Accounting Standards and Theory: Wesfarmers Financial Report Analysis

This report presents a critical analysis of the application of accounting standards and theory, specifically focusing on the financial reporting of Wesfarmers Ltd. It begins with an overview of the objectives of General Purpose Financial Reporting and the Qualitative Characteristics of financial information, referencing the IASB Conceptual Framework. The report then analyzes the extent to which Wesfarmers' financial reports meet the disclosure requirements for Plant, Property, and Equipment (PPE) as per AASB 116, and how they satisfy the objectives of general-purpose financial reporting. The analysis includes an examination of Wesfarmers' accounting policies, the use of the historical cost system, and the company's disclosures regarding depreciation, impairment, and derecognition of assets. Furthermore, the report provides a critical discussion of the disclosures, assessing the relevance, faithful representation, and compliance with accounting standards, concluding with an evaluation of the company's financial reporting practices.

Running head: ACCOUNTING STANDARDS AND THEORY
Accounting standards and Theory
University Name
Student Name
Authors’ Note

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Table of Contents
Introduction................................................................................................................................2
Part A.........................................................................................................................................2
Part B..........................................................................................................................................5
Part C..........................................................................................................................................8
Part D.........................................................................................................................................9
Conclusion and Recommendation..............................................................................................9
References................................................................................................................................11

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Introduction
The current report presents a critical analysis of business situation together with the
application of pertinent accounting theories with reference to the operations of the firm
Wesfarmers Ltd. The study elucidates in detail the objectives of the General Purpose
Financial Reporting and Qualitative Characteristics of financial information related to the
conceptual framework. Moving further, the report analyses the extent to which financial
report of Wesfarmers meets the disclosure requirements for PPE and satisfies the objective of
the general purpose financial reporting.
Part A
Objective of General Purpose Financial Reporting
As per the Conceptual Framework declared by the IASB during IASB stated under OB1 to
OB 11the primary objective of general purpose financial reporting is to communicate
pertinent and dependable information regarding a reporting entity to different users (Goodwin
et al. 2015). The efficient allocation of different scarce resources can also be augmented if
the ones who undertake decisions regarding resource allocation have the access to apposite
financial information based on which the decisions are made. In addition to this, the general
purpose financial reporting also intends to provide an appropriate technique that can assist
management as well as governing bodies for discharging their responsibilities (Chand and
Patel 2014). However, as per the Conceptual Framework stated under OB1 to OB 11, the
purpose of delivering information to specific users is helpful for shaping as well as analysing
diverse decisions regarding resource allocation (Yao et al. 2015). Nevertheless, the rendering
of responsibility by reporting corporations in the course of general purpose financial

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reporting is surrounded by the wider objective of delivering information effective for shaping
and analysing decisions.
Qualitative Characteristics of financial information
According to the Conceptual Framework for Financial Reporting, the qualitative
characteristics of different helpful information include the following:
- Relevance- According QC5 of Conceptual Framework for Financial Reporting,
financial information that is relevant can help in making a difference in various
decisions that are undertaken by users (Hu et al. 2015). However, information might
be capable of establishing a distinction in a particular decision even when certain
users decide not to acquire advantage of it. As per the stipulations mentioned under
QC7, financial information also have the potential of making a distinction in different
decisions if the same has certain predictive value or else confirmatory value else wise
both.
- Materiality- In accordance to the rulings mentioned under QC 11 of Conceptual
Framework for Financial Reporting, a specific information is said to be material in
case if omission of the same or misstatement of can exert influence on the decisions
made by different users based on financial information (Laing and Perrin 2014)
- Faithful Representation- As mentioned under QC 12 to 16, financial reports need to
be complete, free from errors as well as neutral. This helps in complete depiction that
can help in presenting information that is essential for a user for understanding
diverse phenomenon that is hereby depicted (Biondi and Lapsley 2014).

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Part B
Extent to which financial reports of Wesfarmers meets the disclosure requirements for PPE
The accounting standard AASB 116 presents the disclosure requirements for plant, property
as well as equipments (PPE). The main objective of this particular standard to present the
specific accounting treatment for PPE so that different users of required financial information
can distinguish information as regards investment of a business in its PPE. Essentially, each
business concern has the need to prepare financial assertions as per Part 2M.3 stipulated
under Corporations Act (Kabir and Rahman 2016). As per Aus 1.1, this standard is applicable
for the general puropose financial assertions of reporting entity along with financial
declarations that are considered to be general purpose financial assertions. According to
paragraph 29, a corporation have the need to select either the cost model as mentioned in
paragraph 30 or else the revaluation model stated in paragraph 31as the accounting strategy.
In addition to this, entities need to apply this strategy to an entire category of PPE. As per the
regulations stipulated under para 30, after proper identification as a specific asset, a particular
item of PPE need to be carried at specifically its cost deducting any accumulated depreciation
as well as any impairment losses. According to the regulations of the revaluation model
mentioned under paragraph 31 of Compiled AASB 116, after acknowledgment as an asset, as
such a particular article of PPE having a fair value can be enumerated consistently need to be
carried at a specific revalued sum. In this case, fair value recorded at the revaluation date
deducts accumulated depreciation as well as accumulated losses from impairment (Budding
et al. 2014).
The current study analyses the accounting policies and practices related to plant property as
well as equipment with special reference to the financial assertions of Wesfarmers.
Wesfarmers Ltd is a retail firm that is listed under the Australian Stock Exchange (ASX).

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Analysis of the financial reports of the firm Wesfarmers reflects the fact that the company
prepares the pecuniary reports of specific firm for particularly general purpose. Therefore, the
company has prepared as well as presented the financial assertions for the year 2016 as per
the stipulations and rules mentioned under the Corporations Act 2001, AASB (Australian
Accounting Standards Board and diverse authoritative stipulations presented by the IFRS. In
essence, these regulations for the corporation are established by the IASB
(Wesfarmers.com.au 2017).
Analysis of the financial declarations of the firm Wesfarmers during the year 2016 reveals
that the report is properly equipped based on the historical cost accounting system, barring
the specific investments that are carried out in different financial instruments, different
associates along with certain financial assets. In essence, exceptions are enumerated as per
the fair value accounting method. Thus, it can be hereby mentioned that the enumerations of
the plant, property as well as equipments along with different intangible asset of the
corporation Wesfarmers Ltd are enumerated based on the historical cost system of
accounting. As per the annual financial assertions presented for the year 2016, property of the
corporation Wesfarmers Ltd was AUD 2475 during the year 2015. On the contrary, property
the specific business concern was decreased to AUD 2396 during the year 2016. Again, plant
and equipment was registered to be AUD 7730 during 2015 that again decreased to AUD
7216. Likewise, specific intangible assets of the business concern Wesfarmers Ltd were
recorded to be AUD 4601 during the year 2015 and it enhanced to AUD 4625 during the year
2016 (Wesfarmers.com.au 2017).
Analysis of the recognition as well as measurement system stated in the annual report of
Wesfarmers reveals that carrying value of PPE is calculated as cost of the specific asset,
taking away from the amount depreciation as well as impairment. However, the cost of the
specific asset of the firm Wesfarmers Ltd as recorded in the annual statement comprises of

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replacing parts costs that are suitable for particularly capitalisation, along with cost of diverse
inspections. In addition to this, different Items of PPE are essentially depreciated using a
straight-line method of depreciation basis on useful economic lives of the assets. Basically,
the approximate useful life of (particularly buildings) remains between 20 years to 40 years.
Again, plant and equipment is said to have useful life between 3 years and 40 years.
However, the report mentions that Land is not taken into consideration for depreciation
(Wesfarmers.com.au 2017).
Essentially, a piece of PPE is also derecognised at the time the same is sold or else disposed
of. Sometimes it is derecognized at the time the use of the same is anticipated to create no
potential economic future benefits. However, any gain otherwise loss stemming from
derecognising particular asset is identified as the variance between earnings from disposal
and asset’s carrying amount. As such, this amount is incorporated in the income assertion of
the firm especially in the period the asset is derecognized (Wesfarmers.com.au 2017).

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Part C
Critical Analysis of the disclosures
Disclosures refer to the provision of pertinent information by a corporation by a management
of the firm that is even beyond the necessities for example, the generally accepted accounting
principles. In this, the information is believed to be pertinent for decision making of different
users of the firm’s annual declarations. The annual report of the firm Wesfarmers for the year
2016 presents a general purpose financial reporting that specifies key financial data on net
capital expends of the company in the group performance of Wesfarmers in 2016, sale of PPE
during 2015 and 2016, group capital employed in 2015 and 2016, cash flows (both payments
for and proceeds from) of PPE in 2015 and 2016. In addition to this, the balance sheet
statement of the corporation Wesfarmers also mentions about the plant, property as well as
equipment under non-current assets section recorded for both 2015 and 2016 together with
relevant notes on the same. Moreover, the annual report also presents impairment of plant,
equipment as well as other assets/resources of the firm under the expense of the firm and
gains/profits from the disposal of the same in the income of the firm under the notes section
of the corporation. Thereafter, the annual financial assertion of the firm Wesfarmers also
explains in detail the recognition as well as measurement principles that the company
follows. In addition to this, the company also discloses illustratively depreciation,
amortisation along with principles of derecognition principles. Furthermore, the annual
financial assertions of the corporation Wesfarmers also discloses leasehold improvements,
plant, vehicles as well as equipment along with mineral lease as well as development details
of plant, property as well as equipments. In addition to this, impairment of diverse non-
financial assets also reveals the testing for impairment of plant, property along with
equipment that the company carries out at least annually for indefinite life intangibles well as

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goodwill. Over and above this, the impairment enumerations principles are also properly
stated in the assertions. Thus, these assertions help in the process of presenting the relevance
that can help in making a difference in various decisions of the users. In addition to this, this
can help in faithfully representing the financial reports that need to be inclusive, error free
and at the same time unbiased.
Analytical evaluation of the annual report of the business concern Wesfarmers Ltd reveals
that the consolidated general purpose financial report of the firm is prepared as per the
disclosure requirements stipulated under the Corporations Act 2001 as well as other
authoritative declarations of the AASB as well as IFRS (Yao et al. 2015). It can be deduced
from the annual report of the firm that the carrying value of PPE is enumerated as cost of the
specific asset, taking away from the amount depreciation as well as impairment. As per the
requirement of the IAS 16, the corporation needs disclosures of particularly measurement
bases of different classes of PPE (Hodgson and Russell 2014).
Analysis of the financial declarations of the firm also replicates the fact that the
approximations of economic lives of asset, residual value as well as methods of amortisation
that call for the judgement of the management are assessed annually. In case if the estimation
require modification, the alteration is accounted from reassessment date till the termination of
the revised life. In addition to this, the group also carries out regular tests for impairment of
PPE, intangibles as well as goodwill (Wesfarmers.com.au 2017). However, as per the
regulation mentioned under C7 of the AASB 116, the impairment related to specifically
goodwill in essentially cash generating unit, the comparative value of carrying of the
goodwill is considered before the impairment. Again, as per C7 (b) of the regulation,
impairment can be related to identifiable assets in diverse cash generating units and relative
carrying value of specifically net identifiable resources of various parts before impairment is
considered.

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Part D
Analytical discussion of the extent to which disclosures on PPE align with the objective of
GPFR
As mentioned in the annual report of the firm Wesfarmers, Ernst & Young delivered the
requisite independence declaration to firm’s Board for the FY ending 30th June, 2016. Again,
efficiency, performance as well as sovereignty of the external auditor are appraised annually
by Wesfarmers Audit as well as Risk Committee. As per the requirements of the
Corporations Act 2001, the company declared the auditor’s independence that mentions that
there have no kind of contravention of the assessor independence requirements, no breach can
be observed in case of any valid code of professional conduct of the auditor. Wesfarmers
Ltd’s Audit as well as Risk Committee supervises internal control strategies along with
procedures developed to protect assets of the Group, preserve the overall integrity of
pecuniary reporting and maintain adherence to accounting, legal as well as regulatory
necessities. Thus, it can be hereby said that the management of the firm is committed to
present and communicate relevant and at the same time dependable information to different
users of their financial information. So, the company is said to satisfy the main objective of
the general purpose financial reporting. The reliable and audited financial information can
also serve the objective of delivering correct information to different users who in turn can
use the same for generating and at the same time analysing different decisions as regards
allocation of scarce resources.
Conclusion and Recommendation
Thus, it can be stated that although neither accounting system using historical value nor
accounting system using fair value are better or worse than one another. It can prove to be

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very effective if either of the above mentioned two systems can be used all through the
operations. However, both the methods might perhaps produce effective information if
implemented thoughtfully. However, in case if the same is applied poorly, can generate
misleading and the same time conflicting information. Then in that case, this kind of
information can prove to be ineffective and cause more wrong and the users of financial
information might face serious difficulties in making their plans. Keeping in mind different
factors and effects of globalization and continuous competition, it can be said that more focus
can be given on single accounting method for firm’s operations. Again, the multiple methods
of accounting can cause the complexity in comparing firms involved in identical sectors.

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References
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assets problem. Qualitative Research in Accounting & Management, 11(2), pp.146-164.
Budding, T., Grossi, G. and Tagesson, T., 2014. Public sector accounting. Routledge.
Chand, P. and Patel, C., 2014. Convergence and harmonization of accounting standards in the
South Pacific region. Advances in Accounting, 24(1), pp.83-92.
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Reporting Standards on the accounts and accounting quality of Australian firms: A
retrospective study. Journal of Contemporary Accounting & Economics, 4(2), pp.89-119.
Hodgson, A. and Russell, M., 2014. Comprehending comprehensive income. Australian
Accounting Review, 24(2), pp.100-110.
Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence
from Australian companies. Corporate Ownership and Control, 13(1), pp.930-939.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Laing, G.K. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB
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Accounting, 6(5-6), pp.509-519.
Wesfarmers.com.au. (2017). Home - Wesfarmers. [online] Available at:
http://www.wesfarmers.com.au [Accessed 22 Apr. 2017].

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Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.