Review of Financial Reporting Disclosures on Property, Plant and Equipment (PPE) in the Australian Corporate Sector

This report evaluates the quality of reporting requirements relating to the valuation, disclosure, and treatment of Property, Plant and Equipment (PPE) in the Annual report of IPH Limited for the financial year ending 30th June, 2017. It provides a critical analysis of complexities and key issues involved in accounting for PPE, a detailed explanation of PPE disclosures made by the Company, compliance of PPE disclosures with AASB 116, and recommendations for improvement.

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BUSINESS RESEARCH REPORT
On
The review of financial Reporting Disclosures on Property, Plant and Equipment (PPE) in the
Australian Corporate Sector
Prepared by
Name:
Student Number:
Lecturer’s Name:
Day:
Time:
IPH Limited
(Financial year ended on 30th June, 2017)

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Executive Summary
This report is intended to provide a reasonable assurance to the Board of Directors of IPH
Limited based on an overall analysis and evaluation of the quality of reporting requirements
relating to the valuation, disclosure and treatment of the Property, Plant and Equipment (PPE) in
the Annual report of the Company for the financial year ending 30th June, 2017 that has been
found in compliance with the requirements prescribed by the AASB 116. The report provides the
critical analysis of the complexities and key issues involved in accounting for PPE, a detailed
explanation of the PPE disclosures made by the Company in the year ending 30th June, 2017, the
extent to which the disclosure requirements of accounting for PPE as per AASB 116 and align
with the objective of general purpose financial reporting together with the recommendation for
the further scope of improvement.

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TABLE OF CONTENTS
Introduction..............................................................................................................................4
Key Issues.................................................................................................................................4
Complexities and key issues involved in the accounting for PPE...................................................................4
Detailed explanation of the PPE disclosures........................................................................................................... 5
Compliance of the PPE disclosures with the AASB116.......................................................................................6
Analysis and observation................................................................................................................................................ 7
Conclusion................................................................................................................................8
References.................................................................................................................................9

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INTRODUCTION
During the last board meeting of the IPH Limited it has been observed by the Board that a strong
qualitative reporting of financial information is of paramount importance to gain a completive
advantage in the market and are seeking a reasonable assurance that the values of their assets
along with the appropriate disclosures have been made in the Annual report of the company for
the financial year ending 30th June, 2017 by complying with the requirements of the AASB116
and general purpose financial reporting for which the CFO of the Company has been engaged to
submit a report before the board regarding the valuation, disclosures and treatment of the
property, plant and Equipment ( PPE) in order to enable the board to review that these are in
compliance with the broader requirements of AASB 116 PPE (Das, 2017). Our review suggests
that we have succeeded to a great extent to comply with requirement of the AASB 116 in
relation to the Accounting treatment and disclosure requirements for the PPE.
KEY ISSUES
COMPLEXITIES AND KEY ISSUES INVOLVED IN THE ACCOUNTING FOR PPE
As per the guide to accounting for property under the cost model issued by the PWC in its
September, 2010 publication, IAS 16 provides guidance as how the property carried at cost
should be accounted for, no matter the same property is either held for using in process of
production of goods or for the supply of services or for the purpose of rental or any other
administrative purpose if it is expected to be used for more than one period (Dichev, 2017). The

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major issues involved in the process for accounting for the same as per this publication is
discussed as under:
a) As per IAS 16 it has not been defined what constitutes the item of PPE, hence it
completely lies on the judgment made by the entity considering the specific
circumstances associated to take appropriate decision regarding the recognition of PPE.
b) IAS 16 does not provide a guidance in detail about the conditions under which a part of a
building (Property) to be treated as significant to account for the depreciation of that part
when component approach is being followed for the recognition of building in the books
of accounts (Alexander, 2016).
c) There is no clear guidance provided by IAS 16 as how to identify the parts of the
building.
d) IAS 16 also does not provide the methodology to allocate the costs associated with the
significant parts of the building in order to initially recognize the building in the books of
Accounts.
DETAILED EXPLANATION OF THE PPE DISCLOSURES
The key facts of the PPE disclosures in the Annual report for the year ending 30 th June, 2017
are described hereunder:
a) The total value of Property, Plant and Equipment in the statement of Financial position
for the financial year ending 30th June, 2017 is $3004000 consisting of leasehold
improvements with the useful life ranging from six to fifteen years, Plant and
equipment’s with the useful lives from two to Twenty years, Furniture, Fixtures and
Fittings with the useful life ranging from five to twenty years and the Computer
equipment having the useful live ranging from Three to Five years (Defond & Lennox,
2017).
b) Property, Plant and equipment have been valued at cost less accumulated depreciation
less impairment losses.
c) The straight line method of depreciation has been followed to depreciate the cost or value
of the asset less residual value of Asset over their useful lives.

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d) At the end of each reporting period the review of the estimated useful life of the asset,
residual value of the asset together with the method of depreciation followed is conducted
in order to ensure that if there has been any change in the accounting estimates made on a
prospective basis then such changes have been taken into account (Werner, 2017).
e) The basis of amortization of the financial lease are as similar as that of the owned assets,
though after being ensured that certain assets cannot be owned after the end of the lease
term, such assets were amortized with the lesser period shorter than lease period or useful
live period (Choy, 2018).
f) The plant and equipment, one of the constituents of the property have been derecognized
either at its disposal or after reasonably assured that no future economic benefits shall
accrue to the company from any such assets.
g) The opening amount Plant and equipment stood as $459000 in which additions made
were $24000and the depreciation charged during the year was $191000, similarly for
leasehold improvements opening figure stood as $1680000, additions made were $98000
and depreciation charged during the year $208000, for furniture, fixtures and fitting
opening stood were $567000, additions made were $117000, disposal value for the year
was $157000and the figure for depreciation was $120000 and similarly for the Computer
equipment opening figure stood as $1644000, additions made during the year was
$469000,disposal came to $847000and amount of depreciation came to $565000
(DeZoort & Harrison, 2016).
COMPLIANCE OF THE PPE DISCLOSURES WITH THE AASB116
The major compliances as per AASB 116 in relation to the disclosure requirement for the
accounting for PPE are enumerated hereunder
1. AASB 116 primarily focuses on the two different aspects relating to the PPE first one
being the initial recognition of the asset as PPE and the second one is the recording of
the same either at cost or at revaluation method.
2. When the asset is recorded at cost the following things are to be complied with

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a) The carrying amount of the asset shall be cost less accumulated depreciation less
impairment losses (Trieu, 2017).
b) Considering the feasibility aspect, depreciation is required to be calculated separately
for each part of the asset.
c) The profit and Loss account of the entity should reflect the amount of depreciation
d) The depreciated value of asset is to be allocated over the useful life of the asset on a
systematic basis (Guragai, et al., 2017).
e) The provisions of the AASB136 are to be applied for the impairment of the asset.
f) The disclosure requirement includes reconciliation of the opening and carrying
amount of the each asset at the and the end of the reporting period, the methods of
depreciation to be used, the gross carrying amount, accumulated depreciation and
impairment losses of each asset and the basis for measuring the carrying amount of
the asset.
3. In addition to the above disclosure the other major disclosures are commitments
relating to acquire the PPE, expenditures incurred for the construction of PPE,
restricted title disclosures are required to be made (Heminway, 2017).
ANALYSIS AND OBSERVATION
After observing the above provisions relating to the treatment and disclosures as prescribed by
AASB 116, it is to be concluded that the IPH limited has complied with the maximum
requirements of the AASB116.
Findings on the compliance of the PPE disclosures with the objectives of general purpose
financial reporting
General purpose financial reporting serves the following basic purpose:
To provide useful information to the users of the financial statement so that to assist then in
making and evaluating the decisions relating to the allocation of the scarce resources (Gooley,
2016).
Considering the above objective of the General purpose financial reporting it can be concluded
that the disclosure requirements as incorporated by the AASB 116 have been established by

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keeping in mind the very objective of the general purpose financial reporting only that aims to
serve the variety of informational needs of the various stakeholders directly or indirectly
associated with the enterprise.
Recommendations for improvement: The company should also disclosing the basis of using
varied useful lives for different assets and how they are valuing the same in the case of
revaluation model. Furthermore, the company should also be disclosing the assets which have
been considered as expense and charged to Profit and loss account for low value assets (Linden
& Freeman, 2017).
CONCLUSION
Based on our study and evaluation of the Disclosures and accounting treatment of the PPE in the
financial statement of the IPH limited for the year ending 30th September, 2017, we can conclude
that the company has complied with the requirements of the AASB116 in a much satisfactory
way.

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REFERENCES
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview
Analysis. Ecological Economics, p. 145.
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social
Science Studies, 2(2), pp. 10-17.
Defond, M. & Lennox, C., 2017. Do PCAOB Inspections Improve the Quality of Internal Control
Audits?. Journal of Accounting Research, 55(3), pp. 591-627.
DeZoort, F. & Harrison, P., 2016. Understanding Auditors sense of Responsibility for detecting fraud
within organization. Journal of Business Ethics, pp. 1-18.
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Gooley, J., 2016. Principles of Australian Contract Law. Australia: Lexis Nexis.
Guragai, B., Hunt, N., Neri, M. & Taylor, E., 2017. Accounting Information Systems and Ethics
Research: Review, Synthesis, and the Future. Journal of Information Systems: Summer 2017, 31(2),
pp. 65-81.
Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law,
and Organic Documents. SSRN, pp. 1-35.
Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making.
Business Ethics Quarterly, 27(3), pp. 353-379.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, 93(1), pp. 111-124.

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Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, 25(1), pp. 57-80.