Reporting Entity and Disclosures in Financial Accounting

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Concept of Reporting Entity........................................................................................................2
Disclosures of Liabilities.............................................................................................................6
Disclosures Relating to Intangible Assets.................................................................................10
Disclosure Relating to Income Tax Expenses...........................................................................15
Conclusion.....................................................................................................................................18
Reference.......................................................................................................................................20

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Introduction
The main purpose of the assessment is to analyse reporting framework which is followed
by two entities which belong to different industries. The assessment analyses the reporting
framework of two different companies of different industries is to identify the compliance
requirements which each of the businesses follow as per the accounting standards introduced.
The companies which are considered for this assessment are Wesfarmers ltd which is engaged in
retail and consumer goods and Rio Tinto ltd which is engaged in the business of mining and
extraction of minerals (Riotinto.com. 2019). The report would be discussing the concept of
reporting entity for both the businesses and how the same is important from the perspective of
providing appropriate disclosures relating to the operations of the business. The assessment
would also deal with the disclosures which is provided by the business relating to liabilities and
intangibles assets of the business. In addition to this, the assessment would also be discussing
regarding the income tax disclosures which are provided by the management of the respective
companies in the annual reports which is prepared. The report would be focusing on the
application of relevant accounting standards which are applied by businesses in order to enhance
the quality of reports which is formulated by the businesses.
Discussion
Concept of Reporting Entity
The concept of reporting entity is important which deals with how the businesses needs to
report financial information so that the potential users of the financial statements can consider
the information and take decisions regarding the same appropriately. The concept of reporting
entity relates with the reasonableness that there exist users who are dependent on the disclosures

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provided in the financial statements for taking important decisions regarding investments
(Fasb.org. 2019). The concept requires all businesses to incorporate relevant and useful financial
information in the annual reports so that the same can be used by the users for taking appropriate
decisions.
It is the responsibility of those charged with governance of the company to identify
primarily if the entity is a reporting concern or a non-reporting concern (Pkf.com.au. 2019). If
the former is the case, then the management of the company needs to prepare a general purpose
financial report. This also signifies that the entity needs to follow all relevant accounting
standards while formulating the general purpose financial report.
As per paragraph 10 of SAC 1 Definition of The Reporting Entity, the management of
the companies need to consider themselves as reporting entities and be identified by reference to
the existence of users who are dependent on general purpose financial reports for information for
making and evaluating resource allocation decisions (Aasb.gov.au. 2019). The provisions which
are stated in the SAC 1 clearly shows the application of reporting entity of the business and
classifies the different aspects which are considered similar to reporting entity concepts such
legal entity concept. The financial statements which are prepared by the management of the
company are done so that full disclosures are provided by businesses regarding every aspect of
the business and how the same can improve the transparency and accountability of the business.
It is a known fact that most of the businesses follow conceptual framework of accounting
which is followed across the global in order to ensure that there is consistency and accountability
in the information which is presented in the financial statements of the business. Such a
framework includes accounting standards, principles, conventions and rules on the basis of
which an entity prepares its financial statements. The annual reports which are prepared by the

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management of the company should have relevant information along with proper disclosures for
all the treatments which is shown in the financial statements of the business. In addition to this,
the financial statement should also be prepared according to the qualitative characteristic of the
financial statements (Christensen and Nikolaev 2013). The annual report of both Wesfarmers ltd
and Rio Tinto ltd shows that the management of the company has effectively followed relevant
accounting standards and has been consistent with the reporting of different items which are
presented in the annual reports of the business. The disclosures which are provided in the annual
reports confirm with the policies which are followed by most of the businesses following the
reporting framework in the business (Edmonds et al. 2016). In order to enhance the quality of the
financial statements, the information which are included in the annual report should contain the
following qualitative characteristic of the generally accepted financial reports.
Fundamental Qualitative Characteristics
 Relevance: The financial information which are included in the annual report of the
business should be relevant to requirements of the users so that appropriate decisions can
be provided on the basis of the information which are shown in the annual report of the
business (Barth 2013). The information and disclosures are considered to be relevant if
proper accounting standards are followed by the business. The annual reports of both
Wesfarmers ltd and Rio Tinto ltd shows that the business has disclosed all relevant
standards which are used by the management for preparing the financial statements of the
business.
 Faithful Representation: The information which are shown in the annual reports should
be appropriate and free from any material misstatement. The concept of reporting entity
states that the information would be considered by the users for taking important

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decisions. It is therefore a requirement that the information which is presented in the
financial statement should be free from any omission or material misstatement. If a
financial statement is audited than the risks of material misstatement is significantly
lowered as the same is shown the case with Wesfarmers ltd and Rio Tinto ltd.
Enhancing Qualitative Characteristics
 Comparability: The information which is shown in the annual reports of the business
should be comparable with performance of the business in next financial year (Chen et al.
2014). The users would be comparing the performance of the business with that of
previous years in order to take major decisions regarding investments.
 Verifiability: The information which is presented in the annual report should be
verifiable by the users of the financial statements. This principle states that the treatments
which are shown in the annual reports for different items must be verifiable by the users
by assessing the disclosures which is provided in the notes to account section of the
annual report of the business (Henderson et al. 2015).
 Timeliness: The information which are to be recorded in the financial statement should
be presented to the users in a timely manner so that the same can assist the users to take
major decisions regarding the business (Stice and Stice 2013). The timing of providing of
the financial statements are normally at the end of the financial year of the company. The
provisions of Para 36 of AASB 101 states that an entity shall present a complete set of
financial statements (including comparative information) at least annually (Aasb.gov.au.
2019). This shows that the management of the company needs to formulate the
accounting standards at least annually depending on the reporting period which is
followed by the management of the company.