Conceptual Framework for Financial Accounting and Reporting

This report analyzes the annual reports of Austal Company, focusing on the application of the conceptual framework in financial accounting and reporting. It discusses the measurement requirements and qualitative characteristics used, such as historical cost and fair value method. The report also highlights the importance of understanding the financial statements for investors and creditors.

Contemporary Issues in Accounting

ACCOUNTING 1
Introduction
Conceptual framework is a framework that is used by the company to prepare the financial
statement (Macve, 2015). It is essential for the company to maintain the annual reports so that
the researchers used it to analyse. In this report, the analysis has been done on the annual
reports of the Austal Company. In this report, answers will be given by analysing the annual
report of the company.
1.
The complied framework is applied on annual report of the company by the beginning of the
period on or after the 1st July. Measurement requirement is a process of evaluating the
monetary amount in which the financial statement is to be measured and carried in the
balance sheet. There are many different ways to measure the monetary amount such as
historical cost, realisable, present value and current cost.
Historical cost is the method in which the assets are recorded on its nominal and original cost
at the time of acquired by the company. Current cost is a method that is used to measure the
value of asset and liability. In this method, assets are carried at the current amount of the
asset in the market. Realisable value is an actual price received, less transportation and the
applicable processing adjustments. It is observed that most of the companies applied the
historical and the fair value method (Australian Government, 2018).
According to the annual report of Austal Company, it is observed that the company compiled
the conceptual framework. It applies the historical cost and fair value method to measure the
asset and liabilities. It implements these methods on the different assets and liabilities as per
the nature and condition.
For example-

ACCOUNTING 2
Plant and equipment is measured at the fair value method less accumulated depreciation on
buildings and other losses.
(Source: Austal Limited, 2018)
Inventories and work in progress of the company are measured at the historical cost
(Source: Austal Limited, 2018)
These examples indicate that the company applied the historical and fair value method to
measure the asset.
2.
As per the complied framework, there are four characteristics of fundamental qualitative
characteristics such as relevance, materiality and the faithful representation. Materiality refers
that an accounting standard can be ignored by the company if the net amount has a small

ACCOUNTING 3
impact on the financial statement (Australian Government, 2018). As per the analysis of
annual report of Austal, it is observed that there is not materiality transaction in the
organisation. As per the accounting judgement and estimates, there is no transaction of
materiality, which impacts the net amount.
The faithful representation characteristics define the presentation economic phenomena in the
numbers and words. It is observed that the company also believes in the faithful
representation. The company prepared the balance sheet and profit and loss account at the
end of the year on the particular date with the correct amount. The company measure the
values with the methods in order to evaluate the accurate amount.
Relevance of the fundamental characteristics defines the data that can be applied to solve the
problem. It also helps to take the best decision of the organisation. As per the analysis of
annual report, it is observed that the company applies the AASB frameworks in order to
prepare the financial statement. According to the Accounting judgement and estimates
section, the estimated and associated assumptions are based on the historical experience and
the other factors that are considered to be relevant.
3.
As per the conceptual framework, enhancing qualitative characteristics are comparability,
verifiability and the understandability that is necessary to improve the usefulness of
information that is related and faithfully represented. Comparability states the possible
comparison an entity with the similar information about the other entities. Verifiability states
that the information of the organisation should be verified to provide the assurance to users.
Understandability states that the information should be clear that can be easily understandable
to those who review the report and use it (CFI, 2018).

ACCOUNTING 4
It has been seen that the report is understandable as the report is prepared with the conceptual
framework to maintain the accounts. It is also observed that the report maintains the accounts
in the appropriate way with the help of different methods. Maintenance of accounts and
disclosures helps to understand the concepts and value of every asset and liability.
Deloitte audit the financial statement of the company and it is well known company for its
auditing services as there are high professional employee’s works that is why, the financial
statements are verified and the users can easily use it.
The report is structured on the basis of comparison method in order to compare the previous
amount with the current year amount. It has been seen that the report maintain the statements
of both the years such as previous and current. It is easy for the viewers to calculate the
financial position by comparing the amount (Austal Limited, 2018).
4.
Investors, potential investors, government, lenders and other creditors are the users of
financial report. They analyse the annual report in the depth in order to invest in the
company. The users take the decision of investment in order to invest in the company or buy
the shares. Before taking the decision, it is required for users to analyse the values and figures
to understand the financial position of Austal Company. The annual report provides the
information about the financial position, performance and changes in the revenues that are
beneficial for the users. The report is appropriate. The balance sheet is one of the most
important account which helps for making decision. Not only balance sheet, but all the
financial accounts are maintained by the auditors such as cash flow statement, income
statement, comparative statement and many others so; that the users can easily analyse the
financial performance of the company. These accounts contain the whole information
regarding the position of the company, which helps to take the decision for users.

ACCOUNTING 5
As per the auditor, the financial report is prepared with the framework and methods, which
provide the correct information to users. All the facts and figures are helps to calculate the
ratios that help to make the decision (Accounting verse, 2018).
5.
Yes, the users need more knowledge than the basic to analyse the financial statement of the
company. As per the conceptual framework, the user’s needs a basic knowledge of
accounting but it is not possible to analyse the profitability, liquidity and cash flow statement
without any higher level of knowledge. It is essential for users to analyse the risk and liability
in order to invest the accounts. The financial statement provides the more information that
can be used the investors and creditors to evaluate the financial performance. The basic
knowledge about the financial statement is not useful for the users to analyse the report and
understand it. The chances of fraud are increasing day by day that is why; it is essential to
analyse the report in the depth so that any problems and issues will be founded. It is
necessary for the users to evaluate the accurate the risk and liabilities in order to protect
themselves from frauds. It is also observed that there are many tools are developed to
evaluate the financial accounts with the developing technology. It is difficult to rely on the
software’s because sometimes they do not evaluate the correct amount. The users also have to
double check the financial statements and values so that the chances of wrong evaluation are
reduce. The basic knowledge does not help to analyse the whole statement in depth that is
why; the users requires the high level of knowledge of accounts so that the users protect
themselves and can take the correct decision. It is required to analyse the data before invest in
it with the high level of knowledge.
6.

ACCOUNTING 6
Yes, the annual report of the company met the all requirement for general purpose. It is
observed that the balance sheet, income statement, statement of owner’s equity and statement
of cash flows are required for general purpose. As per the analysis of report, it has been seen
that the annual report of the company contains the all accounts with the appropriate values.
The report is prepared by the auditor who used the correct methods and frameworks to
evaluate the values of assets and liability. It also mentioned the assumptions and notes of the
evaluated values by developing the appropriate accounts. There are no materiality
transactions and all the information contains by the report is clear and transparent that helps
to take the general decisions. The report is easily understandable and the users can also
compare it with the previous year as it contains the information of two years.
Conclusion
At the end, it is concluded that the annual report prepared by the auditor is appropriate and
correct. As per the analysis, the report complied the conceptual framework such as enhancing
characteristics and fundamental characteristics. Fundamental and enhancing characteristics
state that the report is prepared in an appropriate manner. It contains the whole information
that is beneficial for the users as well as the company itself.

ACCOUNTING 7
References
Accounting Tools. (2018) The qualitative characteristics of financial statements. [online]
Available from: https://www.accountingtools.com/articles/what-are-the-qualitative-
characteristics-of-financial-statem.html [Accessed 8/4/19].
Accounting verse. (2018) Qualitative Characteristics of Financial Information. [online]
Available from: https://www.accountingverse.com/financial-accounting/introduction/
qualitative-characteristics.html [Accessed 8/4/19].
Austal Limited. (2018) Annual report 2018. [online] Available from:
file:///C:/Users/System04097/AppData/Local/Temp/Temp1_myZip_948135-2.zip/
3253818_387873566_AustalFY2018AnnualReporttoShar.pdf [Accessed 8/4/19].
Australian Government. (2018) Conceptual framework. [online] Available from:
https://www.aasb.gov.au/Pronouncements/Conceptual-framework.aspx [Accessed 8/4/19].
CFI. (2018) Qualitative Characteristics of Accounting Information.
https://corporatefinanceinstitute.com/resources/knowledge/accounting/qualitative-
characteristics-of-accounting-information/ [Accessed 8/4/19].
Macve, R. (2015) A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.