Contemporary Issues in Accounting

This assignment analyses the financial statements of Ausdrill Ltd and comments on whether they are prepared as per the conceptual framework of accounting. It also discusses the objectives, recognition criteria, and qualitative characteristics of the framework.

Running head: CONTEMPORARY ISSSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student:
Name of the University:
Author’s Note:

1
CONTEMPORARY ISSUES IN ACCOUNTING
Executive Summary
The main purpose of this assignment is to critically analyse the annual reports of a company
which is listed in Australian Stock Exchange (ASX). The company which is selected for this
assignment is Ausdrill ltd which is engaged in business in Australia. The report will be analysing
the financial statements of the company and comment whether the financial statements are
prepared as per the conceptual framework of accounting. The report will also be containing the
objectives of conceptual framework of accounting. In addition, it will point out the recognition
criteria of the company and also whether the financial statements show Fundamental and
Enhancing features in the financial statement. Lastly the report will be ending with a section of
recommendations.

2
CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
Discussions......................................................................................................................................3
Objectives of Conceptual Framework.........................................................................................3
Recognition Criteria.....................................................................................................................7
Fundamental Qualitative Characteristics.....................................................................................9
Enhancing Qualitative Characteristics.........................................................................................9
Conclusion and Recommendations................................................................................................10
Reference.......................................................................................................................................12

3
CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
Conceptual Framework may be defined as a system or ideas which are necessary to create
consistent set of rules and guidelines which can be followed by different organization for the
purpose of preparation of the annual reports of a business. The basic use of such a framework is
immense as it is the basis on which financial statements are prepared and with the use of
conceptual framework a general level of consistency and comparability can be maintained
among organizations (Weil, Schipper and Francis 2013). This is due to the fact that it is a
commonly used framework by all accountants. Such a framework includes accounting standards,
principles, conventions and rules on the basis of which an entity prepares its financial statements.
The conceptual framework was adopted by International Accounting Standard Board (IASB) and
all business should follow the framework mandatorily. The conceptual framework should be
followed by each entity to ensure that the financial statements is displaying fair representation.
The company which has been selected for this assignment is Ausdrill Ltd. the company is
engaged in integrated mining activities and energy services. The company also engages in
exploration, mine development and surface mining as well. The company has been expanding its
business and have been achieving decent growths. The company operates in more than 10
countries with more than 4500 workers (Ausdrill.com.au. 2018). The company has a group
revenue generation of $ 776 million in 2017.
Discussions
Objectives of Conceptual Framework
As discussed above Conceptual Framework is essential to the business as it ensures that
all the relevant standards are followed while preparing the financial statements. The objectives of
conceptual framework are discussed below in details:

4
CONTEMPORARY ISSUES IN ACCOUNTING
1. The purpose of Conceptual framework is to ensure that the annual reports of the company
are prepared in such a way that all information which are relevant are shown in the
financial reports so that the potential investors and the present shareholders, lenders and
creditors can use such information for the purpose of taking decisions regarding future
investments and present holdings of the shares (Lawrence 2013). The financial statements
are also taken as performance report of the company. In the case of Ausdrill ltd, the
annual reports of the company for the year 2017 shows necessary information which are
required by the shareholders to take decisions about investments and holdings. The profit
and loss account, balance sheet and cash flow statement are effectively prepared which
can provide the shareholders information regarding the overall performance of the
company and also regarding how the business is utilizing the funds of the shareholders
(Christensen and Nikolaev 2013).
2. Another objective of Conceptual framework which is used in reporting is to effectively
assess the amount of cash inflows which is generated by the business. The framework is
also used to ascertained the resources which the business will be requiring for generating
future cash inflows. As per the annual reports of Ausdrill ltd, the business has effectively
anticipated certain expenses which the business will need to incur certain expenses which
relates to repayment of debts in 2018. The business had avail cash advance facility of $
125 million out of which 124.08 million remains undrawn and such will be maturing in
2018 therefore the company can expect cash inflows in 2018 from this source. The cash
flow statement of the company shows all the relevant information regarding the cash
inflows and outflows of Ausdrill Ltd.

5
CONTEMPORARY ISSUES IN ACCOUNTING
Figure 1: (Cash flow Statement of Ausdrill ltd)
Source: (Ausdrill.com.au. 2018).
3. Conceptual Framework also helps to depict all the information which are relating to the
assets, liabilities and the income and expenses of the company which can provide precise
information about the performance of the company in financial terms (Leuz and Wysocki
2016). Ausdrill Ltd has shown in the statement of profit and loss account the net profit of
the company along with all other income and expense items of the business.

6
CONTEMPORARY ISSUES IN ACCOUNTING
Figure 2: (Profit and loss Account of Ausdrill Ltd)
Source: (Ausdrill.com.au. 2018).
The main purpose of the conceptual framework of reporting is to ensure that the financial
statements of the business is prepared in accordance with the requirements of the framework.
The framework provides a means to the organizations to fairly represent the financial statements
as the guidelines present in the conceptual framework is meant to help the businesses to prepare
an annual report which displays all relevant information to the general public (Edmonds et al.

7
CONTEMPORARY ISSUES IN ACCOUNTING
2016). The framework is also there so that there is simplicity and clarity in providing financial
information in a report so that all the parties which are associated with the company can
understand the financial information and then take decisions based on the same.
Recognition Criteria
The recognition criteria which is to be followed in order to fairly represent the financial
statements of the company requires recording of an item as per the requirements of the
conceptual framework. Australian Accounting Standard Board (AASB) is the board which issues
standards related to accounting which set the guidelines which are to be followed by businesses
for treatment of certain items of the financial statements and thereby ensuring that the annual
reports are showing true and fair view (Stice and Stice 2013). The criteria for recognizing any
item is based on the economic benefits of that item and another is the reliability of the item. The
various items which are of significance and have been recognized by the company are discussed
below:
1. Assets: As per the general framework assets are to be subdivide into short-term assets and
long-term assets which are also known as current and non-current assets respectively.
Ausdrill ltd have subdivided their assets as per the requirement of the framework. The
current assets of the company consist of cash and cash equivalents, inventory and debtors
of the company which are common current assets items (Sherraden and Gilbert 2016).
The extraordinary items which are shown in the financial statement is current tax
receivables. The non-current assets of the company comprise of joint ventures
agreements, property, plants and equipment and deferred tax assets. The assets are the
basis on which revenues of the company are generated.

8
CONTEMPORARY ISSUES IN ACCOUNTING
2. Liabilities: The liabilities of the business are also sub divided into current and non-
current liabilities similarly as assets. The total of the assets side will always be matching
the total of liabilities side of the balance sheet as per the matching principle of
accounting. The current liabilities consist of trade payables, short-term loans, employee
benefit compensation. The non-current liabilities of the business consist of long-term
borrowings and other expenses of long term nature. The liabilities are recognized on the
basis of the obligation which the management has to pay to creditors or other external
party.
3. Income: The income of the company is recorded and shown in the profit and loss account
prepared by the company. The basic source of revenue for the company is from the
services provided which is related to mining, exploration and other similar activities of
the business. The revenues are recognized by the company when the risks and rewards
associated with the product is transferred to third party.
4. Expenses: The expenses of the company are depicted in the profit and loss account of the
company. Some of these expenses are cash expenses while some are non-cash like
depreciation and impairment loss. The expenses of the company are incurred to continue
the operation of the business and also to generate the profits and ensure that the revenues
are more than the expenses of the company.
5. Equity: The equity of the company comprises of retained earnings which are generated
by the business and used for financing purpose of the business. It also consists of the
share capital of the business which is shown in the statement of change in equity of
business. These represents the owner’s capital of the business and also has reserves which
are undistributed profits of the business.

9
CONTEMPORARY ISSUES IN ACCOUNTING
For the purpose of recognizing the business has followed all relevant standards issued by
AASB and which are operating and in force in Australia which is clear from the auditor’s
statement (Hope, Thomas and Vyas 2013).
Fundamental Qualitative Characteristics
As per the financial statements of Ausdrill ltd, the financial statements contains the
qualitative characteristics which are given below in details:
1. Relevance: This principle states that the annual reports of any business should include
information which are relevant and which can be used by the shareholders of the
company. In the case of Ausdrill ltd, all related AASB, IAS standard which makes the
information contained in the financial statements relevant has been followed and
moreover the company has given explanations about the different treatments of different
items which are depicted in the annual reports of the company (Barth 2013).
2. Faithful representation: In order to prove that the financial statements are showing true
and fair view, the financial statement are audited and independently investigated by an
independent and competent auditor. The auditors of the company are PWC which is one
of the big 4 auditing firms. The auditor of Ausdrill ltd is of the view that the financial
statements are showing true and fair view and the company has complied with all
relevant accounting standards and principles.
Enhancing Qualitative Characteristics
The enhancing qualitative changes are such which adds further value to the financial statement of
the company. These are discussed below in details:
1. Comparability: The financial statement results are comparable with the results of
previous years which confirms with this principle. Ausdrill ltd has used trend analysis

10
CONTEMPORARY ISSUES IN ACCOUNTING
and also provided results from previous year form comparison benefits for the users so
that they can effectively measure the performance of the company (Wang 2014).
2. Verifiability: This principle states that the treatments which are shown in the annual
reports for different items must be verifiable by the users which can be done with the help
of explanations provided in the notes to accounts section of the annual reports. In the case
of Ausdrill ltd, proper notes to accounts are given by the company.
3. Timeliness: The principle states that the financial statements should be provided to the
users in a timely basis so that it can help the users in the decision-making process
(Henderson et al. 2015). The timing of providing of the financial statements are normally
at the end of the financial year of the company when the annual reports of the business
are published showing the performance of the company during the year.
4. Understandability: The financial statement should be such that it can be easily be
understood by everyone. For the simplicity purpose graphs and presentations are includes
so that they help in the process of understanding (Chen et al. 2014). Moreover, the
business also follows generally accepted financial reporting framework so that it can
promote simplicity and understandability for the users of the financial statement of the
business.
Conclusion and Recommendations
The above analysis of the Conceptual framework in respect of the company provides a
clear picture that the financial statements of Ausdrill ltd are showing true and fair view. The
framework is used by most of the business to promote understanding and clarity among the
shareholders about the performance of the company and also the funds allocations which are
made by the company for different purposes. Ausdrill ltd follows the required framework and all

11
CONTEMPORARY ISSUES IN ACCOUNTING
the relevant information are their which makes the financial statements appropriate. In addition
to this, the financial reports contain both fundamental qualitative features as well as Enhancing
Qualitative features which adds more value to the annual reports of the company.
Recommendations
The recommendations which can be given to the company for further improvement of the
reporting framework is given below in points form:
1. The company needs to bring about more explanation regarding Employee benefit
compensation which is shown in both short-term and long-term liability of the business.
This is needed to be clarified by the management.
2. The company needs to provide more information regarding the treatments of Joint
venture transaction and follow all required standard related to the same.

12
CONTEMPORARY ISSUES IN ACCOUNTING
Reference
Ausdrill.com.au. (2018). Home : Ausdrill. [online] Available at: http://www.ausdrill.com.au/
[Accessed 18 Apr. 2018].
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Chen, C.W., Collins, D.W., Kravet, T. and Mergenthaler, R.D., 2014. Financial statement
comparability and the efficiency of acquisition decisions. Contemporary Accounting Research.
Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets
pass the market test?. Review of Accounting Studies, 18(3), pp.734-775.
Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial
accounting concepts. McGraw-Hill Education.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Hope, O.K., Thomas, W.B. and Vyas, D., 2013. Financial reporting quality of US private and
public firms. The Accounting Review, 88(5), pp.1715-1742.
Lawrence, A., 2013. Individual investors and financial disclosure. Journal of Accounting and
Economics, 56(1), pp.130-147.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2),
pp.525-622.

13
CONTEMPORARY ISSUES IN ACCOUNTING
Sherraden, M. and Gilbert, N., 2016. Assets and the Poor: New American Welfare Policy.
Routledge.
Stice, E.K. and Stice, J.D., 2013. Intermediate accounting. Cengage Learning.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

14
CONTEMPORARY ISSUES IN ACCOUNTING