Contemporary Issues in Accounting

This report discusses contemporary issues in accounting, focusing on the measurement requirements and qualitative characteristics of financial statements. The analysis is based on the annual report of SpeedCast, a company specializing in communication satellite technology. The report concludes that the company has complied with the General Purpose Financial Reporting standards.

CONTEMPORARY ISSUES IN ACCOUNTING
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By student name
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University
Date: 25 April 2019.
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Executive Summary
A financial analysis report has been presented here and the company chosen for the purpose of analysis
is SpeedCast, which is one of the companies specializing in the communication satellite technology. The
report has been prepared to state if the company has followed the measurement requirements as
mentioned in the conceptual framework. It also shows what the fundamental and enhancing qualitative
characteristics and whether or not the company has complied with the same. It shows who are main
users of the financial report and if the basic knowledge of accounting is enough to interpret the financial
results and to analyse the company. Based on all the above characteristics of the annual report of the
company, it has been concluded if the company has followed the General Purpose Financial Reporting
while preparation and presentation of accounting financial statements.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Discussion and Analysis...............................................................................................................................4
Compliance with measurement requirements........................................................................................4
Fundamental Qualitative characteristics.................................................................................................5
Enhancing Qualitative characteristics......................................................................................................6
Users of the financial reports................................................................................................................10
Knowledge of accounting for analysing the company...........................................................................10
Conclusion.................................................................................................................................................11
Requirements of General Purpose Financial reporting..........................................................................11
References.................................................................................................................................................12
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Introduction
The conceptual framework is a set of the ideas and practices which has given rise to the consistent
methods and set of rules and regulations for accounting. It is developed by the International Accounting
Standards Board (FASB) which is an individual non-profit organization with the objective of setting and
improving the standards of financial reporting and accounting for the overall guidance of the users,
auditors and other stakeholders (Arnott, et al., 2017). This serves as the guide for setting up the new
accounting standards, resolving the disputes and laying down the accounting principles which then need
not be repeated in the accounting standards. The company selected here is SpeedCast which is a global
leader in providing communication and network related solutions. The company has presence in 40+
countries with 1500+ professionals working for it. It is a growing company and is listed on the Australian
Stock Exchange. The company has made a number of acquisitions in the last few years which has led to
growth in operations. The report discusses extensively on the reporting and accounting practices of the
company.
Discussion and Analysis
Compliance with measurement requirements
The conceptual framework mentions that the financial statements must be prepared on the basis of
different measurement requirements which are stated in the accounting standards. For example, the
revenue must be measured at the fair value of the consideration received and receivable, property,
plant and equipment should be measured at cost less accumulated depreciation less impairment losses,
if any; the financial instruments must be measured at the fair value, etc. In the given case, the company
has complied with the General Purpose Financial Statements and the Australian Accounting Standards
while preparation and presentation of annual report (Belton, 2017). The company has followed AASB 9
for reporting of financial instruments, AASB for accounting for revenue from contracts, AASB 17 for
accounting for leases and AASB 2 for the accounting for share based payments. For goodwill accounting,
the company has recognised the same in the books at cost and the self-generated goodwill has not been
taken into consideration as per the measurement rules of conceptual framework. The company has also
applied measurement requirements for classifying the debtors and payables as current and non-current
and also for classifying provisions based on the settlement date. All in all it can be said that the company
is in line with the IFRS requirements for measurement purposes (Dichev, 2017).
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Fundamental Qualitative characteristics
There are some fundamental qualitative characteristics which needs to be followed while preparing the
financial statements. These characteristics when followed increases the credibility of the reports and
gives the users an assurance that they can rely on the report and that they can take financial decisions
based on the same. The 2 main fundamental qualitative characteristics of the financial statements are
faithful representation and relevance.
1. Relevance: The financial statements should be free from any sorts of errors and misstatements,
unbiased and it should be complete in all the respects. A financial statements is said to be
relevant if the same has the potential to change the economic decisions of the users of the
financial statements (Choy, 2018).
2. Faithful Representation: The financial statements should present only such things what it is
intended to present or what it purports to present. The same can only be ensured by showing
the actual information instead of the predictions and estimated data.
In the given case, the auditors of the company, PWC has mentioned in the audit report that the
financial statements of the company are showing true and fair view and are free from errors.
Thus it meets both the above criteria (Werner, 2017). The screenshot of the same is shown
below.
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Enhancing Qualitative characteristics
There are 4 main enhancing qualitative characteristics of the financial statements which help them to be
easily interpretation and relevant for decision making. The same is enlisted below:
1. Comparability: The financial statements should be prepared in such a way that it can be easily
compared with the other companies in the industry as well as the data from the previous
accounting periods for the same company. This is very important as it helps the users to
understand if there is any trend or variance over the period or with the other companies or with
the industry average. In the given case, the company has presented data both for 2017 as well
as 2016 which helps the user to understand the trend and if the company’s performance is
improving or declining, thus making investment decision easy (Linden & Freeman, 2017).
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2. Verifiability: The information presented in the financial statements is said to be verifiable when
the same is audited by the auditor and also the financial statements can be prepared based on
the same set of assumptions. It gives reasonable assurance to the investor that the information
which is presented in credible and can be relied upon for decision making. The concept of
veracity is not concerned with determining the correctness of assumptions but if the financial
statements have been correctly prepared based on those assumptions. In the case of given
company, the auditors have checked and confirmed on all the estimates and assumptions given
by the management (Hoogervorst & Prada, 2015).
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3. Timeliness: This aspect of the financial information is the most critical as the information
becomes useless and obsolete if the same is not presented within the due time for decision
making purpose. The due date of annual report is specified by the local GAAP and it should be
presented until then otherwise the same is useless. For example for Australia the annual report
should be prepared as on 30th June every year and appropriate time frame should also be given
to the auditors to verify and audit the same before it is presented to the general public and the
stakeholders for decision making. IN the case of the given company, the report has been
released within due time on 30th June 2017 and sufficient time has been given to the users for
decision making (Sithole, et al., 2017).
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4. Understandability: The financial statements should be prepared in such a way that it is easy to
understand and comprehend. The information should be clear and not ambiguous. It should not
be creating doubts in the minds of the users and the same can ensured by preparing the
financial statements in a systematic way with appropriate classification and presentation. In the
given case, the company has shown different type of assets which form the part of Property,
plant and equipment as has been shown below (Heminway, 2017).
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Users of the financial reports
There can be various users of the financial statements. The two major classification of the same is
internal and external users.
1. Internal Users: the main internal users include the employee who need it for knowing the
performance of the company and if there is job security in the company. The debtors and
creditors need to checked the liquidity of the company and if there are any short term risks with
the company. The management need it to decide on the future course of action and planning
perspective (Jefferson, 2017).
2. External Users: The external users like government and tax authorities need the financial
statements to check on the tax obligation of the company whereas the bank and financial
institutions need it to check if the company is worthy enough to be granted loan and if the past
loans are recoverable. It is also needed by prospective investors for investment decision
purposes.
Knowledge of accounting for analysing the company
It has been mentioned in conceptual framework that only the basic knowledge of accounting is required
to analyse and interpret the financial statements and company but the same is not true. The users
should have reasonable knowledge of accounting terms and finance such that the technical details like
the valuation policies, depreciation, ratios are easily understandable and interpretable only then the
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decision making can be enabled. Thus reasonable knowledge of finance can be defined in different ways
for different users depending on their needs (Marques, 2018).
Conclusion
Requirements of General Purpose Financial reporting
The company in question has complied with the requirements of the General Purpose Financial
Reporting as it has mentioned all the relevant information and has shown all the estimates and
judgements by the management. It has made multiple disclosures and notes on accounts in the annual
report of the company and has also followed the Corporation Act, 2001 and the Australian Accounting
Standards while preparation and presentation of the financial statements. It has also met all the
requirement of qualitative characteristics be it fundamental or enhancing and hence it can be said that
the company has complied with GPFS (Ehalaiye, et al., 2018).
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References
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis.
Ecological Economics, 3(1), p. 145.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Ehalaiye, D. et al., 2018. Are Financial reports useful? The views of New Zealand Public vs Private Users.
Australian Accounting Review.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, pp. 1-35.
Hoogervorst, H. & Prada, M., 2015. Working in the Public Interest. The IFRS Foundation and the IASB, pp.
1-12.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland.
Technological Forecasting and Social Change, pp. 353-354.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), pp. 353-379.
Marques, R. P. F., 2018. Continuous Assurance and the Use of Technology for Business Compliance.
Encyclopedia of Information Science and Technology, pp. 820-830.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention
on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, 25(1), pp. 57-80.
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