Accounting Theory and Issues: Financial Reporting of Boral Limited

This report provides an analysis of accounting theory and issues within Boral Limited's financial reporting practices. The study focuses on interpreting prevailing accounting standards and identifying issues related to General Purpose Financial Reporting (GPFR). Key areas of discussion include accounts receivable, provision for bad debt, asset valuation, leasing contingencies, and taxation. The findings reveal that Boral Limited evaluates accounts receivable using the fair value method, recognizes leases based on AASB 16 standards, and faces challenges related to bad debt estimation and valuation methods. The report also highlights risks associated with credit, foreign currency, and taxation, offering insights into the company's financial health and reporting practices. Recommendations are provided to improve the accounting practices of Boral Limited.

Running head: ACCOUNTING THEORY AND ISSUES
Accounting Theory and Issues
Name of Student:
Name of University:
Author’s Note:

1ACCOUNTING THEORY AND ISSUES
Summary
Aims
The research is identified with interpreting the prevailing accounting standard in Boral limited
and connecting the various types of issues existing as per GPFR. Some of the main issues for the
discussions are seen with Issues in accounts receivable, Issues in provision for bad debt, Excess
valuation of the assets, Evidence of leasing contingent and Issues in taxation/ expenses.
Major Findings
The findings on accounts receivable depicts that the group evaluates the accounts receivable as
per fair value method. In addition to this, the “trade and other receivables” are initially
recognized at the value of the invoice for the customer and subsequently which are recoverable
from the customer’s based on “amortized cost using effective interest rate method”. The
problems for bad debt are significant with the accounting judgments estimate and assumptions. It
has been identified that for “cash, deposits, payables, short-term borrowings, loans and
receivables”, the company does not consider carrying value approximates as per fair valuation
method because of short-term nature of these liabilities and assets. The recognition of the leases
by the company is based on the valuation standards prescribed as per AASB 16. This method is
projected to set the required standard which is set up as per “significant portion of Boral’s
operating leases” which are accounted for on balance sheet as a “right of use asset” and “lease
liability” based on the acceptance of the standard on 1st July 2019.

2ACCOUNTING THEORY AND ISSUES
Table of Contents
Introduction......................................................................................................................................3
Limitation........................................................................................................................................3
Background......................................................................................................................................3
Scope................................................................................................................................................3
Discussion........................................................................................................................................3
Issues in accounts receivable.......................................................................................................3
Issues in provision for bad debt...................................................................................................4
Excess valuation of the assets......................................................................................................4
Evidence of leasing contingent....................................................................................................5
Issues in taxation/ expenses.........................................................................................................6
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

3ACCOUNTING THEORY AND ISSUES
Introduction
Limitation
The main limitation of the research study is identified with the financial reporting issues
only for Boral Limited.
Background
“General Purpose Financial Reporting” are issued to aid the investors and the creditors on
several types of decision-making process. A set of GPFR includes “balance sheet, income
statement, statement of owner’s equity/retained earnings, and statement of cash flows”. Certain
financial statement is termed as GPFR as it entails basic financial statements which can be used
by a “broad range of people for a broad range of activities” (Henderson et al. 2015). Financial
reports such as “production flow” process and market analysis are not included in the GPFR. For
instance, both creditors and investors are able to interpret their set of financial statements which
is conducive in prediction of future performance and the ability of the company to pay off its
future and current debts (Asic.gov.au 2018).
Scope
The main scope of the research is identified with interpreting the prevailing accounting
standard in Boral limited and connecting the various types of issues existing as per GPFR. Some
of the main issues for the discussions are seen with Issues in accounts receivable, Issues in
provision for bad debt, Excess valuation of the assets, Evidence of leasing contingent and Issues
in taxation/ expenses.
Discussion
Issues in accounts receivable
The group has considered the account receivables at the “end of financial year”. It has
been further identified that the group evaluates the accounts receivable as per fair value method.
In addition to this, the “trade and other receivables” are initially recognized at the value of the

4ACCOUNTING THEORY AND ISSUES
invoice for the customer and subsequently which are recoverable from the customer’s based on
“amortized cost using effective interest rate method”. Boral Limited requires all the customers to
pay the accounts receivables with the settled payment terms. It has been further considered that
the group is able to account for the collectability and recoverability of the trade receivables. The
various types of provisions are raised from the normal course of business which is related to the
claims made “against the group including legal, insurance and other claims”. At the time when
the “recoveries are expected in respect of such claims, these are included in other receivables”
(Boral.Com. 2018).
However, the main associated risk in terms of accounts receivable is absorbed with credit
risk, which happens if the counterparty defaults under a financial instrument contract. In such a
case, the group is exposed to severe “credit risk” because of financial activities including “cash
at bank, trade and other accounts receivable and other financial instruments”. Additionally, in
terms of “foreign currency risk” the group is susceptible to variations in the “foreign currency”
based on the purchases of interest expenses, raw materials and non-Australian dollar borrowing
which are seen in form of imported plant and equipment and various types of export related
receivables along with translation of its investments in the overseas assets (Asic.gov.au 2018).
Issues in provision for bad debt
Company accounts for the provision for bad debts which it does not expect to collect and
writes off from the income statement as an expense. As per the significant accounting judgments
estimate and assumptions, the group has considered the recoverability and collectability of bad
debts. There is a separate allowance made for “doubtful debts” which is made for the estimated
irrecoverable trade receivables amounting because of past rendering of services and evaluated by
reference to past defaulting experience. The company has been seen to be exposed to a high
amount of bad and doubtful debts expense in 2017 with an amount of $ 2.5 million which is an
increase from $ 1.1 million in 2016 (Asic.gov.au 2018).
Excess valuation of the assets
As per the depictions of the financial statements, the valuation method for product swaps
and options is considered at fair value which is based on the calculation using closing
“commodity market prices”. The “forward exchange contracts and cross currency swaps” are
also valued at fair value based on a calculation using forward rates applicable to the respective

5ACCOUNTING THEORY AND ISSUES
currency and market derived spot rates. The interest rate swaps are also evaluated at per fair
valuation method taken from the “present value of the expected future cash flows” for each
instrument. It has been discerned that the “future expected cash flows” are taken from that yield
curves construct as per the market sources and reflected in term of the maturity. Lastly, the fair
value method is applicable for the equity securities which are represented with the market value
of the underlying securities. Despite of the assessment of valuation method as per fair value for
“commodity swaps and options, forward exchange contracts and cross currency swaps, interest
rate swaps and equity securities”, the main issue in the financial report is depicted with “long-
term borrowings, cash, deposits, payables, short-term borrowings, loans and receivables”. It has
been identified that for “cash, deposits, payables, short-term borrowings, loans and receivables”,
the company does not consider carrying value approximates as per fair valuation method because
of short-term nature of these liabilities and assets (Christensen et al. 2016).
It needs to be further understood that the long-term borrowings are initiated recognized at
“fair value less attributable transaction cost”. The “fair value on inception” for represents the
present value for the anticipated “cash flows” using the interest rates which are derived from the
market sources and reflected their term to maturity. Subsequently, the borrowings and loans are
stated at amortized cost which are taken with the differences “between redemption value” being
recognized in the “income statement” over the period of borrowings as part effective interest rate
basis. As per the valuation specialists of the company, there were several “valuation
methodologies” applied during the “preliminary PPA value inventory, property plant and
equipment and identifiable intangible assets”. In addition to this, the company has partially
complied to the methodologies against the generally accepted valuation techniques. Due to the
absence of the valuation technique as per fair value for “long-term borrowings, cash, deposits,
payables, short-term borrowings, loans and receivables”, the different types of risks have been
seen in terms of interfering alongside borrowings, financial leases and derivatives. More
evidently, the aforementioned areas have increased considerably, thereby posing greater extent
of risk for the company (Warren and Jones 2018).
Evidence of leasing contingent
The recognition of the leases by the company is based on the valuation standards
prescribed as per AASB 16. This method is projected to set the required standard which is set up

6ACCOUNTING THEORY AND ISSUES
as per “significant portion of Boral’s operating leases” which are “accounted for on balance
sheet” as a “right of use asset” and “lease liability” based on the “adoption of the standard on 1st
July 2019”. The standard would also result in reclassifying the functioning leases expenses into
the depreciation and financial expenses. In addition to this, it is aimed to reclassify the “cash
flows from operating into financing activities”. Based on the evaluation of the financial
statements, and operating leases payments are expensed as “per straight-line basis over the term
of the lease”. The exception follows where the alternate basis is more representative for the
pattern of assistances which are derived from the leased property. The “minimum lease
payments” further include fixed rate increases. Based on the financial statements, the company is
bearing higher risk liability in 2017, compared to the previous year. This is evident with financial
lease liability of $ 1.3 million in 2016, which increased to $ 9.1 million in 2017. It is also noted
that the “financial leases” within Australia are subject to various kinds of lease terms for various
maturity dates. The operating leases for the company has also increased which is going to pose a
greater threat in 2018. The lease commitments in respect to the operating leases, which “are
payable not later than one-year” increase from $ 66.5 million in 2016 to $ 99.6 million in 2017.
The leases which are to be paid later than one year but not later than “five years” increased from
$ 124.3 million in 2016 to $ 209.8 million in 2017 (Nobes 2014).
Issues in taxation/ expenses
Boral Limited accounts for the income tax expenses based on the “current and deferred
tax”. The “current and deferred tax” are considered in the “income statement” “except to the
extent that they relate to the items which are recognized directly in other comprehensive income
or equity”. The “current tax” is expected to be payable or recoverable as per the “taxable income
or loss” for the period and any judgment pertaining to tax payable in the previous years. The
significant accounting judgments, estimates and assumptions has stated that there is a
considerable amount of risk associated to income taxes for the company. The group is subject to
“income taxes in Australia” and several other jurisdictions in which the company operates. The
determination of amount of current and deferred tax by the group taken into consideration with
the impact of “uncertain tax” positions and whether additional taxes and interests may be due.
This assessment relates to the assumptions and estimates which are based on series of judgments
about the future events. There are many occasions when the expectations have impacted the
amount recognized on the balance sheet and the company has not recognized the temporary

7ACCOUNTING THEORY AND ISSUES
differences in the tax losses. Additionally, the current income tax expense has increased from $
15.5 million in 2016 to $ 76.2 million in 2017. This is considered to pose a significant threat for
the company in 2018 (Leuz and Wysocki, 2016).
The group considers the deferred tax on all provisional variances among the “carrying
amounts of assets and liabilities” for the “financial reporting and taxation purposes”. The
measurement of different tax relates to the “tax consequences” which the group expects to
recover and that is based on carrying amounts of assets and liabilities. The different tax asset is
recognized that extent which has probable “future taxable profits available against which they
can be utilized” (Macve 2015).
Recommendations
In terms of recognizing accounts receivable, the company needs to make several
improvements as far as the credit risk is considered, which happens if the counterparty defaults
under a financial instrument contract. Management should keep a counterparty credit policy in
place handy for mitigating any instance of credit risk. In addition to this, the company should
also monitor the credit risk on an ongoing basis. The significant improvements which needs to be
brought under the issues in provision for bad debt includes creating an additional allowance for
recognizing the doubtful dates which is made as a result of the recoverable trade receivables
amounting to increasing amount of rendering services and this should be incorporated as the
starting point for any instance of default experience. In addition to this, the company should also
seek to reduce the increasing amount of bad debt expense from 2016 to 2017. Excess valuation
of the assets needs to be improved by implementing fair value-based valuation for the long-term
borrowings. Furthermore, “cash, deposits, loans, receivables, payables and short-term
borrowings” needs to completely assess the fair value approximate instead of using
approximations.
Leasing contingent needs to include several options for minimizing the present lease
expenses. The company needs to safeguard itself from any unprecedented income tax by regular
review and monitoring of present income and depicting the areas through which it can offset any
irregularities associated with income tax payment.

8ACCOUNTING THEORY AND ISSUES
Conclusion
The important depictions on accounts receivable shows that the group has considered the
account receivables at the end of financial year. It has been further identified that the group
evaluates the accounts receivable as per fair value method. In addition to this, the trade and other
receivables are initially recognized at the value of the invoice for the customer and subsequently
which are recoverable from the customer’s based on “amortized cost using effective interest rate
method”. Issues in provision for bad debt are significant with the accounting judgments estimate
and assumptions. The group has considered the recoverability and collectability of bad debts.
There is a separate allowance made for “doubtful debts” which is made for the projected
irrecoverable “trade receivables” amounting because of past rendering of services and evaluated
by reference to past “default experience”. The company has been seen to be exposed to a high
amount of bad and doubtful debts expense in 2017 with an amount of $ 2.5 million which is an
increase from $ 1.1 million in 2016. Despite of the assessment of valuation method as per fair
value for “commodity swaps and options, forward exchange contracts and cross currency swaps,
interest rate swaps and equity securities”, the main issue in the financial report is depicted with
“long-term borrowings, cash, deposits, payables, short-term borrowings, loans and receivables”.
It has been identified that for “cash, deposits, payables, short-term borrowings, loans and
receivables”, the company does not consider carrying value approximates as per fair valuation
method because of short-term nature of these liabilities and assets.

9ACCOUNTING THEORY AND ISSUES
References
Asic.gov.au. (2018). 16-205MR ASIC review of 31 December 2015 financial reports | ASIC -
Australian Securities and Investments Commission . [online] Available at:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-205mr-asic-
review-of-31-december-2015-financial-reports/ [Accessed 29 Apr. 2018].
Asic.gov.au. (2018). ASICs Financial Reporting Surveillance Program | ASIC - Australian
Securities and Investments Commission . [online] Available at: http://asic.gov.au/regulatory-
resources/financial-reporting-and-audit/directors-and-financial-reporting/asics-financial-
reporting-surveillance-program/ [Accessed 29 Apr. 2018].
Asic.gov.au. (2018). Our role | ASIC - Australian Securities and Investments Commission .
[online] Available at: http://asic.gov.au/about-asic/what-we-do/our-role/ [Accessed 22 Apr.
2018].
Boral.Com. 2018. Accessed April 30 2018.
https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-
2017.pdf.
Christensen, H.B., Nikolaev, V.V. and WITTENBERG‐MOERMAN, R.E.G.I.N.A., 2016.
Accounting information in financial contracting: The incomplete contract theory
perspective. Journal of accounting research, 54(2), pp.397-435.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2),
pp.525-622.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.

10ACCOUNTING THEORY AND ISSUES
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.

11ACCOUNTING THEORY AND ISSUES
List of Appendix

12ACCOUNTING THEORY AND ISSUES