HA3011 Advanced Financial Accounting: Concepts and Frameworks Analysis

This report delves into the core concepts and frameworks of financial accounting, emphasizing their practical application within organizations. It explores essential accounting principles such as the business entity concept, going concern concept, and accrual concept, alongside the frameworks for measurement and reporting as per AASB standards. The report provides a detailed analysis of the accounting practices of JB Hi-Fi Ltd, a publicly listed Australian retailer, examining its financial statements and how it aligns with international reporting standards. It evaluates various measurement methods, including historical cost and fair value, discussing their advantages and disadvantages and their impact on financial reporting transparency. Furthermore, the report highlights the significance of harmonization in domestic and international reporting frameworks to ensure consistent and comparable financial information for stakeholders. The report also covers the accounting treatment of assets, non-current assets, and liabilities. This report is a valuable resource for students seeking to understand financial accounting principles and their practical implications.

HA3011
Module Number
[DATE]
Hewlett-Packard
[Company address]

Table of Contents
Introduction....................................................................................................................1
Descriptions of Accounting Concepts...............................................................................1
Conceptual framework, and the Issue of Measurement.......................................................4
Fundamental Qualitative Characteristics - Understanding of Relevance and Representational
Faithfulness....................................................................................................................5
Conclusion......................................................................................................................6
References......................................................................................................................7

Introduction
In the today’s emerging world of economies, it is important for all the organizations
to have a very strong and impeccable audit and assurance program so that the stakeholders
can have a transparent look out of the organization's financial transactions. All organizations
must provide a transparent viewpoint of the recorded information and data to their
stakeholders in order to make important decisions. All the listed companies need to comply
with the international accounting standard and develop an effective accounting framework to
strengthen the transparency in the recorded items (Kythreotis, 2014). Therefore many
frameworks regarding accounts have been put in place, both on the national and international
level. Beside these frameworks, there are many standards and concepts which are now placed
to ensure the smooth functioning. These standards, concepts, and frameworks of accounts are
mandatory for all the companies which are listed (Ji- Fu, 2005). In this report, we will do the
detailed study of these concepts, frameworks and standards and how they affect the
accounting system of an organization.
In this report, we are going to study the foundation accounting system frameworks
and its implications in JB Hi-Fi Ltd. Along with the implication of the accounting framework
of JB Hi-Fi Ltd, it has set up harmonization in its domestic and international reporting
frameworks. This company is a publicly listed company and having its share listed in ASX. It
is a retailer that sells and specializes in consumer goods. The company is based out in
Melbourne, Australia. It has other locations in Australia and New Zealand. It was founded in
1974, by Keilor East. In the last 2 decades the company has acquired many other retailer
companies and became the largest electronics retailer in Australia. In 2004, it bought 70% of
the Clive Anthony's Chain (Queensland), in 2006, it acquired Hill and Stewart chain (New
Zealand) and in 2016, it acquired The Good Guys warehouses in Australia. The
company has reported a net income of A$152 million in 2016 and operating income of
A$221 million in the same year.
Descriptions of Accounting Concepts
All the listed company in the world needs to submit their financial reports and
financial statement every year. It's a mandatory procedure required for all the business
entities around the world and done every year. This is needed to be done in order to provide
transparent information to stakeholders so that they can understand it, compare it and make

the informative value-added decisions (Beest, Braam, and Boelens, 2009,). These financial
statements and the reporting of these documents will become complex and cumbersome to
understand for the stakeholders if these have a different kind of format, system or language
every year. Thus in order to create the uniformity and consistency, certain kinds of
accounting concepts have been introduced to prepare the financial accounts and then maintain
them. Nonetheless, due to the globalized system procedure, many organization uses
Accounting Period, Money Measurement, Duality Aspect Concept, Going Concern concept
Business entity, Cost Concept, Accrual concept, Matching Concept and Realisation concept
to strengthen the accounting and auditing of the financial statements so that it could have
transparent view for its stakeholders (Schaltegger, and Burritt, 2017). In order to bring
transparency, these accounting concepts should be followed and proper harmonization is set
to strengthen the reporting framework on an international level.
In this report, the accounting concepts of JB Hi-Fi Ltd would be identified by studying its
annual reports and financial statements for the financial year 2018.
 Business entity concept: This concept explains that the business and the owners are two
separate identities. It is like that any capital generated by the issuance of share to owners is a
liability for a company and it should be returned back (Christensen, Kent, and Stewart, 2009).
This same concept is also applicable in JB Hi-Fi Ltd. And thus its owner's entity is different
from its. All the transactions related to owners i.e shareholders are personal transactions and
thus not placed in the book of accounts. This concept dots on the fact that for decision
making and operations, all the companies should have a separate board of directors and other
appointed managerial persons. These directors and managerial persons should be responsible
for all the decisions making which are beneficial for the company and since its for the
business, the company should be liable to all the decisions (Karapetrovic, and Willborn,
2011).
 Money measurement concepts: In all businesses, there are two kinds of transaction terms.
Firstly, quantitative ones are the ones which can be measured in the monetary terms and since
these are quantifiable, the company can record them in financial accounts. Secondly,
qualitative ones, which could be used to quantify like the loyalty of employees, how
hardworking they are and their honesty thus not recorded in financial records (Kythreotis,
2014). This system is prevalent in JB Hi-Fi as well. Also, the company is in Australia, so the
currency used for the transactions and preparing financial is the Australian Dollar. As said by

Jones and Jenkins, 2016, mostly the currency prevalent in the country is used for financial
statement preparations. This concept is very useful for the evaluation of employee integrity
and effective alignment of the business processes.
 Accounting period concept: All the company uses a specific time of period to prepare and
present its financial known as Accounting period. This Accounting period mostly comprises
of 1 year. Most companies like JB Hi-Fi Ltd. Uses the calendar year i.e January 1st to 31st
December as their accounting period. This is done because the company has a lifetime of
transactions and one would not be able to measure it unless it's divided into smaller parts of
the year. It's quite easy to prepare, calculate and manage transactions for one year than for a
longer or infinite time. It is also convenient for making comparisons and making decisions on
the basis of these decisions. For instance, Net profit after tax in JB Hi-Fi Ltd is 233.2 million
A$ in FY2018 which grew by 12.3% in comparison to FY2017. (Winship,2016)
 Going concern concept: As per this concept, it is assumed that the company will keep
running for an indefinite period of time (Venuti, 2004). It has no near plans to stop operations
and shut the business. This assumption is mostly exerted by the management and checked by
the auditors from time to time. The company invest a significant amount of money to acquire
properties, equipment, and plants. This huge sum of money can is entered in profit and the
loss account in the same year in which it is acquired. So by assuming that business is an
ongoing entity, this amount is thus divided into the asset's lifespan and then entered as
depreciation over a period of time in every accounting years (Lamberton, 2015).
 Dual aspect concept: According to this concept, every transaction entered into the financial
books have dual effect i.e it affects credit side as well as the debit side. This dual aspect is
also followed in JB Hi-Fi Ltd. As well. The basis of this concept is that Capital plus liabilities
equals to Assets. It means a double entry for each transaction in financial statements. It
implies that all the transactions made by the company in the financial statements should be
such that they have balanced out total assets to the total liabilities and capital. On the basis of
this concept, it is found hat the total equity of JB Hi-Fi Ltd is A$ 947.6 million which equals
to its net assets. This concept helps an organization in the removal of errors or mistakes made
during the record of data. The organization can evaluate any mistake and error in advance and
thus saves lots of time (Mather, Ramsay, and Serry, 2016).
 Realization concept: Since JB Hi-Fi is a retailer of electronics, its revenue is only taken into
account when the product reaches to the specific stage of delivery. Every bill in JB Hi-Fi has
a delivery date on the bill. According to this concept, the company can receive revenue in
profit and loss account only after the delivery of product and cash is received. Its basically

means that when JB Hi-Fi transfers the control of assets to the customers then only they can
realize or charge the revenues in their profit and loss account.
 Matching concept: This concept is used to differentiate between the income and capital in
account books of the company. It states that the expenses and the revenues of the company
should match in a given financial period (Venuti, 2014).
 Accrual concept: According to this concept JB Hi-Fi Ltd. Can charge the revenue in its
financial account one its right to revenue has fulfilled even if revenue is not received in the
cash form. Once the delivery is done to the customer, the organization can realize its revenue
in its accounting book. Even the expenses related to this revenue also should be recorded.
 Accounting cost concept: This concept implies that if the product is purchased, the
company must account all the expenses related to it, whether its transportation cost or cost of
installation. According to this concept, only the purchase price of the product is considered
and the market price doesn't have any significance. This concept is used by JB Hi-Fi to
determine the cost and differentiate between the various expenses (Auditing and Assurance
Standards Board, 2015).
Frameworks for the measurement of Accounts Reporting
All the listed companies in Australia follow the given set of rules and regulation to prepare
the financial statement. These rules and regulation have been set by AASB and follow the
amendments created by IASB. All the financial statements have to follow this framework and
can adopt any given measurement criteria (Lamberton, 2005). It can be historical cost
measurement, fair value measurement, realizable value management or current cost
management. Because of these frameworks, the transparency in the account book has
increased. This has also put the reporting framework of domestic and international level on
the same platform (Brunelli, 2018).
Irrespective of many debates and criticism over the period, the historical cost measurement is
the most popular and used method for accounting in the world. This method is being used
since the nineteenth century because it has more favorable, reliable arguments than other
accounting methods. So the JB Hi-Fi company is using this accounting system to prepare
their all financial statements and records. The rules and regulations set by the AASB and
IASB are followed as per guidelines (Bodle, et al. 2018).

The Fair Value Measurement concept is used in JB Hi-Fi for the valuations of financial
instruments. Net realizable values tests are organized every time the reporting is to be done in
order to measure the inventories (Barth and Landsman, 1995). In JB Hi-Fi Ltd. After a
certain period of time when the money's time value becomes important, the company starts
giving the discounted prices on inventories and decides the future prices as well. In JB Hi-FI
Ltd. Two types of valuation methods are currently being in JB Hi-Fi Ltd. One is a historical
cost for purchased exploration and evaluation assets and fair value measurement for assets
obtained in a business combination (Cheung., and Lau, 2016).
There are many pros and cons for both Historical cost method and the fair value measurement
method. Even when historical cost method is more popular, due to its degradation of the
value of the financial statement, its uses are the point of debates. Because of this method,
many times the accounting value of the company comes down because of it's reporting of
anticipation of losses whereas no reporting in profits. While the historic cost method brings
down the value, fair value measurement provides the real image and data for the balance
sheet and income statement for any given company. The con for the fair value method is it
makes many virtual assumptions in financials thus making it risky as the results generated are
often risky (Hu, Percy, and Yao, 2015).
Almost most of the organizations while making inputs in financial tend to use historical cost
method, uses fair value measurement for the output results. Because of this change in
method, many debates have been put forward stating both pros an cons of both. But bit
should be kept in mind that the companies can use any method for accounting as long as they
give correct disclosures to all the parties involved (Malone, Tarca, and Wee, 2016).
Fundamental Qualitative Characteristics - Understanding of Relevance and
Representational Faithfulness
While preparing the financial statements, there are some qualitative characteristics, which all
organizations have to follow. Whether they are making general specific statements, these
qualitative characteristics must be followed. These characteristics are the basis on which the
information's are provided to the users and in turn, they make the decisions for the betterment
of the companies' future. There are two types of qualitative characteristics. One is relevance
and other is faithful representation (Mita, Utama, and Wulandari, 2018).

1) Relevance: it is necessary that all the information is provided in the financial
statements are relevant and up to the mark. Due to the relevant information a user can
differentiate between the useful and non-useful information and can make the
decision. This information should have the capability of giving enough information to
the user that all facts and figures must be clear and the user can make an informative
decision. The magnitude and nature of information determine the material of
information which in turn determines the relevance of information. The correct and
accurate information helps the company in being more transparent and hence, attract
the good numbers on investors for future investment (Russell, 2017).
2) Faithful Representation: Along with the relevance of the information the faithfulness
of it is also a key factor (Mather, Ramsay, and Serry, 1996). The substance of
information is way more important than the legal form of it. Representational
faithfulness will make sure that there is no kind of error in the information, it is
neutral and complete and makes complete sense for the user to make decisions. These
qualitative characteristics would only be fulfilled when it is easy to understand, it is
within the given time frame, can be compared and verified. These are characteristics
are more of importance while liabilities and assets are being valued (Sánchez-Medina,
Blázquez-Santana, and Alonso, 2019)
Conclusion
In today's world of globalization, it is required for all the organizations to provide
their shareholders with a more transparent reporting system and reports. More the
transparency would be, more the trust. Since JB Hi-Fi Ltd. Is one of the leading retailers in
Australia, it's providing a great example to new businesses to follow the methods and
framework set by the government and regulatory bodies. These kinds of frameworks and
methods provide the reports and financial statements that are homogenous and follows the
same set of rules domestically and internationally. These frameworks provide a transparent
view of the recorded data in the books of account to stakeholders. It makes all the required
documents more understandable to the investors and users which makes them implement the
easy comparisons not only with peers but from previous year available data (Karapetrovic
and Willborn, 2001). This leads to the generation of more trust and honesty among all the
parties included and make a way towards the bright future of an organization. In addition to
this, it also helps JB Hi-Fi Company to strengthen its reporting frameworks by setting up

proper harmonization in its domestic accounting and reporting frameworks with its
international accounting and reporting frameworks

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