Compliance of Conceptual Framework of Accounting: A Case Study of Alumina Limited

Contemporary Issues in Accounting
1

Executive Summary
This report has been developed for examining the compliance of CF of accounting as per
the IASB standards of a selected case company, that is, Alumina Limited. In this context, it has
been inferred from evaluation of the financial report of the company that it has followed all the
qualitative principles and essential requirements of conceptual accounting framework.
2

Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Critical Analysis of General Purpose Financial Reporting by Alumina Limited............................4
Part 1: Measurement Criteria Adopted by the Company & its Compliance with Conceptual
Framework Requirements................................................................................................................4
Part 2: Fundamental Qualitative Characteristics of Conceptual Framework Applied by Alumina
Limited.............................................................................................................................................6
Part 3: Enhancing Qualitative Characteristics of Conceptual Framework Applied by Company...7
Part 4: Users of Financial Reports in Making Financial Decisions.................................................9
Part 5: Knowledge Required by End-Users for Analysis of Financial Reports............................10
Part 6: Requirements of general Purpose Financial Reporting met by the Company...................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
3

Introduction
The IASB (International Accounting Standards Board) is placing large emphasis on
improving the quality of financial reporting by business entities for the sake of protecting the
interest of the investors. IASB has developed and established conceptual accounting framework
(CF) that has provided the essential qualitative principles that businesses complying with IASB
reporting standards need to follow for development of their financial reports. As such, this report
examines the extent of adoption of CF of accounting by an ASX listed company Alumina
Limited, involved in mining of bauxite and extraction of alumina.
Critical Analysis of General Purpose Financial Reporting by Alumina Limited
Part 1: Measurement Criteria Adopted by the Company & its Compliance with Conceptual
Framework Requirements
Information is useful for users when it is comparable with other factors or companies and
understandable which is possible only when the accounting and financial reporting done by the
companies are prepared in the same way following same principles. However there are several
methods of accounting which are followed by companies in preparation of their financial
statements. To make this kind of practice consistent the Financial Accounting Standard Board
has given a defined set of rules and standard which has to be followed by reporting companies in
preparation of their financial statements (AASB Exposure Draft, 2015).
Conceptual Framework provides two measurement bases on which each financial item in
the financial statement of the reporting company is to be measured.
 Historical Cost
 Current Value
Historical cost is the cost which is incurred by the company during initial acquisition of
its assets and liabilities by taking into account any impairment or amortization that they have
undergone. This means that the measurement of a financial item on historical cost implies
measuring the amount spent to acquire the financial item less depreciation and any amortization
cost or any impairment. On the other hand, current value is the updated value of a financial item
at which two genuine persons are willing to buy or sell at current market price on reporting date.
Current value is further divided in to fair value, current cost and value in use. The entity has the
option to choose any of the measurement basis or more than one measurement basis for different
financial items reflecting in a financial statement.
The annual report of Alumina Limited shows that the fixed assets of Alumina Limited is
measured on historical cost basis which is tested for impairment and any needful changes have
4