Contemporary Issues in Accounting

The report evaluates the adherence of Sonic Healthcare Limited with the conceptual framework of AASB. It analyses the objectives, recognition criteria, and qualitative characteristics of financial reporting. The report recommends maintaining compliance with AASB, IFRS, IASB, and Corporations Act.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
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Executive Summary:
The report is prepared to assess the different aspects associated with the conceptual
framework of AASB from the viewpoint of Sonic Healthcare Limited, which is a leading
diagnostics service provider operating in Australia. The critical analysis of the report makes it
evident that the organisation has presented its financial statements in a manner that strictly
adheres to the norms and regulations mentioned in the AASB conceptual framework. The
intention is to assist the users of the financial statements to deliver vital information so that they
could analyse the current financial standing of the organisation. Finally, it is recommended to the
organisation to maintain full compliance with AASB, IFRS, IASB and Corporations Act so that
accounting issues do not arise in future.

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Table of Contents
Introduction:....................................................................................................................................3
General purpose financial reporting objectives:..............................................................................3
Recognition criteria of conceptual framework:...............................................................................7
Qualitative characteristics of financial reporting:..........................................................................12
Conclusion and recommendations:................................................................................................13
References:....................................................................................................................................15

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Introduction:
The current report is prepared based on possible efforts for evaluating the adherence of an
Australian entity with respect to the conceptual framework aspects. Thus, in order to fit the
objective of the report, Sonic Healthcare Limited is selected and it is one of the leading global
medical diagnostic service providers operating in Australia (Sonichealthcare.com, 2018). The
organisation is involved in providing highly specialised clinical or pathology laboratory and
services related to diagnostic imaging to hospitals, clinicians, services for community health and
their patients. The initial section would elaborate on analysing the objectives of conceptual
framework from the viewpoint of Sonic Healthcare. The second section would lay stress on
signifying various criteria for recognition mentioned in the conceptual framework. Finally, the
report would shed light on dissecting the various qualitative features of the framework in the
context of Sonic Healthcare and based on all the evaluated factors, recommendations have been
formulated for improving the reporting quality.
General purpose financial reporting objectives:
It has been announced by the “Australian Accounting Standards Board (AASB)” for the
Australian entities to adhere to the principles and regulations, which are mentioned in the
conceptual framework. This framework is based on a range of objectives, which every business
organisation is required to adopt for reporting their financial statements and these objectives
could be discussed as follows:
1st objective:

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It is the accountability of the companies to publish all useful information for providing
assistance to different users of the financial statements including the investors so that they could
have a fair understanding of their financial standings in the market. This mandates the need for
the companies to reveal information related to financial resources such as assets, liabilities and
others (Barker and Teixeira, 2018). From the annual report of Sonic Healthcare in 2017, the
disclosure of the balance sheet statement has been evident having all the required information
about business resources. With the help of such information, the different financial statement
users including the investors could have an overview of the existing financial standing of the
organisation. The balance sheet statement of Sonic Healthcare is illustrated as follows:

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2nd objective:
The AASB conceptual framework requires all the organisations in revealing the
necessary information for aiding the users in ascertaining their financial performance. With the
application of this aspect, the accountabilities of the companies have increased in terms of
disclosure related to revenue, expenses, profit and income (Cheng, et al. 2014). This is inherent
from the annual report of Sonic Healthcare in 2017, since it has published all crucial information
related to financial performance through publication of the income statement as follows;

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3rd objective:
The conceptual framework of AASB requires the business entities to signify any
variation in cash position and overall financial condition in their financial reports (Aasb.gov.au,
2018). It could be observed from the annual report of Sonic Healthcare regarding the disclosure
of all necessary information needed for analysing the variations in financial performance through
publish of the statement of changes in equity and statement of cash flows. Such statements are
represented briefly as follows:

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The above discussion provides a number of evidences, in which it has been found that
Sonic Healthcare has revealed all the crucial information. The goal is to help the users using its
financial statements in assessing the actual performance and position along with variation in such
performance and position in compliance with the AASB conceptual framework objectives.
Recognition criteria of conceptual framework:
It is mandatory for all the business entities to carry out effective recognition of the crucial
financial aspects including revenue, expenses, assets, liabilities and equity (Gornik-Tomaszewski
and Choi, 2018). Certain criteria are deemed to be inherent for AASB conceptual framework and

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Sonic Healthcare needs to follow them at the time of recognising the financial aspects, which are
elucidated briefly as follows;
Assets:
Sonic Healthcare needs to comply with “Section 334 of the Corporations Act 2001” and
“AASB 116 Property, Plant and Equipment” mentioned under the AASB conceptual framework
for recognising its property, plant and equipment (Henderson, et al., 2015). For Sonic
Healthcare, the organisation recognises this fixed asset in its statement of financial position at
cost minus accumulated depreciation and impairment losses (Investors.sonichealthcare.com,
2018). The computation of depreciation is carried out by using the straight line method.
In order to recognise inventories, Sonic Healthcare realises them by complying with
“AASB 102 Inventories” and either cost or net realisable value is used for disclosing them based
on the one having lower price.

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In addition, another standard that Sonic Healthcare needs to follow is to conform to
“AASB 138 Intangible Assets” in order to recognise intangible company assets and measurement
is made at cost.
Liabilities:
It is necessary for all the Australian listed entities to conform to “AASB 132 Presentation
of Financial Instruments” for recognising interest-bearing bonds (Libby, 2017). For Sonic
Healthcare, the interest-bearing bonds are recognised primarily at fair value along with
transaction costs except where measurement is made at fair value and the transaction costs have
been expensed as incurred.
Additionally, adherence needs to be ensured with AASB 16 Leases and for Sonic
Healthcare, lease payments are assigned between minimisation of lease liability and finance
charges for accomplishing constant interest rate on the remaining liability balance.

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Along with this, it is necessary for the Australian firms to conform to the principles
mentioned under “AASB 137 Provisions, Contingent Assets and Contingent Liabilities”. Sonic
Healthcare recognises its provisions when it has existing equitable, legal or constructive
obligation due to past transactions or events.
Equity:
The conceptual framework of AASB makes it mandatory for all the Australian listed
entities to comply with the guidelines laid down in “AASB 132 Presentation of Financial

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Instruments”. The guidelines lay emphasis on the recognition of revenue (Newberry 2015). Sonic
Healthcare recognises ordinary shares in the form of equity.
Revenue:
The conceptual framework has designed certain revenue-related principles mentioned
under “AASB 118 Revenue” for effective revenue recognition. For Sonic Healthcare, revenue is
measures at fair value of consideration, which is received already or yet to be received.
Expense:
According to the conceptual framework, every business organisation should recognise
expenses at the time there is a likelihood that future economic benefits would flow against them
(Simnett and Huggins, 2015). For Sonic Healthcare, the expenses incurred before making profit
include finance costs, bad and doubtful debts, depreciation and amortisation, rental expense for
operating leases and expense for defined contribution superannuation.

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It is inherent from the above discussion that Sonic Healthcare Limited makes effective
realisation of the significant financial aspects in accordance with the stated conceptual
framework.
Qualitative characteristics of financial reporting:
The enhancing and fundamental qualitative characteristics help in enhancing the
usefulness and purpose of financial information and they are elucidated briefly as follows:
Fundamental qualitative characteristics:
In compliance with the AASB conceptual framework, two fundamental qualitative
characteristics include relevance and faithful representation associated with financial reporting.
In order to ensure that all the financial reports are relevant, Sonic Healthcare has disclosed
necessary financial information for the years 2016 and 2017, which has helped the users to
extract the crucial information for making important decisions (Nobes, 2014). For assuring that

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the financial statements are represented faithfully, Sonic Healthcare has complied with the norms
mentioned under AASB, IFRS, IASB and Corporations Act 2001. This implies a considerable
move of the organisation in assuring faithful and true representation of the financial reports.
Enhancing qualitative characteristics:
It is possible to improve the uses of financial information with the help of enhancing
qualitative characteristics. These characteristics constitute of verifiability, comparability,
timeliness and understandability. It has already been analysed that Sonic Healthcare has revealed
financial information for both the years 2016 and 2017 in order to assist the contrast of financial
condition for the users. In addition, the users could contrast the information with those
organisations operating in the same industry (Wahlen, Baginski and Bradshaw, 2014).
Besides, the various users of the financial reports of Sonic Healthcare could check the
assumptions used and estimates of accounting from financial footnotes disclosed in the annual
report. Hence, this signals the presence of verifiability aspect in the annual report of the
organisation. Furthermore, it has been evaluated that Sonic Healthcare discloses quarterly, half-
yearly and annual reports in order to ensure that the users could access the vital information
required. Finally, it has provided all the relevant justifications, categorisations and explanations
of its different financial aspects in its financial footnotes so that the users could understand them
without difficulty.
Conclusion and recommendations:
The critical analysis of the report clearly makes it evident that the management of Sonic
Healthcare Limited has considered the different objectives, which are stated in the conceptual
framework of AASB. Additionally, it has conformed effectively with the different AASB

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recognition criteria in terms of revenue, expense, assets, liabilities and equity. Finally, it could be
found that the financial information of Sonic Healthcare contains enhancing as well as
fundamental qualitative characteristics and hence, the users could gather crucial information
from its annual report. Therefore, it is suggested to the organisation to ensure such compliance
for adhering to the AASB conceptual framework guidelines and principles, as it would enable in
avoidance of accounting complexities in future.

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References:
Aasb.gov.au., 2018. Conceptual Framework For Financial Reporting. [online]. Available at:
<http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf> [Accessed 13
August 2018].
Barker, R. and Teixeira, A., 2018. Gaps in the IFRS conceptual framework. Accounting in
Europe, pp.1-14.
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.
Gornik-Tomaszewski, S. and Choi, Y.C., 2018. The Conceptual Framework: Past, Present, and
Future. Review of Business, 38(1).
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Investors.sonichealthcare.com., 2018. [online] Available at:
http://investors.sonichealthcare.com/FormBuilder/_Resource/_module/
T8Ln_c4ibUqyFnnNe9zNRA/ConciseAnnualReport_2017_SHL_web.pdf [Accessed 13 Aug.
2018].
Libby, R., 2017. Accounting and human information processing. In The Routledge Companion to
Behavioural Accounting Research (pp. 42-54). Routledge.

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Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money
& Management, 35(5), pp.371-376.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add
value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.
Sonichealthcare.com., 2018. Sonic Healthcare | Home. [online] Available at:
https://www.sonichealthcare.com/#/ [Accessed 13 Aug. 2018].
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement
analysis and valuation. Nelson Education.