Financial Reporting Disclosures in the Australian Corporate Sector

This article discusses the complexities involved in accounting for Property, Plant and Equipment (PPE) in the Australian corporate sector. It critically analyzes the PPE disclosures made by Woolworths Group Limited in their annual report and evaluates to what extent they comply with the accounting standard AASB 116 and the objective of general purpose financial reporting. The article concludes that Woolworths' approach to PPE valuation was correct and recommends that the company continue to comply with the stated standards.

FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN
CORPORATE SECTOR

Table of contents
Introduction......................................................................................................................................3
Critical analysis of some of the complexities and key issues involved in accounting for PPE.......3
Providing a detailed explanation of the PPE disclosures made by the company............................4
Critically analysing of to what extent the latest annual report of your company meets the
disclosure requirements of accounting for PPE as per AASB 116..................................................5
Critically discussing to what extent the disclosures of PPE align with the.....................................6
Conclusion and Recommendation...................................................................................................6
References........................................................................................................................................8
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Introduction
Valuation of physical and tangible asset is very crucial for a company to conduct in order to
fairly report this value to the stakeholder showing the financial position of the firm. Property,
Plant and Equipment is also tangibles asset valuation of which is very necessary in order to
report fair values of the following the financial reports of the firm. In the current Assessment
there will be discussion over the complexities which are there in the fair valuation of PPE.
Annual Report of Woolworths Group Limited that is ASX listed company will be evaluated and
analyzed to ensure the disclosure made by the following company in respect to PPE in order to
know what approach in disclosing values relating to PPE are made.
Critical analysis of some of the complexities and key issues involved in
accounting for PPE
Property Plant and Equipment are major part of financial asset which is acquired by a company
in the operational procedure. It can be asset are subject to value on realization. It can be said that
accounting for Property Plant and Equipment are very complex in nature when its comes to
accounting for there tangibles. It can be said that valuations as well as accounting for Property
Plant and Equipment comes under the AASB 116 (wow2017ar.qreports.com.au, 2018). It can be
said that valuation for plant, property and equipment is complex because of the involvement of
Impairment, depreciation and carrying values of the assets. It can be said that very asset is
termed for depreciation which is charged on the following from the date of acquisition. It can be
said that depreciation is charged on two methods that is straight line and diminishing method (Xu
et al. 2017). Thus the fair value measurement of the asset comes into play. There is two method
some companies in Australia value there asset in the date of acquisition and some organization
use the fair value measurement. It can be said that fair value measurement is termed as one of the
most efficient method when its company valuation of physical asset as it help in up to date
valuation of the firm. Other than depreciation impairment of asset is also a problem that is faced
by a company while conducting the valuation of PPE in the firm (wow2017ar.qreports.com.au,
2018). It can be said while in the operational activities of the firm a descending years result in
asset becoming impaired decrease or impairing the actual value of asset that is of the asset in the
current time. This leads to a very complex process resulting in error valuation of PPE that are
present in the company. It can be said that future value of or current value of PPE can be
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impaired also due to their carrying values after depreciation. Obsolescence of machineries also
decrease the values considerably. Some companies after the PPE's obsolescence do not value the
PPE at their rated price which overhauls the current price creating complexities within the
current system of PPE valuation making it difficult to properly disclose the Current value of PPE
(Xu et al. 2017). It can be said that all three factors tend to affect and deviate the valuation of
PPE that is acquired by a company at the accounting disclosure period. It can be said that
continuous evaluation of PPE valuation is not possible for a company to conduct hence over or
under valuation if the PPE occurs.
Providing a detailed explanation of the PPE disclosures made by the company
In the disclosure made by the Woolworths it can be seen that the annual report discussed on the
valuation of PPE in a very significant and descriptive manner taking into consideration the
information provided by the company in there annual report. In the annual report of the
company it can be seen that the carrying value of the PPE is determined through measuring cost
less accumulated depreciation or amortization and accumulated Impairment Loss if any. It can be
said that the costs of self made or self constructed PPE is determined through adding value of
cost of material, proportions of overhead allocated and direct labor. The developmental PPE are
valued on the basis of borrowing, holding and development cost until the development is fully
completed (Perera and Chand, 2015). The depreciation valuation of the company is based on the
Straight line method which carries on through the PPE useful life. Leasehold properties acquired
by the company are amortized in accordance to the training period of leasehold agreements. The
useful life of PPE are also categorized in the annual report which means that the lives are
dependent on their type. Building has been estimated to have useful life of 10 to 25 years
whereas plant and equipment will tend to have a useful life of 2.5 to 10 years. It can be said that
the useful life of Leasehold improvements in the company are of at 25 years. The sales of asset
are recognized in the consolidated profit and loss statement of the firm. The annual report of the
company also disclosed that impairment testing of these assets are performed in accordance to
the impairment testing done for Non financial assets (Perera and Chand, 2015).
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Figure 1: Property, Plant and Equipment
(Source: wow2017ar.qreports.com.au, 2018)
The image above shows that valuation procedures and disclosures made by the firm in financial
reports of the firm. Cost of development properties, Freehold land, warehouses, leasehold
improvements, plant equipment are provided for both beginning and the end of the years. The
expenses such as disposals, depreciation expenses, impairment expenses, amortization expenses
and transfer on sale has been disclosed which shows that the company has tried to provide in
depth knowledge on the valuation process of PPE. It can be said that valuation of PPE within the
company’s annual report shows that the company were focused on properly valuing there PPE in
order to disclose fair value of PPE (Tan‐Kantor et al. 2017).
Critically analysing of to what extent the latest annual report of your
company meets the disclosure requirements of accounting for PPE as per
AASB 116
As per the annual report of the company it can be said that the company tend to following the
accounting standard prescribed under the Australian Accounting Standard Boards. Hence it is
legitimate to say that the disclosures made by the company were in accordance of the said
accounting framework. Under AASB 116 the valuation of PPE should be done under the fair
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value measurement system which means cost minus depreciation and other expense chargeable
on the assets (Abbott and Tan‐Kantor, 2018). It can be said that the financial disclosure made by
Woolworths are in compliance to the AASB 116 this because the company has also followed the
guidelines and has valued there PPE following the Cost - Depreciation and other expenses
method. This shows that the company has complied to AASB 116 while valuing the PPE. Under
the AASB framework leasehold properties are to be valued after the deduction of amortization
expenses. In this respect it can be said that the company has followed the framework in valuing
the leasehold properties by deducting the mentioned expenses from the value of there leasehold
properties (Abbott and Tan‐Kantor, 2018).
Critically discussing to what extent the disclosures of PPE align with the
objective of general purpose financial reporting
The disclosures made by the company in regards of the valuation related to PPE are very
significant. It can be said that the company complied to the objectives set under General purpose
Financial reporting. The objectives of general; purpose financial reporting is to make a financial
report giving in depth analysis over the financial valuation procedures undertaken by the
company in order to fairly value their assets (Yao et al. 2015). It can be said that in accordance
to the company disclosures regarding the valuation of PPE it can be said that the company has
disclosed an in depth analysis over the validation procedure undertaken by the company to value
there PPE fairly (wow2017ar.qreports.com.au, 2018). It can be further stated that the disclosures
made were under the IFRS standards which means there was a initial focus if the company to
disclosure a fair understanding of the procedure undertaken by the company to value their asset
significantly. This shows that the company was able to meet the standards of IFRS as well the
objective of general purpose financial reporting by giving a lucent and depth knowledge of
procedures undertaken by the company (Yao et al. 2015).
Conclusion and Recommendation
Concluding in the light of above context it can be said that the approach taken by Woolworths in
valuation of PPE was correct and this helped the company to properly value there PPE. It can be
said that the valuation procedure compiled to AASB 116 as well as the IFRS framework helping
the company to provide information to meet objective of General purpose financial reporting. It
is to be recommended that the company continue to comply with the stated standard and perform
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the same procedure to proper value there PPE giving out a fair valuation of their assets in the
financial reports.
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References
Abbott, M. and Tan‐Kantor, A., 2018. Fair Value Measurement and Mandated Accounting
Changes: The Case of the Victorian Rail Track Corporation. Australian Accounting Review,
28(2), pp.266-278.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting
standards (IFRS) for small and medium-sized enterprises (SMES). Advances in accounting,
31(1), pp.165-178.
Tan‐Kantor, A., Abbott, M. and Jubb, C., 2017. Accounting Choice and Theory in Crisis: The
Case of the Victorian Desalination Plant. Australian Accounting Review, 27(3), pp.273-284.
wow2017ar.qreports.com.au, (2018) WOOLSWORTHS Available from
https://wow2017ar.qreports.com.au/home/performance-highlights/2017-at-a-glance.html
Accessed on 15 September
wow2017ar.qreports.com.au, (2018) WOOLSWORTHS Available from
https://wow2017ar.qreports.com.au/xresources/pdf/wow17ar-financial-report.pdf Accessed on
16 September
Xu, W., Davidson, R.A. and Cheong, C.S., 2017. Converting financial statements: operating to
capitalised leases. Pacific Accounting Review, 29(1), pp.34-54.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit
fees: Evidence from Australian companies. Journal of Contemporary Accounting & Economics,
11(1), pp.31-45.
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