information. The occurrence of measurement uncertainly can be seen when an asset or
liability related measure cannot be directly observed. For this reason, an estimate has the
capability of providing relevant information (Francis, Pinnuck and Watanabe 2013).
Faithful Representation – Economic phenomena in words and numbers can be seen in the
financial statements and in order to be useful to the users of the financial statement, financial
information must be faithfully represented along with maintaining its relevance. Faithful
representation helps in providing information about an economic phenomena’s substance instead
of its mere delivery of legal form related information (aasb.gov.au 2019). The presence of three
characteristic needs to be there in order to be faithfully represented; they are complete, neutral
and free from error. Complete means the inclusion of all information required for the users for
understanding the depiction of the phenomena including all required explanation as well as
description. Neutral means the absence of bias in the selection or presentation of the financial
statements. Free from errors means the absence of errors or omissions in the description of the
economic phenomena in the financial statements (Palea 2013).

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Part 3
According to the conceptual framework of AASB, there are three steps for ascertaining
whether fundamental characteristics are presented in the financial statements. They are:
1. Identification of the economic phenomena that has the capability to become useful to the
users of the financial information;
2. Identification of the type of information related to the selected economic phenomena that
would be most relevant in case it is available and can be faithfully represented; and,
3. Determination of the fact that whether that information is available and can be faithfully
presented (aasb.gov.au 2019).
The following discussion shows the example of fundamental characteristics presented in the
annual report of BRISCOE Group Limited.
1st Example – Inventories form a crucial part in the current assets of the companies and thus, the
users of the financial statements consider inventories as crucial economic phenomena for
ascertaining the liquidity position as well as efficiency of the working capital management of the
companies (Nisha 2015). Inventory is crucial for BRISCOE Group Limited since they operate in
the retail industry. The most relevant type of information about inventory is their balance in the
balance sheet along with adopted accounting policies by BRISCOE Group Limited for the
valuation of inventory.

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(Source: briscoegroup.co.nz 2019)
It can be seen from the 2018 Annual Report of BRISCOE Group Limited that the
company has recorded the balance of inventory in the balance sheet along with the number of
relevant note of it; they are $74,494,000 in 2018 and $78,931,000 in 2017 (briscoegroup.co.nz
2019). For increasing its relevance, management of the company has shows the detailed working
of the net inventories that is finished goods less inventory provisions and adjustments. In order to
ensure the faithful representation of inventories, the management of BRISCOE Group Limited
has described the applied processes along with judgments for the valuation of inventory,
provision for inventory and others. All these aspects are in line with the fundamental
characteristics of financial information.
2nd Example – Property, plant and equipment (PPE) forms the most crucial part in the total
assets as well as non-current assets of the companies. PPE is considered as a crucial aspect for
the users of the financial statements because of its key significance for the company’s operations
in providing necessary resources for its products (Wyatt 2013). The types of most relevant

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information about PPE to the users are its values, valuation procedures, gains and losses from its
disposal, depreciation methodology and impairment methodology. All these are also applicable
for BRISCOE Group Limited.
(Source: briscoegroup.co.nz 2019)

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(Source: briscoegroup.co.nz 2019)
The reported amount in the balance sheet of BRISCOE Group Limited is $83,326,000 in
2018 and $76,081,000 in 2017. In the note related to PPE, the company has disclosed all the
transactions related to net book value and closing net book value of the last three years in order
to make this information more relevant to the users. In order to ensure faithful representation, the
management of BRISCOE Group Limited has properly described their PPE valuation procedures
along with the used judgments on the areas of asset impairment, depreciation and revaluation
briscoegroup.co.nz 2019. All these aspects can be considered as proper example of the presence
of fundamental characteristic of financial information in the annual report of BRISCOE Group
Limited.

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Part 4
The above discussion indicates towards the crucial fact that the information provided in
the financial statements must be relevant to the needs of the users of financial information and
they must be represented in faithful manner. There are certain groups of stakeholders of the
companies who are the statutory recipients of the fundamental qualitative characteristic of
financial information (Barth 2013). One of them is the investors who represent the security
markets. The presence of these fundamental characteristics of financial information is paramount
for the investors in gaining the required information about the economic phenomena of the
companies so that they can make effective investment decisions. In the presence of relevance and
faithful representation of financial information, investors can gain the exact information they
need to make the investment decisions (Nobes 2014).
It can be seen from the above discussion that there is the presence of all fundamental
characteristics of financial information in the annual report of BRISCOE Group Limited
regarding two crucial economic phenomena which are inventories and PPE. In the presence of
both relevance as well as faithful representation of financial information on these economic
phenomena, the investors can gain crucial information on the overall asset position of the
company along with the liquidity strength of the company (Barth 2013). This information assists
the investors in ascertaining BRISCOE Group Limited’s efficiency position and the overall
financial position in the financial year of 2018. These disclosures related to the inventory and
PPE will lead to the increase in faith of the investors of the company. At the same time,
BRISCOE Group Limited will be able in establishing goodwill in the securities markets for the
effective disclosure of financial information containing the fundamental characteristics of
financial information (Garanina and Kormiltseva 2014).

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Conclusion
The above discussion sheds light on the importance as well as usefulness of the
revaluation of assets by considering the provided scenario of Telstra. It can be seen that the
company should revalue the property since the revaluation process will help in reporting the fair
value of the property which is in line with fundamental characteristic of faithful representation.
The above discussion also shows that the two fundamental characteristic of financial information
are relevance and faithful representation which increases the usefulness of the financial
information to the users of the financial statements for the purpose of making appropriate
investment decisions about the companies. It can be observed from the above discussion that
BRISCOE Group Limited has presented the fundamental characteristics of financial information
through the reporting of inventories and PPE. The above discussion states that the management
of BRISCOE Group Limited has disclosed the important information on inventories and PPE in
their annual report such as their values, measurement mechanism, impairment methodology,
depreciation methodology and others. In the presence of the disclosure of this information with
the presentation of fundamental characteristic of financial information, the investors from the
securities market can gain the required information on the financial performance, efficiency,
liquidity and financial position of BRISCOE Group Limited to make appropriate investment
decision.

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References
Aasb.gov.au. 2019. Conceptual Framework for Financial Reporting. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 24 May
2019].
Aasb.gov.au. 2019. Property, Plant and Equipment. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 24 May 2019].
Barth, M.E., 2013. Global comparability in financial reporting: What, why, how, and
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Briscoegroup.co.nz. 2019. ANNUAL REPORT for the period ended 28 January 2018. [online]
Available at: https://briscoegroup.co.nz/wp-content/uploads/BGP-2018-Annual-Report.pdf
[Accessed 24 May 2019].
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to revalue. Asia-Pacific Journal of Accounting & Economics, 20(2), pp.144-171.
Francis, J.R., Pinnuck, M.L. and Watanabe, O., 2013. Auditor style and financial statement
comparability. The Accounting Review, 89(2), pp.605-633.

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