Conceptual Framework Analysis of MyState Limited

This report analyzes the conceptual framework of MyState Limited, focusing on measurement requirements, qualitative characteristics, and users of financial reports. It examines if the company has followed the measurement requirements as per the conceptual framework and complied with the fundamental and enhancing qualitative characteristics. The report also discusses the main users of the financial reports and the importance of accounting knowledge in interpreting financial statements. Additionally, it evaluates if the company has prepared financial statements as per General Purpose Financial Reporting.

CONTEMPORARY
ISSUES IN
ACCOUNTING
ASSIGNMENT

1
By student name
Professor
University
Date: 25 April 2019.
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Executive Summary
A report has been prepared on the conceptual framework analysis of the company named MyState
Limited, which is a part of the financial sector. The report highlights if the company has followed the
measurement requirements as per conceptual framework and complied with the fundamental and
enhancing qualitative characteristics. It also mentions who are the main users of the financial reports
and whether or not only basic knowledge of accounting helps in interpretation and understanding of the
financial statements. Towards the end, the report also mentions if the company has prepared financial
statements as per General Purpose Financial Reporting.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Discussion and Analysis...............................................................................................................................4
Compliance with measurement requirements........................................................................................4
Fundamental Qualitative characteristics.................................................................................................6
Enhancing Qualitative characteristics......................................................................................................6
Users of the financial reports................................................................................................................10
Knowledge of accounting for analysing the company...........................................................................10
Requirements of General Purpose Financial reporting..........................................................................11
Conclusion and Recommendation.............................................................................................................11
References.................................................................................................................................................12
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Introduction
The conceptual framework may be defined as the theory or the charter of accounting which has been
prepared by the standard setters considering the practical problems being faced by the accountants as
well as the users of financial statements (Alexander, 2016). The company being selected for analysis is
MyState Limited which is listed on the Australian Stock Exchange. The company was formed in 2009
with the merger of MyState Financial and Tasmanian Perpetual Trustees and has more than 400
employees as of now. The report discusses on if the company has been able to follow and comply with
the requirements of GPFR and conceptual framework as a whole (Bumgarner & Vasarhelyi, 2018).
Discussion and Analysis
Compliance with measurement requirements
As mentioned in the basis of accounting, the company has prepared and reported the financial
statements as per the General Purpose financial statements, Corporation Act, 2001 and the Australian
Accounting Standards which again are in compliance with IFRS. The company has done measurement of
the financial instruments as per AASB 9, the accounting of share based payments has been done as per
AASB 2 and that the lease accounting has been done as per AASB 117 (Bromwich & Scapens, 2016). The
intangible impairment policy of the company and the goodwill accounting has also been done as per the
conceptual framework where goodwill has been carried in books at cost less accumulated impairment
losses, if any. There are several other measurement standards like that of AASB 118 on revenue from
contracts which has been used for realisation and recognition of revenue in books, the same would be
replaced by AASB 15 from 1st July 2018.
(Source: Annual Report, 2018, pg. 50)
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(Source: Annual Report, 2018, pg. 86)
Fundamental Qualitative characteristics
There are basically two fundamental qualitative characteristics of financial statements namely relevance
and faithful representation. The financial information is said to be relevant if the same has ability to
influence the decision of the users or the stakeholders, thereby it should be complete, unbiased and
free from errors and material misstatements (Kangarluie & Aalizadeh, 2017). Secondly, it should
represent what it purports or intends to present. The same can be ensured by presenting the actual
information rather than predictions. The auditors of the company have confirmed in the audit report
that the financial statements represent the true and fair view and that are free from errors and
misstatements. The screenshot of the same has been shown below.
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(Source: Annual Report, 2018, pg. 89)
Enhancing Qualitative characteristics
The enhancing qualitative characteristics of any company is classified into 4 parts which has been
explained below:
1. Comparability: This feature of the financial statements helps to establish the similarities and
differences in the different line items in between the different time periods and amongst the
different companies as well. Information becomes useful only if the same is comparable to other
entities or with the same entity for another period. This also helps in variance analysis. The
company in discussion has shown figures for both the years 2017 and 2018 so that the data can
be made comparable and thus it helps the user in decision making. This also helps the user in
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understanding whether the company has grown or declined in terms of revenue and profitability
(Fukukawa & Mock, 2011).
(Source: Annual Report, 2018, pg. 45)
2. Verifiability: If the given information can be verified through the audit then it helps in providing
reasonable assurance to the user of financial statements that the same is reliable and credible
and hence the financial and economic decisions can be made based on this. It does not deals
with determining if the assumptions made are correct or not but if the financial results are true
based on given assumptions. In the given case, the company’s auditors have confirmed on the
verifiability of financial statements in the audit report. The report becomes verifiable if the same
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accounting financial report can be prepared for different accounting years based on the same
set of assumptions and information by the accountant (Defond & Lennox, 2017).
(Source: Annual Report, 2018, pg. 93)
3. Timeliness: The financial reports should be delivered to the users within due time so that the
decision making can be enabled. The information becomes useless and obsolete if the same is
not delivered within time. There should be appropriate timelines so that the auditor can also
audit and review the financial statements before publishing the same. In the case of given
company, the report has been presented in due time as stated in accounting regulations. When
the information is published in the annual report of the company it reaches the users and they
take investment decisions based on the same (Goldmann, 2016). Thus, the users should have
sufficient time in order to analyse the financial statements.
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(Source: Annual Report, 2018, pg. 88)
4. Understandability: The language and the content which is presented in the financial statements
should be understandable and clear. It should be free from any kind of ambiguity and
understandable to the users having reasonable knowledge of finance and business. This can be
ensured through maintaining appropriate classification, characterisation and presentation of
information in the financial statements (Kew & Stredwick, 2017). In the given case the company
has shown the classification of different type of financial instrument and has also shown the
carrying value as well as the Net fair value for the same, which will help in user understanding.
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(Source: Annual Report, 2018, pg. 72)
Users of the financial reports
There can be various stakeholders and users of the financial reports. They can be internal as well as
external. The internal users may be like employees, management of the company, the debtors and
creditors of the company whereas the external users can be bank and financial authorities, the
government and tax authorities, etc. All the stakeholders need the financial reports for different
purposes. For example, the tax authorities need to calculate the tax liabilities of the government
whereas bank and financial institutions need it to check if the company will be able to pay off the loans
and other liabilities due from company (Lessambo, 2018). The debtors, creditors and employees need it
to check on the financial viability of the company and if the company has sufficient cash flow to make
their payments on time. The management and other officers of the company need the same to know if
the company is growing and what can be the further initiatives to fuel growth.
Knowledge of accounting for analysing the company
Though the conceptual framework mentions that only the basic knowledge of accounting is required to
analyse the company and interpret the financial results but it is not sufficient enough as there are many
technical details like the fair valuation details, the depreciation details, etc. which needs reasonable
knowledge of accounting and various other aspects so that better interpretation can be enabled. This is
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turn will contribute the users in better and quick decision making (Vieira, et al., 2017). The term
“reasonable” may be interpreted in a variety of ways as per the requirements of the user and therefore
some expertise in the field of accounting and financial statements is necessary for better understand ing
of the company.
Requirements of General Purpose Financial reporting
The company has met the requirements of General Purpose Financial Reporting and the same is
evidentiated from the annual report and the notes on accounts and disclosures. The company has
disclosed all the estimates and judgements by the management and has also provided all the requisite
schedules. While preparation and presentation of the financial statements, the company has followed
and complied with the Australian Accounting Standards as well as the Corporations Act, 2001 and thus it
can be said the company has complied with the requirements of General Purpose Financial Reporting
(Hepp, 2018).
Conclusion and Recommendation
From the above discussion and analysis, we can see that the company has complied with the
measurement requirements. The company has also followed the fundamental qualitative characteristics
of relevance and faithful representation as well as the enhanced qualitative characteristics of
understandability, verifiability, comparability and timeliness. The company has followed Corporations
Act 2001 and the Australian Accounting Standards while the preparation and presentation of the
Financial Reports and hence it can be said that the company has made available useful information for
the users and stakeholders at the right time. This will help the users in decision making.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management
Accounting Research, 31(1), pp. 1-9.
Bumgarner, N. & Vasarhelyi, M., 2018. Continuous auditing—a new view.. Continuous Auditing: Theory
and Application, 20(1), pp. 7-51.
Defond, M. & Lennox, C., 2017. Do PCAOB Inspections Improve the Quality of Internal Control Audits?.
Journal of Accounting Research, 55(3), pp. 591-627.
Fukukawa, H. & Mock, T., 2011. Audit risk assessments using belief versus probability. Auditing: A
Journal of Practice & Theory, 30(1), pp. 75-99.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4(3), pp. 103-112.
Hepp, J., 2018. ASC 606: Challenges in understanding and applying revenue recognition. Journal of
Accounting Education, 42(1), pp. 49-51.
Kangarluie, S. & Aalizadeh, A., 2017. 'The expectation gap in auditing. Accounting, 3(1), pp. 19-22.
Kew, J. & Stredwick, J., 2017. Business Environment: Managing in a Strategic Context. 2nd ed. London:
Chartered Institute of Personnel and Development.
Lessambo, F., 2018. Audit Risks: Identification and Procedures. Auditing, Assurance Services, and
Forensics, 3(1), pp. 183-202.
Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems.
SAGE Journals, 30(1), pp. 23-48.
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