Contemporary Issues in Accounting: A Comparative Analysis of Two Food Companies

This assignment content discusses the income tax expense of Farm Pride Foods Limited and Huon Aquaculture Company Limited, as well as their remuneration structures. The proposed conceptual framework is also explored, including its focus on prudence, which aims to minimize natural management bias towards optimism. Additionally, the assignment provides a summary of academic articles and literature reviews related to financial reporting and accounting standards.

Contemporary Issues In Accounting

Executive summary
The annual reports of two companies have been taken which lies under the food and beverages
sector. Farm pride Food is the limited company which provide packs, grades, processes, supplies
and ,market the shell eggs and produce egg products with Australia and it also exports in Asia
Whereas Huon Aquaculture Company Limited is the vertically integrated agriculture company in
Australia and its aim is to manage risk, drive sustainability, and long-term growth of the
company. The annual report's analysis is conducted on the basis of financial statement elements.
The concept of the conceptual framework has been discussed and need of revision in order to
include prudence to address the disparity in corporate reporting. Conclusion and
recommendations have been made on the basis of analysis.

Introduction
In this present paper, the conceptual framework is set out which underlined the development of
financial statements for the external users. It is mainly a system of concept that flow from an
objective of determining the purpose of financial reporting. The conceptual framework is mainly
used to determine whether the framework has met the requirements of IASB in order to provide
more consistent and useful set of standards as well as pronouncements. It should also resolve the
new and existing problem with the development of confidence among the financial users.
Annual reports analysis
The financial reports of both the companies are developed by considering the companies Act,
2001, interpretation of Australian Accounting Standard board, Australian Accounting Standards,
and International Financial Reporting Standards which are issued by the International
Accounting Standard board. The purpose of the financial reporting is to provide financial
information to the investors, debtors, creditors, and other stakeholders in order to take a financial
decision within the specific period of time.
Difference among the companies on the basis of financial information
1. Inventory
Huon Aquaculture Company Limited is valued their inventory at ;lower of cost which
means that the cost is calculated on the average cost basis and it includes the cost of
purchases such as transportation cost. The net realizable value of is calculated by the
company through estimating the selling price in the ordinary course of business minus
cost of completion as well as necessary cost in order to make the sales. Whereas

inventory valuation is done by Farm Pride Foods Limited on the base upon cost
amortized over the production life of the flock and that is between 50 and 60 weeks.
2. Trade and other receivables
Huon Aquaculture Company Limited calculates trade and other receivables at fair value
which is due in the short period of time whereas Farm Pride Foods Limited calculate
trade and other receivables initially at fair price and subsequently impairment cost is the
receivable carrying amount which is compared with present value of estimated future
cash flow and discount at the original interest rate.
3. Plant, property and equipment’s
Huon Aquaculture Company Limited calculate plant, property, and machinery at fair
market value which is calculated by deducting accumulated depreciation and
accumulated impairment cost from historical cost whereas Farm Pride Foods Limited
calculate plant, property and equipment's at cost basis in which accumulated depreciation
or any other impairment loss is deducted from cost (Weil et al., 2013).
4. Contingent liabilities
Both the companies, namely, Farm Pride Foods Limited and Huon Aquaculture Company
Limited do not have contingent liabilities at the end of the financial year.
5. Lease payments
In Huon Aquaculture Company Limited marine cost is recorded at cost and amortization
is based on the lease and expense which are charged throughout the consolidated income
statement. All marine leases have term period of thirty years. The group also has lease
commitments which are related to a range of equipment's, and they derive operating lease

Whereas Farm Pride Foods Limited lease payment for operating lease, and it is recorded
in the same year as the expense, and substantially all benefits remain wit lessee.
6. Revenue
The Huon Aquaculture Company Limited has recognized the revenue in order to provide
the economic benefits to the company and revenue can be measured in monetary terms
regardless of the payments which have been made by the company within the specific
period of time. The revenue is measured by the company at fair market value by
considering the amounts which are received by the company excluding taxes and
payments which have been made within the specific period of time. Whereas Farm Pride
Foods Limited considers revenue of the company after transferring sale of eggs with the
transferring of risk within the specific period of time and interest revenue is recognized
by using effective interest method. All revenue include the net amount by excluding
goods and service tax.
7. Transfer of pricing provision
Transfer of pricing provision is not applicable both the companies.
8. Income tax expense
In Huon Aquaculture Company Limited income tax expense is considered as the expense
which is charged on the taxable income and deferred tax assets. The taxable income is
calculated at the tax rate which is expected to apply within the specific period of time,
whereas Farm Pride Foods Limited charges current income tax expense to the profit and
loss is considered as the taxable income and current as well as deferred tax balance is
considered directly in equity.

Remuneration structure
The remuneration structure of the company is designed in order to achieve the following
outcomes:
1. To achieve the retention and motivation of key executives.
2. In order to achieve high-quality management in an organization.
3. Performance incentive is mainly provided to the executive in order to share some part of
the success of the company (Faria et al., 2014).
The Huon Aquaculture Company Limited provides the short-term incentive to their
employees who contribute towards the achievement of the company, and business unit
outcomes are paid in cash. The short-term incentive is calculated on 40% target of the
total financial remuneration of DCEO and thirty percent target of total financial
remuneration to CFO.
Whereas in Farm Pride Foods Limited the remuneration is paid to the executive by
governing service agreements between the executive, controlling entity and company.
The monthly amount is paid by the company, but there are no termination benefits
provided to the executive, but they are allowed to participate in share option which is
based on the incentive program.
Proposed conceptual framework
The conceptual framework mainly explains the objective and concepts of the general purpose of
financial reporting. It is considered as a practical tool which helps the boards to develop IFRS

standards on the basis of a consistent approach, and it also assists the preparers in order to
develop accounting principles which apply to the place where IFRS standards are not applied. It
also helps to interpret the standards (IFRS.org., 2016).
The existing framework is revised as it does not consider various areas, the guidance in some
areas are also not clear, and some aspects of the framework are out of the frame.
The conceptual framework is not a standard due to which it overrides particular standards, but
the changes in conceptual framework do not show an immediate effect on the financial
statements of the reporting entities. However, the entities will affect by the changes if they need
to use the framework in order to develop the accounting policies where IFRS standards are not
applied.
At the time of making a judgment, prudence is the exercise of caution which is made under the
conditions of uncertainty. Prudence is mainly defined as the situation in which assets and income
of the company are not overstated, and liabilities, as well as expenses of the company, are not
understated. Misstatement can lead to an understatement of expenses and overstatement of
income (Iasplus.com., 2016).
Focuses of revised conceptual framework
The conceptual framework comprises of the concept of prudence in order to address the disparity
in corporate reporting.
 Recognition and DE recognition
 Measurement
 Disclosure and presentation
 Elements of financial statement

 Report entity
References to prudence is reinstated in the conceptual framework
1. The existing and proposed standards are using accounting treatments which can be seen
as the desire of prudence so it is necessary to include the concept of a conceptual
framework which can be applied consistently.
2. The prudence is necessary in order to minimize the natural management bias towards
optimism.
3. Prudence considers from the investor's point of view which includes the consideration of
both upsides as well as downside risk.
4. Prudence enables to align the interest of stakeholders and investors, and it helps to
minimize moral hazards.
5. Prudence is considered as caution which helps to achieve neutrality by making a
judgment under the uncertainties condition which plays a significant role in corporate
reporting.
Criticism from inclusion of prudence in the conceptual framework
1. Prudence is inconsistent with the neutrality concept.
2. There is a greater subjectivity in the financial statement by exercising the prudence which
raises the difficulty of evaluating the financial performance of the company.
Prudence is present in various areas of corporate reporting. The examples are explained
below:

1. Impairment of events leads to writing about the carrying amount of assets which is
prudent because it overrides the regular appointment of the cost of non-current assets
in its lifetime.
2. The determination of revenue is the element of prudent as when profit related
provisions of services reflect uncertainties due to which prudence limits the use of
unrecognized profits (Ifac.org, 2016).
Conclusion
It can be concluded that both companies’ lies under food and beverages sectors and following are
the recommendations which have been made after analyzing the annual reports of the company:
1. The periodic evaluation criteria of executive performance need to disclose by the
listed companies.
2. A number of independent directors need to be considered by the board at the time of
recruiting additional directors.
3. The information about the company and its governance to investors needs to be
disclosed by the company on its website.

Academic articles
1. The purpose of financial Reporting: The case for coherence in the conceptual framework
and standards. By David B. Sutton,Carolyn J.cordery and Tony Van Zijl.
2. The IASB's Discussion Paper on the Conceptual Framework for Financial Reporting by
Elizabeth A. Gordon, Jannis Bischof,Chika sake.
3. Need for and understanding of a conceptual framework.by a member of ACCA team.
4. The equity theories and IASB conceptual framework by carien van mourik.
5. Literature reviews ,Conceptual frameworks and theoretical framework by Tonette
S.Rocco .
6. IASB Proposes changes to conceptual framework by Ken Tysiac.
7. An Evaluation of the FASB’s Conceptual framework from user;s perspective byPike,
Byron, Chui, Lawerence.
8. A conceptual framework for systematic reviews and research in educational leadership
and management.by Philip halinger
9. Fair Value and the IASB/FASB Conceptual Framework Project by Geoffery Whittington.
10. Use of theoretical and conceptual frameworks in qualitative approach by HE green.

References
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Faria, P., & Vale, Z. (2014, July). Remuneration structure definition for distributed generation
units and demand response participants aggregation. In 2014 IEEE PES General Meeting|
Conference & Exposition (pp. 1-5). IEEE.
Ifrs.org. (2016). IFRS - Conceptual Framework Exposure Draft and Comment letters. [online]
Available at: http://www.ifrs.org/Current-Projects/IASB-Projects/Conceptual-Framework/
Pages/Conceptual-Framework-Exposure-Draft-and-Comment-letters.aspx [Accessed 11 Dec.
2016].
Iasplus.com. (2016). Conceptual Framework — Comprehensive IASB project. [online]
Available at: http://www.iasplus.com/en/projects/major/cf-iasb [Accessed 11 Dec. 2016].
Pwc.blogs.com. (2016). Dear Prudence - IFRS. [online] Available at:
http://pwc.blogs.com/ifrs/2015/06/dear-prudence.html [Accessed 11 Dec. 2016].
Ifac.org. (2016). The Never Ending Story of Prudence and IFRS | IFAC. [online] Available at:
https://www.ifac.org/global-knowledge-gateway/business-reporting/discussion/never-ending-
story-prudence-and-ifrs [Accessed 11 Dec. 2016].