A Comprehensive Analysis: A2 Milk Company and Financial Reporting

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This report provides a comprehensive analysis of A2 Milk Company's compliance with General Purpose Financial Reporting objectives, standards, and qualitative characteristics as outlined by the International Accounting Standards Board (IASB) and IFRS. It evaluates the company's adherence to New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and relevant AASB standards. The report examines how A2 Milk Company satisfies the objectives of providing financial information related to its financial position, performance, and cash flows. It assesses the company's recognition of assets, liabilities, equity, revenue, and expenses in accordance with conceptual framework criteria. Furthermore, the study evaluates how A2 Milk Company meets the fundamental and enhancing qualitative characteristics of financial reporting, including relevance, faithful representation, comparability, verifiability, timeliness, and understandability, based on information derived from its annual reports and audit reports by EY. The report concludes that A2 Milk Company demonstrates strong compliance with the principles and standards of financial reporting.
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Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
Name of the University
Author’s Note
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1CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................2
Compliance with General Purpose Financial Reporting Objectives...............................................2
Target Audience...............................................................................................................................7
Satisfaction of Recognition Criteria................................................................................................8
Satisfaction of Fundamental Qualitative Characteristics of Financial Reporting.........................11
Satisfaction of Enhancing Qualitative Characteristics of Financial Reporting.............................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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2CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
In the twenty-first century, companies are facing different kinds of complex issues in
their different accounting and financial operations. This level of complexities can be there in the
presence of complex business operations. Thus, in order to deal with these complex financial and
accounting issues, business organizations must comply with the principles and standards of
Conceptual Framework for Financial Reporting. It needs to be mentioned that International
Accounting Standard Board (IASB) introduced conceptual framework in the year 1989 and the
main aim of the introduction of conceptual framework is to bring accuracy and efficiency in the
process of financial reporting of the companies (aasb.gov.au 2018). The main aim of this report
is to analyze and evaluate the fact that whether A2 Milk Company has complied with the
required standards, principles, objectives and characteristics of General Purpose Financial
Reporting. It needs to be mentioned that A2 Milk Company is listed among the top 100
companies of Australian Securities Exchange (ASX) in the name of ‘A2M’
(thea2milkcompany.com 2018).
Compliance with General Purpose Financial Reporting Objectives
As per the latest annual report of A2 Milk Company, they prepare the financial
statements as per the standards of Generally Accepted Accounting Practice in New Zealand by
comply with the principles of New Zealand Equivalents to International Financial Reporting
Standards (NZ IFRS). A2 Milk Company. In addition, A2 Milk Company also complies with the
standards of IFRS and International Accounting Standards Board (IASB) (aasb.gov.au 2018).
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3CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
There are three major objectives of General Purpose Financial Reporting. The extent of
compliance with these objectives by A2 Milk Company is discussed below:
1st Objective: It is the obligation of the companies to provide the users with financial
information related with the financial position of the companies that include information of
various economic resources. A2 Milk Company provides their users with all the necessary
information of their economic resource with the help of the statements of financial position
(ey.com 2018).
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4CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
2nd Objective: As per the second objective, companies are required to provide the users with the
information related with their financial performance. It needs to be mentioned that A2 Company
provides the users with the statements of comprehensive income, statement of financial position,
change of equity and others that consist of performance related financial information (ey.com
2018).
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5CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
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6CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
3rd Objective: As per the third objective, the companies are needed to provide the users with all
the information related to their cash flow that plays an integral part in various decision-making
process of the users. In case of A2 Milk Company, it can be observed that the company publishes
all information related to cash flow through the statements of cash flows (ey.com 2018).
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7CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
Thus, based on the above discussion, it can be observed that A2 Milk Company has
satisfied all three objectives of General Purpose Financial Reporting.
Target Audience
The main users of the general purpose financial reports are the investors, shareholders,
customers, employees, tax authorities, government, creditors, lenders and others. These users
need financial information of the companies for various decision-making purposes. From the
above discussion, it can be observed that A2 Milk Company publishes different financial
statements like income statements, statements of financial position, cash flow statements, change
in equity statement and others in the annual reports. The company publishes these statements on
yearly basis and they publishes them on quarterly basis. These financial statements are easily
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8CONTEMPORARY ISSUES IN ACCOUNTING
accusable as they can be obtained from the official website of the company. For this reason, the
users of financial reports can easily gather and use this information for their needs (Wang 2014).
Satisfaction of Recognition Criteria
The major elements of financial statements of the companies are assets, liabilities, equity,
revenue and expenses. All these elements need to fulfill three major criteria of conceptual
framework. They are:
ï‚· They need to meet the require definition.
ï‚· Their economic benefits need to be flown to or from the companies.
ï‚· The values of these elements must be measurable.
The extent of compliance with the recognition criteria of conceptual framework by A2 Milk
Company is discussed below:
Asset: As per the latest annual report of A2 Milk Company, the company recognizes property,
plant and equipment (PPE) at cost value after deducting depreciation and impairment costs. For
depreciation on these assets, A2 Milk Company has adopted the strategy of straight-line method.
Thus, the company follows the standard of AASB 116 Property, Plant and Equipment under
section 334 of the Corporations Act 2001 (aasb.gov.au 2018).
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9CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
In case of intangible assets, the company recognizes them when the company becomes
sure that economic benefit of the company will be flown to the company. In this process, the
company follows the standard of AASB 138 Intangible Assets and IAS 38 Intangible Assets
(aasb.gov.au 2018).
(Source: thea2milkcompany.com 2018)
Trade and other receivables are recognized on fair value basis and follow the principles
of AASB 9 Financial Instruments. In addition, the company recognizes their inventory at the
lower of cost and net realizable value; and follows the standards of AASB 102 Inventories
(aasb.gov.au 2018).
(Source: thea2milkcompany.com 2018)
(Source: thea2milkcompany.com 2018)
Liability: In case of trade and other payables, A2 Milk Company recognizes them at faire value
and carries them based on the amortized costs. In this case, the company follows the principles of
AASB 9 Financial Instruments (aasb.gov.au 2018).
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10CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
Equity: In this context, it needs to be mentioned that the company does not have authorized
capital or par value in respect of issued capital. However, the company follows the principles of
AASB 1004 Contributions for the recognition of equity (aasb.gov.au 2018).
(Source: thea2milkcompany.com 2018)
For the recognition of different kinds of reserves, the company follows fair value process
and follows the standards of AASB 1004 Contributions (aasb.gov.au 2018).
(Source: thea2milkcompany.com 2018)
Revenue: A2 Milk Company recognizes their revenues on fair value basis on the consideration
received or receivable. For this aspect, the company follows the principle of AASB 118 Revenue
(aasb.gov.au 2018).
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11CONTEMPORARY ISSUES IN ACCOUNTING
(Source: thea2milkcompany.com 2018)
Expenses: A2 Milk Company recognizes their business expenses at the time of their occurrence.
In this case, the company follows the standards of AASB (aasb.gov.au 2018).
Satisfaction of Fundamental Qualitative Characteristics of Financial Reporting
In the presence of fundamental qualitative characteristics, financial information become
most useful for the existing and potential uses for the purpose of decision-making. The extent of
compliance with the fundamental qualitative characteristics of conceptual framework by A2
Milk Company is discussed below:
Relevance: Financial information is required to be relevant in order to be useful to create a
difference in the decision making process of the users. For this reason, this information must
have predictive and confirmatory value. In case of A2 Milk Company, it can be observed that the
company provides financial information through their financial statements. Users can use this
information to get the future outcome; at the same time, they can get feedback related to previous
evaluation with the help of this information (Barth 2013).
Faithful Representation: Financial statements represent economic conditions of the companies
in words and numbers. In order to be useful, financial information must be presented faithfully.
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12CONTEMPORARY ISSUES IN ACCOUNTING
Thus, it needs to be free from error, complete and neutral. In the audit report, EY has mentioned
that A2 Milk Company has prepared their financial statements in accordance with the required
standards and they are free from errors and material misstatements (Edmonds et al. 2016).
Satisfaction of Enhancing Qualitative Characteristics of Financial Reporting
Enhancing qualitative characteristics of financial information make them more useful.
The extent of compliance with the enhancing qualitative characteristics of conceptual framework
by A2 Milk Company is discussed below:
Comparability: This characteristic enables the users in identifying and understanding similarities
and differences among different financial items. Faithful representation helps in retaining the
comparability aspect of financial information. It needs to be mentioned that A2 Milk Company
faithfully represents all financial information that leads to the comparability of financial
information (Wang 2014).
Verifiability: Verifiability assures the faithful representation of financial information; and it can
be direct and indirect. The management of A2 Milk Company provides the users with necessary
justification and clarification in the form of financial notes. It enables the users in verifying the
financial information of the companies (Wang 2014).
Timeliness: This characteristic makes financial information available to the users on timely
basis. It can be seen that A2 Milk Company publishes their financial statements on a particular
time of the year. Thus, users can access the information when necessary (Barth 2013).
Understandability: This characteristic helps in classifying, characterizing and presenting
financial information clearly and concisely. From the financial statements of A2 Milk Company,
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13CONTEMPORARY ISSUES IN ACCOUNTING
it can be observed that the company presents the financial information in simple format in order
to make it user-friend. Clear explanation and presentation of financial information can also be
seen (Wang 2014).
Conclusion
From the above discussion, it can be seen that A2 Milk Company complies with the
standards and principles of IASB and IFRS conceptual framework. It can also be seen that A2
Milk Company complies with the objectives of general purpose financial reporting. In addition,
the company has fulfilled the recognition criteria of IFRS and AASB. Lastly, A2 Milk Company
has also satisfied the fundamental and enhancing qualitative characteristics of financial
information.
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14CONTEMPORARY ISSUES IN ACCOUNTING
References
Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 5 Apr.
2018].
Aasb.gov.au. (2018). Contributions. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB1004_12-07_COMPjan15_07-15.pdf
[Accessed 5 Apr. 2018].
Aasb.gov.au. (2018). Financial Instruments. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-14.pdf [Accessed 5 Apr. 2018].
Aasb.gov.au. (2018). Intangible Assets. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 5 Apr. 2018].
Aasb.gov.au. (2018). Inventories. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 5 Apr. 2018].
Aasb.gov.au. (2018). Property, Plant and Equipment. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf
[Accessed 5 Apr. 2018].
Aasb.gov.au. (2018). Revenue. [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPmay09_01-10.pdf
[Accessed 5 Apr. 2018].
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15CONTEMPORARY ISSUES IN ACCOUNTING
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial
accounting concepts. McGraw-Hill Education.
Ey.com. (2018). Conceptual Framework: Objectives. [online] Available at:
http://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$File/
Supplement_86_GL_IFRS.pdf [Accessed 5 Apr. 2018].
The a2 Milk Company. (2018). About us - The a2 Milk Company. [online] Available at:
https://thea2milkcompany.com/about-us/ [Accessed 5 Apr. 2018].
Thea2milkcompany.com. (2018). Annual Report 2016-17. [online] Available at:
https://thea2milkcompany.com/wp-content/uploads/The-a2-Milk-2016-2017-Annual-Report-
spreads.pdf [Accessed 5 Apr. 2018].
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
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