Contemporary Issues In Accounting

This report analyzes the accounting concepts relevant to business corporations in developing and presenting their financial reports. It focuses on the case study of Australian Pharmaceutical Industries Limited (API) and evaluates its compliance with the general purpose financial reporting. The report examines the measurement criteria adopted by API, the fundamental characteristics of the conceptual framework applied by the company, and the enhancing qualitative characteristics. It also discusses the decision-making relevance of the financial report and the knowledge required by end-users. Finally, it explores the general requirements of financial reporting followed by the company.

Contemporary Issues In Accounting
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Introduction
The aim of the report is to conduct an analysis of the accounting concepts that are
relevant to be considered by the business corporations in the present times at the time of
developing and presenting their financial reports. The critical accounting concepts that are
relevant to the general purpose financial reporting of business corporations are analyzed in the
report. This report has undertaken an evaluation of the application of conceptual accounting
framework principles adopted by a selected corporation, that is, Australian Pharmaceutical
Industries Limited (API), one of the leading health and beauty companies of Australia. The
overall analysis is supported by the pertinent data extracted from the annual report of the
company for the financial year 2018 to depict its compliance with the general purpose financial
reporting.
Critical Analysis of General Purpose Financial Reporting by API
Measurement Criteria Adopted by Company & its Compliance with Conceptual Framework
Requirements
As per the CF, a reporting entity listed on ASX need to provide a depiction of the
measurement approaches used for valuing its assets and liabilities. The measurement approach
selected by business entities as stated by the CF are historical cost and current value which is
further divided into fair value, value in use and current cost. An entity need to select an
appropriate measurement approach that is able to meet the requirements and objective of general
purpose financial reporting (Complied Framework, 2015). In this context, API Limited has
adopted the use of historical cost for presenting information in context of depicting the value of
its key financial items except for financial instruments and employee defined benefit plans are
valued with the sue of fair value approach. For example, it has valued its fixed assets such as
property, plant and equipment by the use of historical cost; intangible assets are recognized at
cost less accumulated amortization and impairment losses. The brand names are recognized at
fair value and software is capitalized at cots that are amortized with the use of straight line basis
method. Thus, it can be stated from examining the annual report of the company that it has
applied required approach or measurement to value its financial assets and liabilities that helps in
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providing accurate depiction of the financial information (API: Annual Report, 2018). The same
has been depicted below:
(Source: API Pharmaceutical Annual Report 2018)
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Fundamental Characteristics of Conceptual Framework Applied by the Company
The Conceptual Framework (CF) of accounting has provided two fundamental
characteristics that are, relevance and faithful presentation to be used by the business
corporations listed on ASX during preparation of their financial statements. The relevance
criteria state that the financial information disclosed by an entity should be able to provide
guidance and assistance to the end-users at the time of making investment decisions. As such, the
financial information should be able to provide a prediction as well as confirmation value that
can be used by the investors in analyzing the present as well as future performance of a company
(AASB Exposure Draft, 2015). The analysis of the financial report of API has revealed that it has
presented adequately all the materialistic information in a quantitative format prepared by the
application of consistent accounting policies. The value of key finanacil items presented in a
quantitative form by the company such as revenue can be used for prediction of the financial
performance in the future context and also analyzing its present performance (API: Annual
Report, 2018). Therefore, it can be said that it is able to provide prediction of both its present and
future performance as depicted below in the income statement of the company:
(Source: API Pharmaceutical Annual Report 2018)
The second most important qualitative characteristic that has been provided by the CF is
faithful presentation of information in the financial reports developed by an entity. The financial
information need to be free from any type of materialistic error, neutral and should represent
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complete depiction of an entity financial position (PKF International Ltd, 2017). It has been
analyzed from the financial report of API that it has provided complete depiction of all the
relevant information by development and presentation of all the major financial statements along
with explanation of the significant accounting policies followed for their development. The
financial statements are also verified from the auditors to ensure that they are free from any type
of error and are also neutral as depicted below:
(Source: API Pharmaceutical Annual Report 2018)
Enhancing Qualitative Characteristics of CF Applied by Company
In addition with the above mentioned qualitative principle, the CF has also provided
certain enhancing qualitative principles that need to be applied by a company listed on ASX
during the development of general purpose financial reports such as API. These include that the
information need to be understandable, comparable, verifiable and timely to be used in the
decision-making process (Schroeder, Clark and Cathey, 2016). The understandability
characteristic of the financial information requires it to be developed in a simplified format so
that it could be easily understood by all the stakeholders of an entity. The comparability
characteristic ensures that the financial information needs to be prepared by application of
consistent accounting policies so that investors can easily evaluate the percentage growth
realized by an entity as compared with the previous years. The timeliness characteristic requires
that the financial information available to the investors must be current and verifiability ensures
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that can be easily verified by the analysts and investors during the time of decision-making
(AASB Exposure Draft, 2015).
As per the understandability characteristic, it has been analyzed from the financial report
of API that the information is presented in simple format with disclosures of all the relevant
accounting policies applied for developing the financial statements as illustrated below:
(Source: API Pharmaceutical Annual Report 2018)
The financial information is numerically depicted so that it is easily verified and also
depicted in a comparable manner with applying consistent accounting policies to ensure that it
can be compared with the previous financial results. Also, the financial statements have
disclosed the comparative results by comparing it with the previous financial result outcomes as
depicted below:
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(Source: API Pharmaceutical Annual Report 2018)
API also follows timeliness characteristic of financial information as the financial reports
are developed and disclosed on an annual basis so that investors receive updated information in a
continuous manner (API: Annual Report, 2018).
Decision-Making Relevance of the Financial Report of the Company
The worthiness of a general purpose financial report to assist in the decision-making of
the end-users such as present and potential investors, analysts, creditors and lenders can be
accessed on the basis of reliability and integrity of the overall reporting process. For example, it
assists the potential investors by providing the information about the financial items such as
revenue and sales that are able to predict the future financial condition of a company. The
company has presented complete depiction of the value of its key financial items such as assets
and liabilities in its balance sheet to assist the decision-making of both lenders and creditors. The
end-users such as investors and lenders or creditors can accurately analyze the profitability,
liquidity and solvency position of the company with the help of financial ratios from the
information presented in the company’s financial statements.
Knowledge required by the End-users of Financial reports as stated by CF to Assist in Decision-
Making
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The CF has stated the end-users of financial reports such as investors; lenders and
creditors need to have basic knowledge of accounting to understand the financial information
disclosed by an entity. This is required to understand the value presented by the key financial
items such as assets, liabilities equity, debt and others as it helps in determining an entity future
growth prospects. However, the investors and analysts need specific expertise and knowledge of
accounting and finance to gain an insight related to market value of stock and examine the
present and future market trends of the company in an accurate manner The investors and
analysts require specific knowledge related to measurement criteria and use of financial
technique such as ratio analysis and vertical and horizontal analysis to examine its present and
future financial performance (Macve, 2015).
General Requirements of Financial Reporting Requirements Followed by Company
The CF has stated the main objective of financial reports developed is to depict reliable
and complete depiction of the financial information to the end-users. The information need to be
relevant and materially correct to support the decision-making of its all key stakeholders. The
information should be able to support the decision of the end-users relating to buying, selling or
holding equity and debt instruments. In this context, it has been analyzed from the annual report
of API that it has adequately meet the general objective of developing and presenting the
financial reports by providing information relating to dividends, market value and its cash flows
that are able to support the decision of the investors by providing a depiction of its future
financial condition and outcomes (API: Annual Report, 2018).
Conclusion
The analysis of the annual report of Australian Pharmaceutical Industries Limitedwith the
application of the conceptual accounting framework has depicted that it has meet effectively all
the criteria’s of the framework related to fundamental and enhancing qualitative characteristics,
measurement and decision-usefulness.
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References
AASB Exposure Draft. 2015. Conceptual Framework for Financial Reporting. [Online].
Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf
[Accessed on: 16 April 2019].
API: Annual Report. 2018. [Online]. Available at: http://www.api.net.au/investor/annual-reports/
[Accessed on: 16 April 2019].
Complied Framework. 2015. Australian accounting standards Board. [Online]. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed on: 16
April 2019].
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision
Tool, or Threat. UK: Routledge.
PKF International Ltd. 2017. Wiley IFRS 2017: Interpretation and Application of IFRS
Standards. US: John Wiley & Sons.
Schroeder, R.G., Clark, M. and Cathey, J.M. 2016. Financial Accounting Theory and Analysis:
Text and Cases. US: Wiley.
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