Contemporary Issue in Accounting

This report analyzes the conceptual framework of accounting as applied to Arena REIT, an Australian real estate investment trust. It examines the company's adherence to AASB standards, focusing on qualitative characteristics of financial information and the preparation of financial statements. The report also discusses the impact of recent accounting standards on Arena REIT's financial reporting.

REPORT- CONTEMPORARY
ISSUE IN ACCOUNTING

Executive Summary-
Conceptual framework is utmost important to be followed by company in order to
prepare accurate and reliable financials. The rules set under AASB standard are followed by
Australian firms. It will be discussed with reference to annual report of Arena REIT whether
following all guidelines or not.
Abstract-
The accounting standards are to be recognised and identified by organisation. Conceptual
framework will be provided which will enhance rules provided under AASB with reference to
preparation of financial statements and also qualitative characteristics of information will be
explained. The conceptual framework is beneficial for company as it leads to provide fruitful
information to firm's stakeholders for decision-making serving their individual purpose.

Table of Contents
MAIN BODY...................................................................................................................................1
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
CONCLUSION................................................................................................................................4
RECOMMENDATION...................................................................................................................4
REFERENCES................................................................................................................................6

MAIN BODY
INTRODUCTION
Conceptual framework is crucial for making accurate and transparent financial reports.
Present report deals with Arena REIT which is real estate investment trust company located in
Australia. Report will discuss about conceptual framework as governed by AASB whether
followed by organisation or not. It will also enumerate about qualitative characteristics of
financial information from various angles and preparation of financial statements as per the
AASB standard. Thus, firm's analysis will be made from conceptual framework persepctive.
ANALYSIS
The conceptual framework in accounting is a theory that details regarding basic reasoning
with relation to underlying financial statements and financial reports in the best manner possible.
It leads to develop coherent rules and standards suitable for attaining fundamental characteristics
such as comparability and consistency in effective manner. In addition to this, conceptual
framework in accounting seeks for identifying nature, subject, purpose and content of general
purpose of financial reporting and all qualitative characteristics which needs to be posses by
financial information. The purpose of conceptual framework in accounting is to define
boundaries of financial accounting by imparting objectives and users, defining key terms and
developing fundamental concepts. Moreover, it provides description of current practice and
framework for new issues (Schaltegger and Burritt, 2017).
Qualitative Characteristics
AASB (Australian Accounting Standards Board) deals with the conceptual framework
with objective of financial statements, qualitative characteristics determining usefulness of
accounting information in the financial statements such as cash flow statement, balance sheet,
statement of changes in equity and income statement. It also deals with the framework within
which qualitative and quantitative information should be imparted to users of accounting
information in the best way possible so that they may be able to take decisions in effective
manner (Lodhia and Stone, 2017). With reference to it, Arena REIT which is real estate
investment trust company which develop, owns and manages social infrastructure
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property in Australia is to analyse whether it effectively comply with the qualitative
characteristics and framework in effective manner.
The qualitative characteristics of accounting information is the type of information which
is likely to be useful for potential investors, lenders and creditors for decision-making purpose on
reporting entity's financial information. There are various fundamental qualitative characteristics
of accounting information are relevance and faithful representation. It can be assessed that
relevance means that financial information must be capable of making difference in decisions if
it has predictive value and confirmatory value or both (Epstein, 2018). This means that company
must provide relevant information which provides clarity regarding performance of company.
Materiality is another concept which recognises only material information should be included
which affects decision-making of company and all immaterial items should be ignored so that
decisions may be made in the best manner possible by organisation.
The enhancing qualitative characteristics are comparability, understandability, timeliness
and verifiability. Comparability means that similarities and differences can be analysed by
decision-makers. Understandability implies information that is supplied in financial reporting
must be easily understandable to users of accounting information. Verifiability help assure
accounting information users that it reports represents economic phenomena which it likes to
represent. Timeliness as the name suggests that information is timely provided to stakeholders
for decision-making purpose. Arena REIT effectively complies with all qualitative
characteristics and prepare reports easily understandable to stakeholders and timely financial
information is provided as well.
Financial Statements
The presentation and preparation of financial statements are required to be prepared in
accordance to guidelines provided by AASB. Arena REIT has abided by AASB 13 requiring fair
value of measurement of assets and liabilities and has levels such as quoted prices in active
markets for identical assets or liabilities are (level 1). Input which are not included or other than
quoted prices done in level 1 that are observable either directly or indirectly. Next level is inputs
for assets or liabilities which are not based on observable market data (Framework for the
Preparation and Presentation of Financial Statements (AASB). 2016). The firm effectively
categorises and determines purely on the basis of the lowest level input making it significant for
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fair value measurement. The determination observable market data involves significant
judgement made by Responsible Entity. The Arena REIT policy is to recognise transfers into and
transfers out of fair hierarchy levels at the end of financial year. The Group did not measure
financial liabilities and assets at fair value on non-recurring basis at the end of June 2018.
AASB 3 deals with Business Combinations which requires that stapled entities in the
case of stapling structure to be identified as parent firm for abiding by the purpose of producing
consolidated financial reports. Arena REIT Stapled Group incorporate the assets and liabilities of
the firms which are controlled by ARF1 at 30 June 2018. Non-controlling interests are shown in
Statement of Comprehensive Income and Statement of Financial
Position of Group as at 30 June 2018. On the other hand, AASB 9 related to Financial
Instruments is the standard which provides clarity regarding classification, de-recognition and
measurement of financial instruments. With regards to financial liabilities under the fair value
option, entities will have to recognise part of change in credit risk in statement of other
comprehensive income rather than income statement (Feng, Cummings and Tweedie, 2017).
AASB 15 Revenue from contracts with customers has issued new standard for the
recognition of revenue. It can be analysed that new amendments are made and according to it,
revenue will be recognised only when good or service control is transferred to customers and as a
result, this notion replaces earlier one linked to risk and rewards. The management of Arena
REIT Group has recognised that due to new amendments made, no impact is expected to be
made on financial statements. On the other hand, AASB 16 leases is also followed by
organisation. This type of standard provide single lease accounting model which requires that
lessees for effectively recognising an asset and also has liability for making payment of rentals.
This can have material impact on firms. The lessor accounting has not being changed under
AASB 16. The management of Group assessed that it will not have material impact on company
with the effect as of January 2019.
The goodwill is also to be recognised by the firm and it can be analysed from annual
report that intangible asset include goodwill on acquisition. This has been allocated to lowest
cash generating unit which represents funds management across Arena REIT. The impairment of
goodwill is done on annual basis which is done by comparing carrying amount with that of
recoverable amount (Brouard and et.al., 2017). The recoverable amount is computed by using
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discounted cash flow method by taking into account five years of forecast of cash flows prepared
with the help of stipulated financial budget in effectual manner. The key assumptions include
growth rates made in the range of 2-3 % per annum, cash flows at a discounting rate of 8.16 %
on the basis of per annum. The Group has assessed possible changes in carrying out assumptions
and have not identified that could cause carrying amount exceeding recoverable amount.
On the other hand, classification, recognition/ de-recognition and measurement are abide
with reference to AASB. Classification of financial instruments are made with reference to
financial instruments held for trading, designated through profit or loss upon initial recognition.
While, recognition/ de-recognition for financial assets and liabilities are made when contractual
agreement is made at a trade date and fair value changes are recognised (Dumay and et.al.,
2017). Investments are de-recognised when expiration occurs towards right to receive cash flows
from investment or firm transfers all risks or rewards of ownership. While, measurement is also
made. At initial recognition, assets are recognised at their fair value and liabilities are traded in
the active market mainly based on quoted market price at end of financial year. Thus, this shows
that Arena REIT has followed conceptual framework for imparting information to external and
internal users.
CONCLUSION
Hereby it can be concluded that conceptual framework in accounting is of utmost
importance so that coherent rules and regulations made by regulating body are met. AASB
provides conceptual framework with regards to preparation of financial reports and how
statements should be prepared by firm. Arena REIT requires following all the guidelines in order
to create transparency of overall performance in the best way possible. It can be analysed that
expenses, gains, assets and liabilities are recognised by organisation and it requires for
implementing more structured approach for providing financial reports to stakeholders.
RECOMMENDATION
It can be recommended to Arena REIT that it should follow more transparency of its
information so as to make clear assumptions and provides fruitful information to external users
in effectual way. Moreover, firm should recognise impact of amendments made on existing
standards which will be beneficial for reducing risk by taking measures quite effectually. On the
other hand, Arena REIT should use derivatives for hedging sudden risks which can harm
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credibility of organisation. Thus, by following such recommendations, overall performance of
firm could be enhanced and transparent to stakeholders for making decisions.
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REFERENCES
Books and Journals
Brouard, F. and et.al., 2017. Professional accountants’ identity formation: an integrative
framework. Journal of Business Ethics. 142(2). pp.225-238.
Dumay, J. and et.al., 2017. Barriers to implementing the International Integrated Reporting
Framework: A contemporary academic perspective.Meditari Accountancy Research. 25(4).
pp.461-480.
Epstein, M. J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Feng, T., Cummings, L. and Tweedie, D., 2017. Exploring integrated thinking in integrated
reporting–an exploratory study in Australia. Journal of Intellectual Capital. 18(2). pp.330-
353.
Lodhia, S. and Stone, G., 2017. Integrated reporting in an internet and social media
communication environment: conceptual insights. Australian Accounting Review. 27(1).
pp.17-33.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
ONLINE
Framework for the Preparation and Presentation of Financial Statements (AASB). 2016 [PDF]
Available Through: <https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-
04_COMPjun14_07-14.pdf>
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