Contemporary Issues in Accounting

This report analyzes whether the financial statements of McMillan Shakespeare Limited have been prepared and presented in compliance with the requirement of the conceptual framework. It examines the measurement requirements, qualitative characteristics, and the use of financial reports for decision making. The report concludes that the entity is following the requirements of the conceptual framework.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
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1CONTEMPORARY ISSUES IN ACCOUNTING
Executive summary
The aim of the report is to analyse whether the financial statements of McMillan Shakespeare
Limited has been prepared and presented in compliance with the requirement of conceptual
framework. The report will analyse the presentation of financial statement in context of the
requirement of recognition criteria and qualitative characteristics. Based on the analysis final
decision will be made regarding whether the entity is following the requirement of conceptual
framework. From the annual report of the entity for the year ended 2018 it is observed that the
financial report is general purpose financial report and is prepared as per the requirement of
AAS, Corporation Act 2001 and the interpretation of AASB. It is identified that all the objectives
of conceptual framework in context of GPFR are complied with by McMillan Shakespeare
Limited. Elements of the financial statements like assets, liabilities, equity, expenses and
revenues are recognised and measured as per the requirement of conceptual framework. Further,
it is complying with the qualitative characteristics requirement of the framework.

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Table of Contents
Introduction......................................................................................................................................3
Measurement requirements of the conceptual framework...............................................................3
Qualitative characteristics................................................................................................................4
Fundamental qualitative characteristics...........................................................................................5
Compliance with enhancing qualitative characteristics...................................................................7
Using financial reports for decision making purpose....................................................................11
Accounting knowledge required for carrying out the analysis of entity.......................................12
Objectives of General purpose financial reporting........................................................................13
Conclusion.....................................................................................................................................16
Reference.......................................................................................................................................17

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Introduction
McMillan Shakespeare Limited, an ASX listed entity, engaged in providing services
related to fleet administration, retail financial services, vehicle leasing administration and salary
packaging all over Australia, New Zealand and UK. The company basically operates through 3
segments – asset management, retail financial services and remuneration services. Through its
subsidiaries the entity is the largest provider for salary packaging and the novated leasing
services in Australia and also the leading provider for asset and fleet management as well as fleet
and consumer financing (McMillan Shakespeare 2019). Conceptual framework is defined as the
system of objectives and ideas that lead to creation of consistent set of the standards and rules.
Particularly in accounting, the standards and rules set the function, limits and nature of the
financial accounting and the financial statements.
Measurement requirements of the conceptual framework
Measurement is the procedure through which the monetary amount of the item at which it
is to be reported in the financial statements. It involves particular measurement basis selection.
Various measurements that may be used by the entities are –
 Historical cost where the assets are recorded at the cost that is paid or fair value of
consideration provided for acquiring the asset (Aasb.gov.au 2019).
 Current cost where the assets are carried at the amount to be paid for acquiring same or
equivalent asset at present.
 Realisable value where the assets are carried at the amount that can be received through
selling the asset at present

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 Present value where the asset is carried at present discounted value for future cash
inflows expected under normal course of the business (Aasb.gov.au 2019).
From the annual report of the entity it can be determined that except the cash flow
information, the financial statements are prepared on the basis of accrual approach of accounting
and based on the historical cost and are modified wherever necessary.
For example, assets like property, plant and equipment are reported at historical cost
reduced by provision for impairment loss and accumulated depreciation. Inventories are reported
at cost or realisable value, whichever is lower. Liabilities like trade and other payables are
initially reported at the fair value and consequently they are recorded at amortised cost
(McMillan Shakespeare, 2019)
Qualitative characteristics
To be useful, the financial statements shall be presented in faithful manner and it shall be
reliable as well as relevant for its intended purposes. Further, the financial statement will be

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considered as useful if it is comparable, understandable and verifiable and are represented in the
timely manner (Aasb.gov.au 2019)
Fundamental qualitative characteristics
Faithful representation – the financial statements shall be represented in faithful manner that
will enable the users to make decisions. For representing it faithfully the representation shall be
complete, neutral and error free. Financial reports of the entity for the period ended on 30th June
2018 are presented in true and fair manner as per the statement of the company’s directors
(Noon, Blyton and Morrell 2013)
Relevance – financial statements will not be relevant if the information provided in the financial
statements cannot create any difference in the process of decision making. From the financial
information of the company it can be identified that they are relevant for users and all the
amounts are reported under appropriate heads with the relevant amount (Mca.gov.in 2019).

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Materiality – information is material if its misstatement or omission influences the decision
those are taken on the basis of financial information. McMillan Shakespeare Limited discloses
material items as well as material decisions in context of the accounting policies through notes to
the financial statements (Griffith, Hammersley and Kadous 2015)

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However, the entity included the goodwill and other tangible assets under separate CGU.
As per the auditor’s view the entity shall carry out the impairment test on the goodwill and
various other intangibles at least once in a year (McMillan Shakespeare, 2019)
Compliance with enhancing qualitative characteristics
Comparability – the financial statements of the company is presented in such way that its
performance can be compared with other firms as well as the previous year’s performance of the
entity (Mca.gov.in 2019). For instance, changes in sales amount and expenses can be identified
compared with previous year clearly.

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Verifiability – information presented in the financial report of the company can be verified with
the disclosed notes as each of the items are presented with proper amount and under appropriate
heads (Deegan 2013). For instance, increase in the amount of plant, property and equipment and
its break up can be identified from the disclosure notes.

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Timeliness – information presented in the financial report shall be in timely manner so that it can
be used for making decisions. From the financial reports of the entity it can be observed that the
information provided are for 6 months period and 12 months period that helps the users to make
decisions (Aasb.gov.au 2019)

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Understandability – to make the information understandable it shall be presented clearly and
must be characterised and classified. McMillan Shakespeare Limited presented its financial
information under appropriate heads after characterised and classified it properly (Francis, Hasan
and Wu 2013)
Using financial reports for decision making purpose
Main objective of financial reporting is to assist the users of financial statements to make
decisions regarding accountability through providing useful information in context of the entity.
Further, the Conceptual framework obliges that the ASX listed entities shall deliver the
information in financial statements in such way that it will be useful for the users. From the
financial reports of McMillan Shakespeare Limited it can be observed that it has presented all the
useful information through tables and graphs those can be used by the users while making the
decisions (Cheng et al. 2014). Hence, from the financial reports of the entity it can be observed
that the information provided are useful and can be used for making economic decisions
(Bebbington and Larrinaga 2014)

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Accounting knowledge required for carrying out the analysis of entity
Financial reports are prepared for the users who have sound knowledge of the business as
well as the economic activities and it is expected that they are able to analyse the statements
diligently. Further, they can seek advisor’s assistance to gain knowledge for the complex
information. However, though the users with basic knowledge regarding accounting can analyse
the financial statement of McMillan Shakespeare Limited as the entity presented all the items
under appropriate head with appropriate amount, high level of knowledge like trend analysis,
ratio analysis will enable to draw better conclusion regarding the company (McMillan
Shakespeare, 2019)

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Objectives of General purpose financial reporting
From the annual report of the entity for the year closed 2018 it is observed that the
financial report is general purpose financial report and it is prepared as per the requirement of
AAS (Australian Accounting Standards Board), Corporation Act 2001 and the interpretation of
AASB (Australian Accounting Standards Board). Further, the financial statements are prepared
in compliance with IFRS issued by IASB (McMillan Shakespeare 2019). Major objectives of
GPFR are as follows –
 Adequate information to financial statement users – aim of financial reporting is enable
the users of financial statements to make decisions regarding accountability through
providing useful information in context of the entity. From the financial reports of the

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entity it can be observed that the information provided are useful and can be used for
making economic decisions (Bebbington and Larrinaga 2014)
 Assessing the timing and value of the items – in accordance with the requirement of
conceptual framework, financial statement of the entity shall be stated in such way that
each of the presented items can be analysed in context of time and value involved
(Aasb.gov.au 2019). From the financial reports of the entity it can be observed that the
information provided are for the period of 12 months ended 30th June 2018 (McMillan
Shakespeare 2019). Furthermore, the amounts involved with the items are clearly
mentioned against each item and details break up have been provided in the notes those
are disclosed with the financial statements (Cheng et al. 2014).

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 Organisational resource – conceptual framework obliges the ASX listed entities to
deliver the information in context of available resources clearly and information
regarding the sources through which the resources are generated. From the financial
reports of McMillan Shakespeare Limited it can be observed that it has provided the
information regarding its resources and the sources through which the same has been
obtained.(Frias‐Aceituno, Rodriguez‐Ariza and Garcia‐Sanchez 2013)
Hence, it can be stated that all the objectives of conceptual framework in context of
GPFR are complied with by McMillan Shakespeare Limited in preparation and presentation of

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its financial statements. Further, it can be stated that the users of the financial statements will be
able to make decisions using the reports published by the company.
Conclusion
From the above interpretation it can be stated that the entity is complying with all the
requirements of conceptual framework while preparing and presenting its financial statements.
The recognition requirements of conceptual framework has been followed for recognising
different items like assets, liabilities, equities, revenues and expenses under its financial
statement. Further, it complied with all the qualitative characteristics and requirement of
enhancing qualitative characteristics for preparing financial statement. Further, though the users
need basis knowledge regarding accounting for analysing the entity, high level knowledge like
trend analysis, ratio analysis will enable to draw better conclusion regarding the company.
Recommendation
it is recommended that the entity shall follow the requirement of conceptual framework
in all aspects when it prepares and presents the financial statements. Further, it is found that, the
entity included the goodwill and other tangible assets under separate CGU which is not
appropriate as per the auditor’s view. Hence, it is recommended that the entity shall carry out the
impairment test on the goodwill and various other intangibles at least once in a year.

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Reference
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 10 Apr.
2019].
Bebbington, J. and Larrinaga, C., 2014. Accounting and sustainable development: An
exploration. Accounting, Organizations and Society, 39(6), pp.395-413.
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.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Francis, B., Hasan, I. and Wu, Q., 2013. The benefits of conservative accounting to shareholders:
Evidence from the financial crisis. Accounting Horizons, 27(2), pp.319-346.
Frias‐Aceituno, J.V., Rodriguez‐Ariza, L. and Garcia‐Sanchez, I.M., 2013. The role of the board
in the dissemination of integrated corporate social reporting. Corporate Social Responsibility and
Environmental Management, 20(4), pp.219-233.
Griffith, E.E., Hammersley, J.S. and Kadous, K., 2015. Audits of complex estimates as
verification of management numbers: How institutional pressures shape practice. Contemporary
Accounting Research, 32(3), pp.833-863.
Li, J., 2013. Accounting conservatism and debt contracts: Efficient liquidation and covenant
renegotiation. Contemporary Accounting Research, 30(3), pp.1082-1098.

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Mca.gov.in. 2019. [online] Available at:
http://www.mca.gov.in/XBRL/pdf/framework_fin_statements.pdf [Accessed 10 April. 2019].
McMillan Shakespeare. 2019. McMillan Shakespeare Limited - MMS. [online] Available at:
https://www.mmsg.com.au/ [Accessed 10 Apr. 2019].
Miller, P. and Power, M., 2013. Accounting, organizing, and economizing: Connecting
accounting research and organization theory. Academy of Management Annals, 7(1), pp.557-
605.
Noon, M., Blyton, P. and Morrell, K., 2013. The realities of work: Experiencing work and
employment in contemporary society. Palgrave Macmillan.