BUACC5934 Financial Accounting Research Assignment, Semester 1, 2018

This report provides a comprehensive overview of financial accounting, focusing on financial statements, reporting practices, and financial instruments. Part A defines financial statements, their importance, and the roles of directors and accountants, emphasizing the need for ethical considerations and the dangers of deceptive financial reporting. Part B discusses the issue of information overload in financial statements, highlighting its disadvantages and proposing solutions like the 7Cs of effective communication. Part C defines key financial terms such as financial instruments, financial assets, financial liabilities, and derivatives. The report underscores the significance of clear, concise, and relevant financial information for investors and stakeholders, advocating for transparency and ethical conduct in financial reporting to maintain trust and facilitate informed decision-making. This assignment is a valuable resource for students studying accounting and finance, offering insights into the complexities of financial reporting and the importance of ethical practices.

BUACC5934 FINANCIAL ACCOUNTING
RESEARCH ASSIGNMENT
SEMESTER 1, 2018

TABLE OF CONTENTS
Part A.........................................................................................................................................3
Part B..........................................................................................................................................5
Part C..........................................................................................................................................7
A.............................................................................................................................................7
B.............................................................................................................................................8
C.............................................................................................................................................8
D.............................................................................................................................................8
E.............................................................................................................................................8
F..............................................................................................................................................9
G.............................................................................................................................................9
Bibliography.............................................................................................................................11

LIST OF FIGURES
Figure 1: 7Cs for the effective business communication...........................................................8
Figure 2: Classification and measurement of financial assets.................................................10

PART A
Financial statement or reporting refers to a proper record of activities, operations and position
based on finance of a business entity. Financial information which is relevant is presented in
a formal and systematic way facilitating the user in understanding and implementing1. These
are inclusive of fundamental financial statements, escorted by a managerial analysis and
discussion. For large-scale companies, these statements result as complex and might be
inclusive of a wide group of footnotes and working notes on financial reporting and
managerial discussion and analysis. Such notes depict all items in P&L statements, cash flow
statement and balance sheet in additional details. Financial statement notes are stated as an
important part of the financial statement.
The goal of common purpose financial statement is to offer reliable financial information
regarding the reporting enterprise that is beneficial to the current and future investors,
borrowers and other related creditors while decision making regarding offered resources to
the enterprise2. This information is required to be supported by proper disclosure to enhance
the understanding of users. The decision making is engaged in trading or retaining long-term
financial instruments and offering or settling other types of credit. In order to consider the
prospects of entity for the future cash inflows and outflows, current and expected investors,
borrowers and other related creditors require information regarding the entity resources,
claims, the efficiency of overall conduct, and board that have delegated the responsibilities to
make use of resources of the entity.
For example, responsibilities are inclusive of securing the resources of the entity from
unpredictable impacts of economic variables like price, technical changes while making sure
that the company has adhered to the viable laws, provisions and regulation3. Information
regarding the delegation of the management of their responsibilities is very useful when it
comes to decision making for investors, borrowers and other elated creditors having the
voting right or it can impact the managerial actions.
1 Biddle GC. The Role of Financial Statements in Reporting Financial Performance. InAccounting &
Finance/IASB Research Forum 2015.
2 Pepi M. The Usefulness of Financial Statements in Making Financial Diagnosis. Ovidius University Annals,
Economic Sciences Series. 2016 Jan 1;16(2):583-8.
3 Reid W, Myddelton DR. The meaning of company accounts. Routledge; 2017 Sep 29.

Directors have the key responsibility for the management and provision of beneficial and
useful information for the financial statement users such as investors and creditors.
Accountants usually do preparation of financial statement that might be inclusive of monthly
or yearly or accounts on the basis of financial information which is complied with laws and
appropriately analysed. To prepare the financial management reports, it can be inclusive of
precise on a quarterly basis and year-end closing reports4. The reports which are complied
might be put to use for ongoing support and budget management to predict potential
activities. Further, the financial report might be implemented by a finance director for the
use, development and activities of financial systems of the company, for example; CODA
Financial Management, Hyperion and Excel.
The Directors are a liable financial statement prepared according to the viable law and
regulation. Further, the directors opt to do preparation of a financial statement on behalf of
Group while complying which IFRS, along with they are selected to the preparation of
financial statement for the Company as a whole in accordance with the Australian accounting
standards.
The financial statement reflects fair information for every financial year, about the financial
performance, position and cash flows of the Company. This needs faithful representation of
the transactional effects, other situations and events according to the meaning and realizations
terms for assets and liabilities as well as income and expenditure paced in the IASB
framework for the reflection and preparation of financial statements.
The directors are liable for maintaining accurate records of accounting which reveal with the
realistic accuracy every time while considering the Company’s financial position, for
securing the assets, and taking effective measure the avoidance and monitoring for fraud and
wrongdoings while preparing the remuneration reports by directors.
Further, accounting principles are required to be considered while recording financial
transactions in which reporters are required to consider the fact that all cost are not assets.
Therefore, only capital costs are required to be recorded as assets which can provide future
economic benefits and it is not concerned with the amount incurred.
4 Nobes C. International Classification of Financial Reporting 3e. Routledge; 2014 Aug 7.

External auditors, (in case an audit is needed, or the firm has opted to have one) conduct the
independent audit of the financial reporting. This is to be ensure that users are not forced to
tolerate the intolerable. Further, the external auditors are required to report to the stakeholders
by a reporting based on the external audit. Involvement with the external auditors is usually
considered by the directors in support of the shareholders or investors. Daily interaction at the
time of audit process is generally among the managerial authorities and the external auditor.
Financial statement is not merely ritual. A financial statement is stated as a straightforward
activity that emerges with a range of complex ethical issues, contravenes which can cause
main scandal and disgrace for the company and result in the immense amount of investor loss
and customer trust. Most of the scandals related to accounting over the last few decades have
been the focal point of the deceptive financial statements. Further, the deceptive financial
reporting refers to the misstatements held on the financial statement by the management of
the company5. Generally, this is conducted with the purpose of misleading investing and
keeping the share price of the company. While the impacts of the deceptive financial
reporting might stimulate the stock prices of the company even the short haul, almost there
are bad effects as considered in the long haul. This focus of short-run is given in the financial
aspects of the company which is at times called myopic management.
Financial reporters are required to comply with all ethical aspects to ensure prevention of
misleading facts. In fraudulent financial reporting, violations which are disclosed are
considered as an error of the omissions based on ethics6. Recording transactions intentionally
in a way that is not complying with the widely agreed standards are known as fraudulent
financial reporting, and failing to disclose accounting information to the shareholders can
make changes investment decisions by the investors in the company, and it can also be stated
as fraudulent financial reporting7. Executives of companies are required to take steps very
carefully; it is significant for the management to secure the confidential and proprietary
information of the company. On the other hand, in a situation where this information is
5 Kwok BK. Accounting irregularities in financial statements: A definitive guide for litigators, auditors and
fraud investigators. Routledge; 2017 May 15.
6 Vasarhelyi MA, Alles MG, Kogan A. Principles of analytic monitoring for continuous assurance. In
Continuous Auditing: Theory and Application 2018 Mar 8 (pp. 191-217). Emerald Publishing Limited.
7 Trevino LK, Nelson KA. Managing business ethics: Straight talk about how to do it right. John Wiley & Sons;
2016 Sep 13.

related to an important event, it might not consider ethical and viable to maintain this
information from the investors.
PART B
Too Much information can be as disconcerting as too little.”- Patricia Wentworth. Same goes
for too much information disclosure in Financial Statements. Generally, investors find
financial reports too long, and that dissolves the literal purpose of the statement in the first
place8. Generally, company’s does not keep in mind before drafting the Financial Statement
is that the investor may or may not have sufficient time to read it also, even if he/she invests a
certain time still they may not find the actual and relative information in the huge hurdle of
the financial report. The information is not crisp and to the point. The company also invests a
good amount and time to prepare the financial statement, and if it doesn’t solve the purpose,
then the cost spent actually goes into turmoil.
Disadvantages of Discussion Overload:
An investor may lose interest in investing in the company: When an investor actually goes
through the entire financial report, and if that financial report has too much information then
there is a slim yet solid chance that investor may lose interest in investing in the company9. It
is because stakeholders may find some information that diverts their attention from investing
or it may create some sort of mistrust in the company. This small mistake can be really
harmful to the company.
It confuses the Investor: The main purpose of a financial report is to inform but rather than
that it confuses the investor. When too much information is provided in the financial reports,
it actually distracts the investor from the important and relevant information. In the hurdle of
the information they have to find the needle of useful and necessary information, and it is
certainly a lot of work. Not just that, when to information is provided people tend to overlook
the overall information too.
It distracts from the purpose: Investors associate multiple purposes to the financial report;
they seek relevant and useful information instead due to disclosure overload they get
8 Titman S, Keown AJ, Martin JD. Financial management: Principles and applications. Pearson; 2017 Jan 9.
9 Marzouk M, Linsley P, Verma S. A Critical Review of Risk Reporting in Financial Statements.

distracted from the right information and end up reading irrelevant information on different
topics. This can create dissatisfaction in the minds of investors.
Waste of time and money: The financial reports are very useful as they are insight of
company’s current and future financial position and because of that company ends up putting
a great deal of cost into it10. Now the cost is just the money spent in order to create the report
but also the time that company invests in it11. But due to disclosure overload, the unnecessary
information is also in the financial report. So the efforts, time and money that are being put
into financial report become useless.
Ways for making improvement
Figure 1: 7Cs for the effective business communication12
At the time of drafting the financial report, the company must keep reader’s perspective in
mind rather than involving too much information. The company should keep 7c’s of
communication while drafting the financial report in the following manner:
The information must be clear and concise, easy to read and the reader can easily find the
topic which he/she finds relevant. Only useful and relevant information should be covered in
the financial report. The company should know and filter the useless information and put
everything that investor will find suitable. The financial report must provide a concrete and
10 Di Pietr A, Ay M, Art S, Ronen J. Accounting and regulation. Springer,; 2016.
11 Jiang Y, Ho YC, Yan X, Tan Y. Investor Platform Choice: Herding, Platform Attributes, and Regulations.
Journal of Management Information Systems. 2018 Jan 2;35(1):86-116.
12 https://www.communicationtheory.org/the-7cs-for-effective-business-communication/

clear picture to the reader13. All the unnecessary information should be omitted. Correct
doesn’t indicate the grammar or medium; it means that report should fit the audience. The
information provided has to be Coherent and to the point. In order to filter out the
unnecessary information, the company should not skip any important information to ensure
financial reports are complete. The information Courteous be open, honest and connect easily
with the reader.
PART C
A
Financial instruments are referred as assets which are eligible for trading. They can be
considered as capital packages that might be traded. Financial instruments mean documents
like futures, options, draft, share, bond or contract having financial value or stating a legally
binding contract between two or more than two parties about the right to pay money14.
B
A financial asset refers to an intangible asset whose value is gained from a claim based on a
contract like stocks, deposits and bonds. Financial assets are highly liquid compared to other
physical assets, for example, property or commodities or real estate, and its trading is eligible
in financial markets15. Financial assets can be regarded as cash in hand, or aided accessibility
and convenience in terms of cash deposits, markets securities, checks, accounts receivable
and loans.
C
Financial liability means a contractual binding to serve monetary or other related monetary
assets to another enterprise or to transfer financial assets or liabilities with another enterprise.
The settlement of an agreement that would or might be done in the individual equity
instrument of the entity which is a non-derivative by which the enterprise might serve own
equity instrument’s variable. Or either a derivative that would be settled probably excluding
the cash exchange or the same for an equity fixed amount of an entity.
13 Hoyle JB, Schaefer T, Doupnik T. Advanced accounting. McGraw Hill; 2015.
14 Hoyle JB, Schaefer T, Doupnik T. Advanced accounting. McGraw Hill; 2015.
15 Fabozzi FJ, editor. The handbook of financial instruments. John Wiley & Sons; 2018 May 14.

D
A derivative is an agreement between two or more than two parties, and its value has a
reliance on the binding underlying asset such as security or assets such as index. General
underlying assets are inclusive of stocks, interest rates, bonds, currencies, market index and
commodities. Derivatives are those contracts whose value has a change when there is a
change in the underlying asset. It is financial instruments which need no investment on an
initial basis, and is settling is required at a future date on the later basis.
E
According to AASB 139, classifications of financial assets are done in ways described as
below:
 Financial assets at their fair value by P&L
 Financial assets which are available for sale
 Loans and receivables
 Investments which are held to maturity
Financial assets classification is identified on the bases of the management of financial assets
by an entity and the cash flow nature that take place from financial assets16.
Figure 2: Classification and measurement of financial assets17
16 AASB 139. Accessible thrhttp://www.aasb.gov.au/admin/file/content105/c9/AASB139_07-
04_COMPoct10_01-11.pdf
17 https://www.nexia-sabt.co.za/sabtips/2015/ifrs-9-financial-instruments-classification-and-measurement/

Measurement of Financial assets shall be done at their fair value inclusive of transactional
costs for the assets which measurement is not done at fair value by P&L. Fair value means
the price that will be obtained to put the asset into sale or paying of transferred liability in an
orderly transactional manner among market contestants at the date of measurement.
F
Yes, this is a financial instrument, it is because the definition of financial instrument states
that FI are assets which are eligible for trading and it can also be capital packages. These
assets might be in the form of cash or a contractual right in order to distribute or obtain cash
or any other type of financial instrument18. By considering this aspect in the present case,
CBA has right to take physical delivery or to pay or receive net settlement in cash, and this
factor satisfies the definition of the financial instrument.
G
Hedging instruments refer to an instrument which cash outflows or fair value are likely to
balance changes held in the same of the opting hedged item19. Hedging instruments are
known as an instrument implemented by investors in order to offset the risk of loss of money
with the invested or retained investment.
Hedged item means an item that provides risk exposure to the enterprise in fair value or cash
inflows and outflows in future basis and is considered or opt as hedged20. A hedged item
could be a particular realized asset or liability, set of assets or liabilities, held to maturity
investment, entity commitment, net investment, credit risk, a part of cash inflows and
outflows or financial asset or liability fair value.
18 Ramirez J. Accounting for derivatives: Advanced hedging under. John Wiley & Sons; 2015 Jan 28.
19 Ramirez J. Accounting for derivatives: Advanced hedging under IFRS 9. John Wiley & Sons; 2015 Jan 28.
20 Campbell JL. The fair value of cash flow hedges, future profitability, and stock returns. Contemporary
Accounting Research. 2015 Mar 1;32(1):243-79.

BIBLIOGRAPHY
Biddle GC. The Role of Financial Statements in Reporting Financial Performance. In
Accounting & Finance/IASB Research Forum 2015.
Campbell JL. The fair value of cash flow hedges, future profitability, and stock returns.
Contemporary Accounting Research. 2015 Mar 1;32(1):243-79.
Di Pietr A, Ay M, Art S, Ronen J. Accounting and regulation. Springer,; 2016.
Fabozzi FJ, editor. The handbook of financial instruments. John Wiley & Sons; 2018 May 14.
Hoyle JB, Schaefer T, Doupnik T. Advanced accounting. McGraw Hill; 2015.
Jiang Y, Ho YC, Yan X, Tan Y. Investor Platform Choice: Herding, Platform Attributes, and
Regulations. Journal of Management Information Systems. 2018 Jan 2;35(1):86-116.
Kwok BK. Accounting irregularities in financial statements: A definitive guide for litigators,
auditors and fraud investigators. Routledge; 2017 May 15.
Marzouk M, Linsley P, Verma S. A Critical Review of Risk Reporting in Financial
Statements. 2015.
Nobes C. International Classification of Financial Reporting 3e. Routledge; 2014 Aug 7.
Pepi M. The Usefulness of Financial Statements in Making Financial Diagnosis. Ovidius
University Annals, Economic Sciences Series. 2016 Jan 1;16(2):583-8.
Ramirez J. Accounting for derivatives: Advanced hedging. John Wiley & Sons; 2015 Jan 28.
Reid W, Myddelton DR. The meaning of company accounts. Routledge; 2017 Sep 29.
Titman S, Keown AJ, Martin JD. Financial management: Principles and applications.
Pearson; 2017 Jan 9.
Trevino LK, Nelson KA. Managing business ethics: Straight talk about how to do it right.
John Wiley & Sons; 2016 Sep 13.
Vasarhelyi MA, Alles MG, Kogan A. Principles of analytic monitoring for continuous
assurance. In Continuous Auditing: Theory and Application 2018 Mar 8 (pp. 191-217).
Emerald Publishing Limited.