Impairment Disclosures in Financial Reporting in Australian Corporate Sector

This report assesses the financial reporting disclosures in Australian corporate in relation to assets and their impairment specifically so that the objective of financial reporting can be assessed. Woolworths Limited, an Australian company has been selected for the preparation of this statement and annual report for the period ending 30th June 2017 has been selected for framing and assessing financial reporting disclosures by the company.

WOOLSWORTH LIMITED
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IMPAIRMENT DISCLOSURES IN
FINANCIAL REPORTING IN
ASUSTRALIAN CORPORATE
SECTOR
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Table of Contents
EXECUTIVE SUMMARY...................................................................................................................3
INTRODUCTION.....................................................................................................................................4
IMAPIRMENT MADE BY COMPANY........................................................................................................5
COMPLEXITIES AND ISSUES INVOLVED IN TESTING OF IMPAIRMENT...................................................8
MEETING OF DISCLOSURE REQUIREMENT BY ANNUAL REPORT AS PER AASB 136...............................9
ASSOCIATION OF IMAPIRMENT WITH OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING.....10
CONCLUSION AND RECOMMENDATION.............................................................................................10
REFERENCES........................................................................................................................................11
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EXECUTIVE SUMMARY
Financial Reporting is the base for every decision making. Proper and Full disclosures are
required to have good financial reporting for any corporate. Annual reports containing
financial information along with disclosures in relation to policies, procedures of the
company is one of the best ways to present financial reports. This statement has been
prepared to assess the financial reporting disclosers in Australian corporate in relation to
assets and their impairment specifically so that the objective of financial reporting can be
assessed. Woolworths Limited, an Australian company has been selected for the preparation
of this statement and annual report for the period ending 30th June 2017 has been selected for
framing and assessing financial reporting disclosures by the company.
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INTRODUCTION
Financial reporting means description of different information relating finance about the
company to its stakeholders on a regular or continuous basis. The stakeholders are more
interested in how their funds have been utilized by the company and its management and in
procurement of which asset. So, assets and their treatment by the company are considering
major aspect while assessing and analyzing the financial reports of any company. With these
aim, the report has been prepared using different heading and subheadings. The report
provides the critical analysis of the impairment of assets which has been done by the
company and its reconciliation with the requirements of AASB 136. Also, the report ensures
that objectives of general purpose financial statements has been achieved by the company and
what further steps should be taken in future to remove deviations if any in disclosures as per
AASB 136. The report has been ended with proper conclusion and recommendation to CFO
of the company. Woolworths Limited, an ASX registered company has been chosen for the
report and impairment of assets along with proper disclosures for the period ending 30th June,
2017 has been assessed to achieve the aim of this report.
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IMAPIRMENT MADE BY COMPANY
The following are the different disclosures made by Woolworths Limited in the Annual
Report for the period ending 30th June, 2017 which are in compliance with disclosure
requirement as per AASB 136:-
 As per Note No: 3.1, Trade Receivables and Other receivables were impaired only if
there is evidence of the future loss of receivable. The receivables are valued at present
value of future cash flows which is discounted at effective discount rate. Short period
receivables are not discounted for impairment calculation.
 As per Note No 3.3, Property Plant and Equipment includes plant and machinery,
leasehold improvements, freehold land, retail and other properties, warehouses,
development properties. Property, plant and Equipment are impaired when there is
sign of reduce in value of asset or when there is sign of the change in previous
impairment. In 2016, major impairment has been recognized and a home
improvement asset has been transferred to assets held for sale (Zucca, 2012).
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 As per Note No 3.4, Intangibles which includes and other intangibles are impaired
annually or when there is sign of impaired of asset.
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 As per Note No 3.5, total impairment recognized in the financial year ending 30th June
2017 has been shown which $ 38.1m for continued operations. And reversal of
impairment from discontinued operations is $ 23.7 m.
COMPLEXITIES AND ISSUES INVOLVED IN TESTING OF
IMPAIRMENT
There are major five issues which have been involved in Testing of Impairment of Asset. The
issues have been explained below:
a) Identification of level of testing – The foremost major issue is till what level the
testing of impairment should be done for one particular segment or cash generating
units. The assets in the company are majorly depending on other assets for finding
actual carrying cost of the asset. The company has to consider what assets should
combined and assessed as cash generating units so that inflows from them can be
higher. The size, geographical allocation and nature of assets should be taken as base
to allocate assets to different cash generating units so that level of testing can easily
be identified (Chow and Marchev,2012).
b) Distinction between value in use and fair value – The distinction between fair value
(which means the price which the outside investor is ready to pay) and value in use
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(which means value generated by asset internally) is difficult for making impairment
test (Riedl, 2014).
c) Appropriate discount rate- The difficulty is calculating the discount rate for value in
use is major concern. The discount rate should be consider as per the different market
scenario and risks involved in cash generating units. If the appropriate discount rate is
not used in impairment testing, then the results generated from testing can become
vague.
d) Tax rate or tax effect- The major issue in this that sometimes companies may use pre
tax discount rate while calculating the post tax inflows from cash generating units.
Tax rate and its effect pre and post be consider to reduce errors (Chow and
Marchev,2010).
e) Comparability – The cash flows from the assets which are required to be tested should
be considered in determination of value. Sometimes, in working capital assets, it is
difficult to understand the cash flows from different assets individually (Dolson,
2005).
MEETING OF DISCLOSURE REQUIREMENT BY ANNUAL
REPORT AS PER AASB 136
The Woolworths Limited‘s annual report are consistency with the disclosure requirement of
AASB 136 in relation of impairment can be accessed from the following points:
 As per Note 3.4, Property, Plant and Equipment are valued at cost less accumulated
depreciation less accumulated impairment losses (Company Official Website, 2017).
 The impairment of intangibles has only be done if there is indication of asset
impaired which is when recoverable amount less than carrying amount.
 Impairment is charged to statement of profit and loss account along with reduction in
corresponding asset as per the annual report of the company.
 The company has disclosed the cash generating units as per their nature of operations
and recognized the impairment separately for continued operations and non continued
operations (AASB 136, 2010).
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ASSOCIATION OF IMAPIRMENT WITH OBJECTIVE OF
GENERAL PURPOSE FINANCIAL REPORTING
The main objective of the General purpose financial reporting is to provide the information in
financial terms about company under consideration which is useful for current and future
investors and other stakeholders in their decision making for having interest in the company
(Lohrke, 2012; Colson, 2015). As per the Annual report of Woolworths Limited, the
company has disclosed all information about the impairment and their policies which are very
useful for investors and stakeholders in talking decision regarding the investment in
company. The company has properly bifurcated continued and discontinued operations cash
generating units which has been shown separately which also helps in understanding the
future business plan of the company. The company has not considered risky element
calculating the discount rate which has been used to calculate present value of future cash
flows in value in use. The company has not properly identified cash generating units and their
cash flows according to the nature and size of unit. Thus, the impairment disclosures are align
with general purpose financial reporting disclosures but the intent of the correct and full
information is still missing at some places (Renshall, 2012).
CONCLUSION AND RECOMMENDATION
Financial reporting disclosures play very important role in meeting with the objective of
General purpose financial reporting. The financial disclosures in terms of assets are majorily
considered by the different users of the financial reporting. The impairment of assets and full
disclosures as per AASB 136 helps the management as well the reporting authorities to assess
whether the assets are recorded at their correct value. It is concluded from the above report
that Woolworth’s annual meets the requirement of disclosures as AASB 136 in relation to
impairment of asset. It is also recommended from the analysis that the cash generating units
should identified correctly with more professional knowledge along with risk element should
be incorporate with calculated discount rate in future years.
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REFERENCES
AASB 136, (2010), “Impairment of Assets”, available at
http://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
accessed on 26-04-2018.
Chow E and Marchev M, (2012), “Impairment Issues to watch” available at
https://www.pwc.com.au/assurance/ifrs/assets/ifrsinbrief-se-15may13.pdf accessed on 26-
04-2018
Colson, R.H., (2015), “General purpose financial statements”, The CPA Journal, 134(3), p.78
- 82.
Company Official Website, (2017) available at https://www.woolworthsgroup.com.au
accessed on 26-04-2018.
Dolson M, (2015), “A Look at Current Financial Measures” available at
https://www.pwc.com/hu/hu/services/assets/ifrs_kiadvanyok/in_depth/
testing_for_impairment_in_the_upstream_industries.pdf accessed on 26-04-2018
Lohrke, C., (2012), “The effects of differing information presentations of general purpose
financial statements on users' decisions” Journal of Information Systems, 12(2), pp.99-107
Renshall, M, (2012), “Added Value in External Financial Reporting: A Study of Its Aims and
Uses in the Context of General Purpose Financial Reports” Institute of Chartered
Accountants in England and Wales.
Riedl, E.J., (2014), “ An examination of long-lived asset impairments” The Accounting
Review, 85(9), pp.936-945
Zucca, L.J., (2012), “A closer look at discretionary write-down’s of impaired assets”,
Accounting horizons, 58(5), pp. 52-71.
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