Contemporary Issues in Accounting: AASB Conceptual Framework Evaluation of Wesfarmers Limited

This report evaluates the doctrines and principles of the conceptual framework of AASB and its compliance by Wesfarmers Limited, the leading retailer of Australia listed in ASX 100. It covers recognition criteria, fundamental and enhancing qualitative characteristics of financial reporting.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
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1CONTEMPORARY ISSUES IN ACCOUNTING
Abstract:
In case of Australia, the necessary rules and principles of financial reporting could be
obtained from AASB conceptual framework. It is noteworthy that this specific framework is
developed with the help of IASB and this mandates the need of all the organisations to follow
such rules. The intention of this report is to develop a thorough evaluation of the doctrines
and principles of the conceptual framework of AASB. In this report, Wesfarmers Limited is
considered, as it is the leading retailer of the nation listed in ASX 100. It has been evaluated
that Wesfarmers Limited has complied with all the recognition criteria, conceptual
framework objectives and qualitative characteristics of financial reporting.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
1. Introduction:...........................................................................................................................3
2. Conceptual framework objectives:.........................................................................................3
3. Recognition criteria of the conceptual framework:................................................................9
4. Fundamental qualitative characteristics of the conceptual framework:...............................14
5. Enhancing qualitative characteristics of the conceptual framework:...................................15
6. Conclusion:..........................................................................................................................16
References:...............................................................................................................................18

3CONTEMPORARY ISSUES IN ACCOUNTING
1. Introduction:
With the growing competition in the corporate world in the current century, there is
success of business organisations to register comprehensive progress for obtaining greater
profitability and business growth. However, as the business operations have become
complicated with the passage of time, certain issues tend to crop up for the organisations and
one of the highly significant issues is accounting issues. Categories of accounting issues vary
from organisations to organisations and certain influential dynamics precede such kinds of
issues. Hence, this has necessitated the need of the business entities to conform to the needed
financial principles and standards and the ASX listed entities are obliged to do the same as
well (Barth 2015).
In case of Australia, the necessary rules and principles of financial reporting could be
obtained from AASB conceptual framework. It is noteworthy that this specific framework is
developed with the help of IASB and this mandates the need of all the organisations to follow
such rules. The intention of this report is to develop a thorough evaluation of the doctrines
and principles of the conceptual framework of AASB. In this report, Wesfarmers Limited is
considered, as it is the leading retailer of the nation listed in ASX 100 (Wesfarmers.com.au
2018).
2. Conceptual framework objectives:
From the above discussion, it is evident that the ASX listed entities are obliged to
conform to the principles and norms laid out in the AASB conceptual framework. It is to be
taken into account that certain objectives are present before introducing the conceptual
framework in case of the Australian business organisations.

4CONTEMPORARY ISSUES IN ACCOUNTING
In order to ascertain the current financial condition of the corporate entities, the users
of the financial statements want to obtain information about the economic resources of the
entities and such resources are current and non-current assets, current and non-current
liabilities and equity (Birt, Muthusamy and Bir 2017). Due to this, the conceptual framework
of AASB intends to provide information related to the financial statements for the above-
depicted resources that would enable in ascertaining the financial health.
For evaluating the financial performance of the organisations, there is huge need for
information regarding the primary financial factors like profit margin, revenue, expenses and
others so that suitable decisions could be undertaken. Thus, the users could seek better insight
of the financial condition of the firms. Hence, the AASB conceptual framework intends to
provide change in financial position for delivering useful information to the users (Cordery
and Sinclair 2016).
The below-stated evaluation represents the degree of compliance to which
Wesfarmers has complied with the above-stated objectives related to the conceptual
framework of AASB.

5CONTEMPORARY ISSUES IN ACCOUNTING
In accordance with the above figure, Wesfarmers Limited has presented its balance
sheet statement in 2017 in its annual report where all the necessary information about the
financial resources could be observed. As a result, the users are benefitted in ascertaining the
financial standing of the organisation in the market (De Villiers, Rinaldi and Unerman 2014).

6CONTEMPORARY ISSUES IN ACCOUNTING

7CONTEMPORARY ISSUES IN ACCOUNTING
In accordance with the above tables, Wesfarmers Limited has disclosed its income
statement and statement of comprehensive income in its 2017 annual report. Crucial
information could be obtained regarding the aspects such as income, revenue, expenses,
profit and others from such statements and thus, the financial performance of the organisation
could be evaluated in order to make appropriate decisions (Filip et al. 2017).

8CONTEMPORARY ISSUES IN ACCOUNTING
In accordance with the above tables, Wesfarmers Limited has disclosed its cash flow
statement and statement of changes in equity in its 2017 annual report. With the help of these
statements, it becomes easy for the users to review the financial performance of the
organisation over the years and thus, they could identify any variation in profit, sales revenue
and others (Garrett, Hoitash and Prawitt 2014).
Based on the evaluation of the 2017 annual report of Wesfarmers Limited, it could be
stated that the organisation has shown its conformance to the Australian standards of
accounting, AASB conceptual framework and Corporations Act 2001 for preparing and
disclosing the financial statements. Along with this, compliance could be observed with the
guidelines proposed on the part of IASB for financial reporting and International Financial
Reporting Standards (IFRS). Furthermore, it publishes various notes that support the

9CONTEMPORARY ISSUES IN ACCOUNTING
accounting treatments of the various influential dynamics. Hence, it is clearly evident from
the above discussion that Wesfarmers Limited prepares the financial statements in a manner
that all the AASB objectives related to the conceptual framework are fulfilled appropriately.
3. Recognition criteria of the conceptual framework:
Besides the objectives of the conceptual framework proposed by AASB, certain
guidelines or criteria are present in order to realise various financial aspects. These aspects
primarily constitute of assets, liabilities, equity, revenue and expenses (Henderson et al.
2015). These constitute of the recognition criteria of AASB and the ASX listed firms are
obliged to follow such criteria for the procedure of recognition. Hence, in this regard, two
significant aspects need special consideration. The management of the firms need to take into
account information associated with the significant financial aspects in their recognition
procedures. After all the significant information is taken into account, the business
organisations are needed to assure their faithful representation (Hodgson and Russell 2014).
The below-stated discussion represents the adherence of Wesfarmers Limited with the
recognition criteria stated above in relation to the conceptual framework of AASB:
Assets:
As observed from annual report, various asset groups are present in Wesfarmers
Limited. Out of those assets, property, plant and equipment are significant and they are
realised at cost less accumulated depreciation and impairment in accordance with AASB 116.
Moreover, the realisation of landfill assets is made based on fair value approach.

10CONTEMPORARY ISSUES IN ACCOUNTING
Wesfarmers Limited realises goodwill based on cost and it is subject to impairment
losses in compliance with AASB 136.
In accordance with AASB 9, Wesfarmers Limited realises trade and other receivables
on ongoing basis and fair value is used for measuring them. The period of settlement of trade
and other receivables is 30 days.
Liabilities:
In case of liabilities, trade and other payables are a significant liability for Wesfarmers
Limited and it is realised against the liability in contrast to goods and services purchased
from the suppliers. The payment is made within 45 days of realisation in accordance with
AASB 9.

11CONTEMPORARY ISSUES IN ACCOUNTING
For Wesfarmers Limited, another significant liability is borrowings and fair value is
used for realising the same after the consideration of issuance cost is made.
Wesfarmers Limited realises its provision in the statement of financial position at the
time the organisation has current legal obligation because of any past event (Holland 2016).

12CONTEMPORARY ISSUES IN ACCOUNTING
Equity:
In order to recognise issued capital, Wesfarmers Limited utilises the technique if fair
value measurement of the received consideration. In this method, the organisation takes into
account the costs that are attributed directly towards the issuance of shares in accordance with
AASB 1004.
Revenue:
Based on AASB 118, it could be stated that Wesfarmers Limited realises revenue as
the amount based on fair value method on the received consideration.
Expense:

13CONTEMPORARY ISSUES IN ACCOUNTING
In case of Wesfarmers Limited, all expenses are realised in the income statement at
the time when they are incurred and not when the payment is made.
Based on the above discussion, there is clear evidence of an aspect that Wesfarmers
Limited adheres to each criteria of recognition mentioned in the AASB conceptual
framework in order to realise the main financial aspects and it represents the overall
compliance with the necessary guidelines.

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4. Fundamental qualitative characteristics of the conceptual framework:
The fundamental qualitative characteristics constitute of a significant dimension of the
AASB conceptual framework for suitable financial reporting. The incorporation of two
fundamental qualitative characteristics makes the financial statements useful for aiding the
users in making important decisions (Kogan, Sudit and Vasarhelyi 2018). The two significant
characteristics include faithful representation and relevance. Relevance is highly beneficial
for the users of the financial statements to aid in their decision-making process. Besides
relevance, the presence of faithful representation assures the financial information is provided
correctly to the users of the financial statements (Macve 2015).
It could be observed from the annual report of Wesfarmers Limited that both these
characteristics are present while depicting the financial information to its users. The recent
annual report of the organisation carries all the pertinent statements such as the balance sheet
statement, income statement and others containing all the pertinent financial information. As
a result, it has positive impact on the users in relation to undertaking decisions
(Morioka and De Carvalho 2016).

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Based on the above statement, Ernst & Young has opined that the financial statements
of the organisation are developed in accordance with AASB, IFRS, IASB and Corporations
Act 2001. Hence, it has maintained both relevance and faithful representation while
presenting financial information to the users.
5. Enhancing qualitative characteristics of the conceptual framework:
As proposed by the conceptual framework, the enhancing qualitative characteristics
enable in improving the overall quality of the financial statements for the listed companies in

16CONTEMPORARY ISSUES IN ACCOUNTING
ASX. These characteristics comprise of comparability, verifiability, timeliness and
understandability (Nobes 2014). Comparability enables the users to detect the similar stuffs
and differences in various financial aspects (Zhang and Andrew 2014). The financial
statement users could review the financial information through knowledge application. The
timeliness characteristic enables in supplying financial information to the users at the right
time. With the help of understandability, the financial statements are prepared in such a
manner that they become user-friendly (Simnett and Huggins 2015).
Verifiability and comparability have positive relationship with faithful representation.
With the help of faithful representation, Wesfarmers Limited complies with all the standards
of the conceptual framework of AASB. Such faithful representation results in verifiability
and comparability of the financial statements of Wesfarmers Limited. Wesfarmers Limited
discloses its financial outcomes via the financial statements at a specific time in a year for
ensuring their availability of information to the users. Along with this, the users of the
financial statements could gain an insight of the financial information of Wesfarmers
Limited, when reasonable financial knowledge is present.
6. Conclusion:
Based on the above evaluation, it could be stated that the ASX listed entities are
obliged to conform to the principles and norms laid out in the AASB conceptual framework.
It is to be taken into account that certain objectives are present before introducing the
conceptual framework in case of the Australian business organisations. Wesfarmers Limited
has presented its balance sheet statement in 2017 in its annual report where all the necessary
information about the financial resources could be observed. As a result, the users are
benefitted in ascertaining the financial standing of the organisation in the market. The other
statements are prepared accordingly for providing maximum usefulness to its users.

17CONTEMPORARY ISSUES IN ACCOUNTING
Besides the objectives of the conceptual framework proposed by AASB, certain
guidelines or criteria are present in order to realise various financial aspects. These aspects
primarily constitute of assets, liabilities, equity, revenue and expenses. There is clear
evidence of an aspect that Wesfarmers Limited adheres to each criteria of recognition
mentioned in the AASB conceptual framework in order to realise the main financial aspects
and it represents the overall compliance with the necessary guidelines. In addition, Ernst &
Young has opined that the financial statements of the organisation are developed in
accordance with AASB, IFRS, IASB and Corporations Act 2001. Hence, it has maintained
both relevance and faithful representation while presenting financial information to the users.
As proposed by the conceptual framework, the enhancing qualitative characteristics
enable in improving the overall quality of the financial statements for the listed companies in
ASX. These characteristics comprise of comparability, verifiability, timeliness and
understandability. Wesfarmers Limited complies with all the standards of the conceptual
framework of AASB. Such faithful representation results in verifiability and comparability of
the financial statements of Wesfarmers Limited. Wesfarmers Limited discloses its financial
outcomes via the financial statements at a specific time in a year for ensuring their
availability of information to the users. Along with this, the users of the financial statements
could gain an insight of the financial information of Wesfarmers Limited, when reasonable
financial knowledge is present.

18CONTEMPORARY ISSUES IN ACCOUNTING
References:
Barth, M.E., 2015. Financial accounting research, practice, and financial
accountability. Abacus, 51(4), pp.499-510.
Birt, J.L., Muthusamy, K. and Bir, P., 2017. XBRL and the qualitative characteristics of
useful financial information. Accounting Research Journal, 30(01), pp.107-126.
Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual
Framework Objectives: Continuing Challenges.
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an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7),
pp.1042-1067.
Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M. and Moldovan, R., 2017.
Literature Review on the Effect of Implementation of IFRS 13 Fair Value Measurement.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal
of Accounting Research, 52(5), pp.1087-1125.
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19CONTEMPORARY ISSUES IN ACCOUNTING
Kogan, A., Sudit, E.F. and Vasarhelyi, M.A., 2018. Continuous online auditing: A program
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Publishing Limited.
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Tool, Or Threat?. Routledge.
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Nobes, C., 2014. International Classification of Financial Reporting 3e. 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.
Wesfarmers.com.au., 2018. [online] Available at:
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0 [Accessed 19 Apr. 2018].
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perspectives on accounting, 25(1), pp.17-26.