Critical Analysis of Wesfarmers' Compliance with Conceptual Framework of Accounting

Accounting Theory and Issue
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Introduction
The purpose of this report is to critically analyse the application of general purpose
financial reporting by Wesfarmers while preparing its financial report. The conceptual
framework set out the principle and guidelines on how to make compliance with requirement of
financial reporting. In this report the primary purpose of report is to critically analyse the
effectiveness of Wesfarmers to meet the requirements set out in conceptual framework of
accounting. Wesfarmers has listed in ASX100 and has to ensure that its financial report meet the
obligations of conceptual framework. In order to check the effectiveness of financial reporting
performed by Wesfarmers it has been decided to judge its financial report with characteristics of
financial information as given in conceptual framework.
Critical Analysis of ASX Listed Corporation Wesfarmer’s to meet Conceptual Framework
of Accounting
Wesfarmers is the one of biggest company of Australia that deals in retail industry.
Wesfarmers prepares its financial report (Annual report) every year and make compliance with
conceptual framework of accounting. Wesfarmers uses Australia Accounting Standards as the
basis of preparation of financial report. The main purpose of conceptual framework of
accounting is to provide the fundamental concepts for the preparation of financial report and
guide the International Accounting Standard Board (IASB) in developing the International
Accounting Standards (Henderson and Howieson, 2015). The aim of conceptual framework is to
make sure that accounting standards are conceptually consistent and transaction of same nature
are shown in financial report in same way so that it will provide investors with useful
information. Conceptual framework has been derived from the normative accounting theory that
provides the management at organization must work for their stakeholders through providing
useful information in form of annual report. Thus, it is most important for the listed entities to
prepare their annual report through making compliance with qualitative characteristics of
financial information as set in conceptual framework (Carlon, 2012).
The conceptual framework of accounting developed by the IASB for improving the
quality of financial reporting has stated the qualitative characteristics that business corporations
need to comply during development of general purpose financial statements. The fundamental
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qualitative characteristics are relevance and faithful presentation of information to the end-users
of financial information (Bazley and Robinson, 2014). The financial information is said to be
relevant if it has both a predictive and confirmatory value. The predictive value provides an
estimation of the future performance of an entity based on analysis of past and present financial
information. The confirmatory value provides an estimate of the actual financial position of an
entity based on its current financial position. As such, Wesfarmers have complied effectively
with this qualitative characteristic of financial reporting as it has provided both predictive and
confirmatory value of financial items (IFRS Conceptual Framework, 2018). The predictive value
is estimated with the use of accounting policies and judgments that provides a prediction of the
future events such as for income, expenses, inventories, provisions and contingencies
(Wesfarmers Annual Report, 2017). The confirmatory value is depicted with the use of AASB
accounting standards and interpretations for reporting the value of key financial items.
(Source: https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-
annual-report.pdf?sfvrsn=0)
In accordance with the faithful presentation of information characteristics of conceptual
framework of accounting, the businesses need to depict the financial information that is
complete, neutral and error-free (Henderson and Howieson, 2015). The financial statements of
Wesfarmers are complete, neutral and error-free as stated by the director’s and audit declaration
statements that can be depicted as follows:
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