Cochlear Limited: Accounting Principles, Concepts, and Reporting

This report provides an in-depth analysis of accounting principles, focusing on the concepts of relevance and faithful representation within the context of Cochlear Limited's financial reporting. It begins with an introduction to accounting principles and their significance, followed by a background of Cochlear Limited, a company specializing in implantable hearing solutions. The report then examines the reporting entity concept and the fundamental qualitative characteristics, specifically relevance and faithful representation, as they apply to Cochlear's financial statements. Relevance is discussed in terms of its confirmatory and predictive values, highlighting how accounting data informs economic decisions. Faithful representation is explored as it relates to the neutrality, completeness, and freedom from error of financial information. The analysis uses Cochlear's annual report to illustrate these principles, concluding with a summary of how these principles enhance the reliability and usefulness of financial reporting for stakeholders. The report emphasizes the importance of adhering to these principles to provide stakeholders with a clear and accurate understanding of the company's financial position and performance. This report aims to provide students with a comprehensive understanding of accounting principles and how they are applied in real-world financial reporting scenarios.

Running head: REPORT 0
HC2308
JANUARY 26, 2020
STUDENT DETAILS:

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Contents
Introduction.................................................................................................................................................2
Background of company..............................................................................................................................2
Reporting entity...........................................................................................................................................3
Fundamental qualitative characteristics.......................................................................................................3
Relevance –.............................................................................................................................................4
Faithful representation -...........................................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................9

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Introduction
The accounting principles as well as accounting concepts have important role in the business
affairs of entity. It is very essential to follow different fundamental accounting concepts to
prepare financial statements of company. The conceptual framework of entity can be described
as a system to produce reliable and long-lasting set of the legislatures and rules. The requirement
of accounting data through creditors, lenders, and investors encourages fundamental qualitative
characteristics. In the following parts, the factors of reporting entity and fundamental qualitative
characteristics such as relevance and faithful representation of Cochlear Limited is discussed and
examined.
Background of company
Cochlear Limited renders implantable hearing solution. The implant systems of entity contains
the implant that is inserted at the time of operation along with outer sound processor. Three
divisions based on geography operate it. These are Americas, Asia Pacific, and EMEA.
Americas involves Canada, Latin America, and USA. The Asia Pacific covers Asian and
Australasian countries. EMEA covers Middle East, Europe, and Africa. The solutions or
produces of entity involve Cochlear implants. These Cochlear implants involve Nucleus 6
System and Aqua plus, Bone conduction implants (Baha Connect as well as Baha Attract),
Acoustic implant solution (Cochlear Carina System, Cochlear Codacs System along with
Cochlear MET System) and Cochlear True Wireless ranges (like Cochlear Wireless Mini
Microphone 2, , Cochlear Wireless Phone Clips, Cochlear Wireless Mini Microphone 2 plus and
Cochlear Wireless TV Streamer). Cochlear Limited sells goods in more than hundred nations.
The company puts focus on taking customers lifetime value with innovative and excellent

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services or goods that help to develop interaction of recipients with the world. In addition, it also
focusses on continuous service-oriented experiences from start to finish. The company delivers
products and services to fulfil the requirements and preference of customer (Annual report,
2019).
Reporting entity
The reporting entity is considered as entity wherever this is rational to expect that there are users
dependent on the GPFR (general-purpose financial report) to get understanding of the financial
position and performance of organisation, and to take decision based on financial data as well as
other information confined in financial report. The users include members, personnel,
shareholders, creditor, lender, and prospective investor (Oulasvirta, 2016). The factors that can
state that the entity is reporting entity involve financial features of company, political importance
influence, as well as separation of administration from persons with financial interest in
company. From annual report of company, it is analysed that Cochlear Limited is described as
the reporting entity because the company is needed to make general-purpose financial report.
This company applies Australian Accounting Standards at the time of preparation of the financial
report of company. There are advantages along with risks related to the reporting framework.
Cochlear Limited is a corporation domiciled in Australia. Consolidated financial statements of
entity as for year ending 30th June 2019 include organisation as well as controlled organisations
(together denoted as Cochlear or a consolidated entity). It can see that Cochlear Limited is the
for-profit entity. This company runs in implantable hearing device sector (Sampaio and
González, 2017).
Fundamental qualitative characteristics

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These two fundamental qualitative characteristics involve relevance as well as faithful
representation (Carson, Fargher and Zhang, 2017). These are discussed below –
Relevance –
The relevance is considered as capability to create the differences in the decisions taken by the
users. This fundamental concept is usually functioned in relation to the positive value along with
analytical value. The analytical value is considered as the data on ability of the entity to generate
upcoming cash flows. This concept states that how the data is useful to take economic related
decisions (Bridgett, 2015). To make sure relevance of the accounting data, the company follows
some values, such as -
 Confirmatory value – the confirmatory value provides information related to the last
events (Melnyk, 2018).
 Predictive value – the predictive value renders predictive authorities about the probable
events of the future period.
Further, the fundamental qualitative characteristic ‘relevance’ is usually worked about the logical
value along with positive value. The logical value is significant indicator of the relevance in
relation to the significance of decisions. The accounting information can be considered as
relevant information when it renders useful data regarding last events (Christensen, Nikolaev and
Wittenberg‐Moerman, 2016). The relevant information is always helpful in predicting the future
occasions of company. It enables someone to take significant step to handle the possible events
in future. For an example, the corporation experiencing the solid quarter as well as stating the
enhanced outcomes to the creditor is relevant to a decision-making procedure of creditors to
enhance the credits represented to the company. Furthermore, the confirmatory value also
contributes to the relevancy of financial information (Schulze, et. al, 2016). Moreover, the annual

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report of company states that past investigation mentioned that the future values presents best
analytical value of financial reporting data while compared to the historical cost. Instead of
historical value, the future value based on accounting renders information that is more
appropriate. The main motive is that the future value signifies the present value of assets, in
place of the acquisition cost. It can say that the fair value is considered as the accounting
measure supported by Financial Accounting Standard Board and International Accounting
Standards Board. It is evaluated from the annual report of Cochlear Limited that the organisation
uses the fundamental qualitative characteristics like faithful representation as well as relevance to
record as well as represent the other incomes. It can see that the company follows these
characteristics to present other income -
Source: (Annual report, 2019)

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Faithful representation -
Other fundamental characteristic is faithful representation. A faithful representation is significant
accounting concept that affect management’s decision. As per this fundamental characteristic,
the accounting data should be neutral. It is considered as a level to which the data should be from
partiality. It is required to consider that there is subjectivity and evaluation included in the
financial statement of company (Handerson, 2015). Therefore, the data cannot be actually
impartial. Alternatively, if an entity asked 1000 accountants and got average of answers, then it
would be considered free from unfairness as well as neutral. In addition, it should be complete.
In other terms, it can say that the financial statements of the organisation should not exclude the
transaction. Moreover, it should be free from errors. Therefore, it is clear that it is very difficult
to determine the faithful representation directly by only measuring the annual report of entity.
However, the data in relation to the real financial fact is significant to assure the faithful
representation (Kelley and Knowles, 2016).
According to this fundamental characteristic, the financial statement of entity is required to state
precise or accurate position of a business of organisation. For example, if company reported
accounts receivable of amounting $2, 99, 00,000 in end of month in the balance sheet, then the
amount should be represented on this date. This characteristic needs to be extended to all the
parts of the financial statement of company, like functional results, cash flows of reporting entity
as well as financial situation of entity. The concept of faithful representation explains that the
financial information should present complete picture to represent the financial situation of
corporation. The financial statement with omission and errors cannot state accurate position of
business. Additionally, the faithful representation states that the financial statements of company

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should not be biased (Macve, 2015). In this way, the users of financial statement will be capable
to get knowledge about the financial statements in proper way. It can see from the annual report
that Cochlear Limited follows both fundamental qualitative characteristics like faithful
representation along with relevance. It can see that the company represents the inventories in
faithful manner and with relevance to develop the better understanding-
Source: (Annual report, 2019)
Conclusion
As per the above evaluation, it can say that company prepares its financial statements as per the
accounting principles. The accounting conventions as well as accounting concepts are helpful for
the accountants to render financial report to the management of entity. In this way, the financial
statements need to present certain qualitative characteristics to make the financial statements
useful for shareholders of entity. It is evaluated that the fundamental qualitative characteristics
are very significant characteristics. According to the International Accounting Standard Board,

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the relevance, and faithful representation is helpful for the management to take decision. It is
found that the concept of reporting entity along with relevance of the definition is significant to
the financial report made by the entity and related risks and advantages. In this way, Cochlear
Limited increases the beliefs of stakeholders on the financial reporting of organisation.

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References
Annual report (2019) Cochlear Limited. Available at: https://www.cochlear.com/c782c6e8-cd66-
402e-87b8-936db9f1fea8/2019AnnualReport.pdf?
MOD=AJPERES&CONVERT_TO=url&CACHEID=ROOTWORKSPACE-
c782c6e8-cd66-402e-87b8-936db9f1fea8-mOnUHj- [Access on 29/01/2020]
Bridgett, D.J., Burt, N.M., Edwards, E.S. and Deater-Deckard, K. (2015) Intergenerational
transmission of self-regulation: A multidisciplinary review and integrative conceptual
framework. Psychological bulletin, 141(3), p.602.
Carson, E., Fargher, N. and Zhang, Y. (2017) Explaining auditors’ propensity to issue going‐
concern opinions in Australia after the global financial crisis. Accounting & Finance.
Christensen, H.B., Nikolaev, V.V. and Wittenberg‐Moerman, R. (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.
USA: Pearson Higher Education AU.
Kelley, T.R. and Knowles, J.G. (2016) A conceptual framework for integrated STEM
education. International Journal of STEM Education, 3(1), p.11.
Macve, R., (2015) A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat? New York: Routledge.

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Melnyk, O. (2018) Accounting for Profit or Loss from the Initial Recognition and Measurement
of Biological Assets. Accounting and Finance, (3), pp.60-68.
Oulasvirta, L. (2016) Accounting Principles. Global Encyclopedia of Public Administration,
Public Policy, and Governance, pp.1-9.
Sampaio, P.G.V. and González, M.O.A. (2017) Photovoltaic solar energy: Conceptual
framework. Renewable and Sustainable Energy Reviews, 74, pp.590-601.
Schulze, M., Nehler, H., Ottosson, M. and Thollander, P. (2016) Energy management in
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framework. Journal of Cleaner Production, 112, pp.3692-3708.