Analysis of Financial Reporting of Lamborghini under Conceptual Accounting Framework

This report analyzes the effectiveness of Lamborghini in complying with the conceptual accounting framework. It examines the effectiveness of the company in complying with the objectives of general purpose financial reports through examining its complying with the fundamental and enhanced qualitative characteristics of conceptual framework of accounting.

Contemporary Issues In Accounting
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Contents
Introduction......................................................................................................................................3
Analysis of the Company in Complying with the Objectives of General Purpose Financial
Reporting.........................................................................................................................................3
Use of General Purpose Financial Reports in Gathering Information as per the needs of Target
Audience..........................................................................................................................................5
Satisfaction of the Recognition Criteria in the Financial Statements..............................................7
Exhibition of Fundamental Qualitative Characteristics of Financial Reporting in the Company...8
Exhibition of Enhancing Qualitative Characteristics of Financial Reporting in the Company.......9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
The present report is developed to provide a critical analysis of the effectiveness of the
corporations in Australia listed on ASX to comply with the conceptual accounting framework.
Australian Accounting Standards Board (AASB) are emphasizing on implementing the
conceptual framework of accounting on the Australian business entities for improving the quality
of their financial reporting. The report has specifically analyzed the effectiveness an ASX listed
entity ‘Lamborghini’ to comply with accounting principles stated in the conceptual framework.
The report has examined the effectiveness of the company in complying with the objectives of
general purpose financial reports through examining its complying with the fundamental and
enhanced qualitative characteristics of conceptual framework of accounting.
Analysis of the Company in Complying with the Objectives of General
Purpose Financial Reporting
Lamborghini, is a recognized Italian company involved in manufacturing of luxury
supercars, sports cars and tractors. The company carries out its operations actively in Australia
and offers its exclusive collection of vehicles in wide markets of the country such as Perth,
Melbourne and Sydney. The company as such has to comply with all the relevant accounting
standards and regulations of Australia in order to effectively carry out its operation within the
country. The general purpose financial reporting objectives have laid to the development of the
conceptual framework of accounting. The financial reports are developed to provide quality
financial information about the performance of a reporting entity to the present and future end-
users. The information provided to the end-users such as investors, lenders and creditors should
be able to facilitate them to take investment decisions whether to purchase, sell or hold its equity
or debt instruments (Conceptual Framework, 2017). The annual report of the parent group of
Lamborghini, Volkswagen Group, is analyzed for examining whether the company has met the
purpose of objective of financial reporting.
The company for meeting with the objective of general purpose of financial report needs
to disclose the complete financial information through the preparation and development of
financial statements. The company, as such, in its notes to financial statements section has
disclosed all the information in relation to the development of its general purpose financial
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statements (Maines and Wahlen, 2006). The relevant accounting standards and principles applied
for measuring the value of different elements of financial statements have been specified in the
notes section. The financial report have provided all the relevant information in relation to the
financial position of the Group through depicting the values of assets, liabilities and equity
(Psaros and Trotman, 2004). The Group has prepared and presented its consolidated financial
statements that are, statement of equity, balance sheet, profit and loss statement, statement of
cash flow and income statement that have provided detained information about the past, present
and future financial growth prospects.
(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
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(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
Use of General Purpose Financial Reports in Gathering Information as
per the needs of Target Audience
The parent Group of Lamborghini, that is, Volkswagen Group has prepared and
published all the necessary financial information in its annual report to meet effectively the needs
of the target audience, that are, investors, creditors and lenders. The general purpose financial
reports of the Group have provided detailed information about its economic resources. The notes
to financial statements section have adequately discussed the impact of the transaction and other
events on the economic resources and claims of the Group. The consolidated balance sheet has
provided information about the assets and liabilities owned by the Group and the amount
invested in the business. The consolidated income statement has provided information in relation
to the revenue and expenses incurred by a business entity over a period of time (Rezaee, 2003).
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The statement is highly useful for the investors in providing an assessment of what areas of the
business are over or under budget of the Group (Volkswagen Group: Annual Report, 2017).
The cash flow statement has provided an assessment of the amount of cash generated by
a company from its operations, investing and financing activities. The investors can gain help
from the cash flow statement in order to analyze the cash transactions occurred throughout a
given accounting period. This will helps them to evaluate the inflow and outflow of cash and
thus developing an estimation of the future cash movement (McDaniel, Martin and Maines,
2002). The consolidated statement of changes in equity provides an estimate of the profit earned
or loss incurred over the reporting period by the company. The consolidated profit and loss
statement presented by the Group has provided important information related to the revenues,
costs and expenses incurred during the reporting period (Soderstrom and Sun, 2007). It can be
used by the investors for reviewing the overall growth and profitability position of the Group.
Therefore, it can be said that the consolidated financial statements developed by the Group are
adequate in proving sufficient knowledge to the investors regarding the present and future
financial performance of the Group and thus supporting their investment related decision-making
(Volkswagen Group Annual Report, 2017).
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(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
Satisfaction of the Recognition Criteria in the Financial Statements
The recognition criteria set out in the conceptual accounting framework states that a
reporting entity should disclose the information in relation to the recognition of an element in the
financial statement. An element is recognized n the financial statement if it is expected to
provide any future economic benefit and its cost or value can be precisely determined (Tarca,
2004). The annual report of the parent Group of Lamborghini, that is, Volkswagen Group, has
specified the recognition criteria for different financial statement in its annual report. It ahs
implemented IFRS 9 accounting requirements for classifying and measuring the financial assets.
IFRS 15 is adopted for recognizing the revenue and IFRS 16 for recognition of leases (Hoffman,
2016). The purchased intangible assets are recognized at costs and are amortized over their
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remaining useful lives. The financial instruments are measured at their fair value or amortized
cost as per the IAS 39 standard. The sales revenue, interest and other income from the financial
services are recognized only when the specific service has been provided or all the goods have
been delivered. The deferred tax and liabilities are recognized and measured as per the difference
in the individual balance sheet as per the accounting requirement of IAS 12 (Mazhambe, 2014).
Therefore, it can be said that the Group has complied with the standard accounting requirement
and regulations in recognizing the different financial statement during its financial reporting
process requirements (Volkswagen Group Annual Report, 2017).
Exhibition of Fundamental Qualitative Characteristics of Financial
Reporting in the Company
The fundamental qualitative characteristic of financial reporting is relevance and faithful
presentation as stated in the conceptual framework of accounting (Conceptual Framework,
2017). The relevance qualitative characteristic means that financial information provided in the
annual report is able to make any change in the decisions undertaken by the end-users. The
financial information disclosed should have both predictive and confirmatory value for
ensuring that it is relevant. The financial information should have predictive value if it can be
used for making predictions about the future and has a confirmatory value if it provides
information regarding the present financial state of a reporting entity. As such, it can be stated
from analyzing the annul report of the Group that the financial reporting has provided relevant
financial information. The value of different financial transactions is appropriately measures to
provide confirmatory value and also there is use of certain accounting estimates and assumptions
for predicting the future value of the different financial elements (Van der Meulen, Gaeremynck
and Willekens, 2007). In addition to this, the other qualitative characteristic of financial reporting
is that a reporting entity must provide faithful present of financial information, that is, it should
be complete, neutral and free from error. It can be ascertained from the financial report of the
Group through the auditor’s statement which has stated that the Group has developed the
financial reports as per the standard accounting requirements (Volkswagen Group: Annual
Report, 2017).
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(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
Exhibition of Enhancing Qualitative Characteristics of Financial
Reporting in the Company
The enhancing qualitative characteristics stated in the conceptual accounting framework
of financial reporting are comparability, verifiability, timeliness and understandability
(Conceptual Framework, 2017). Comparability is the qualitative characteristic that enables the
end-users to compare the financing condition of a company from the current year to that of the
previous year. As per this characteristic, the Group has presented the financial information in a
comparable manner during the development of the financial statement. The different values of
elements in the financial statement can be measured and compared with that of the values from
the previous year. As per the verifiability principle, the financial information should be verifiable
and if it is not possible then underlying assumptions used for presenting the information must be
disclosed. The company in the notes to financial statement has disclosed all the policies and
methods used for recognizing the value of different financial elements and also underlying
assumptions for those whose values cannot be measured appropriately (Whittington, 2008). As
per the timeliness characteristics, the Group discloses its financial formation annually so that it is
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relevant for decision-making and as per the understandability principle it has provided detailed
information about all the accounting standards used in preparation of financial statements.
(Source: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/
2018/volkswagen/en/Y_2017_e.pdf)
Conclusion
Thus, it can be said from the overall discussion that the parent Group of Lamborghini,
that is, Volkswagen Group has effectively complied with the conceptual accounting framework
principles as analyzed from its annul report review. It has adequately met the general purpose of
developing financial report and provided the required information to the end-users as per the
qualitative and enhanced characteristics of conceptual accounting framework.
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References
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http://www.frascanada.ca/international-financial-reporting-standards/resources/unaccompanied-
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Hoffman, C.W. 2016.Revising the Conceptual Framework of the International Standards: IASB
Proposals Met with Support and Skepticism.World Journal of Business and Management 2 (1),
pp. 1-32.
Maines, L. and Wahlen, J. 2006. The Nature of Accounting Information Reliability: Inferences
from Archival and Experimental Research. Accounting Horizons 20(4), pp. 399- 425.
Mazhambe, Z. 2014. Review of International Accounting Standards Board (IASB) Proposed
New Conceptual Framework. Journal of Modern Accounting and Auditing 10 (8), pp. 835-845.
McDaniel, L., Martin, R. and Maines, L. 2002. Evaluating Financial Reporting Quality: the
Effects of Financial Expertise vs. Financial Literacy. The Accounting Review 77, pp.139-167.
Psaros, J. and Trotman, K. 2004. The Impact of the Type of Accounting Standards on Preparers’
Judgments. Abacus 40(1), pp. 76-93.
Rezaee, Z. 2003. High-quality financial reporting: The six-legged stool. Strategic Finance 84(8),
pp.26-30.
Soderstrom, N. and Sun, K. 2007. IFRS Adoption and Accounting Quality: A Review. European
Accounting Review 16(4), pp. 675-702.
Tarca, A. 2004. International Convergence of Accounting Practices: Choosing between IAS and
US GAAP. Journal of International Financial Management and Accounting 15(1), pp. 60-91.
Van der Meulen, S., Gaeremynck, A. and Willekens, M. 2007. Attribute differences between
U.S. GAAP and IFRS earnings: An exploratory study. The international Journal of Accounting
42, pp.123-142.
Volkswagen Group: Annual Report. 2017. [Online]. Available at:
https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/2018/
volkswagen/en/Y_2017_e.pdf [Accessed on: 15 April 2018].
Whittington, G. 2008. Fair Value and the IASB/FASB Conceptual Framework Project:An
Alternative View. ABACUS 44 (2), pp. 139-168
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