Accounting Theory and Contemporary Issues: 7-Eleven Case Study Report

This report provides an in-depth analysis of 7-Eleven's accounting practices, focusing on its adherence to the Australian Accounting Standards Board (AASB) standards and the conceptual accounting framework. The report examines the company's financial reporting, including its remuneration policies, inventory valuation, and accounts receivables. It highlights the wage scandal that plagued the company and its impact on the company's financial reporting. The report also discusses the principle of prudence and its significance in preventing fraudulent activities. The analysis reveals instances of non-compliance with AASB standards, particularly in inventory valuation and the recording of bad debts. The conclusion emphasizes the need for 7-Eleven to fully comply with accounting principles and incorporate prudence in its financial reporting to ensure sustainable growth and transparency. References to relevant sources, including annual reports and accounting standards, are also provided.

Accounting theory and contemporary issues

Introduction
The general purpose financial statements are developed by a business entity in order to
provide information to end-users about its financial position. The IASB has developed and
provided the standard guidelines for all business entities for developing the financial statements
through the development of conceptual accounting framework. The conceptual accounting
framework has stated the qualitative characteristics of relevance, reliable ad comparable to be
adopted by businesses for financial reporting. This is done for improving the quality of financial
reporting in order to meet the needs of end-users such as potential investors and creditors. The
AASB (Australian Accounting Standards Board), in this context, holds the responsibility of
ensuring the compliance of international accepted accounting standards and conceptual
accounting framework principles by the Australian business entities (CCH Australia Limited,
2009). The present report has demonstrated the need of complying with conceptual framework
principles and AASB standards by demonstrating an example of Australian accompany who has
failed due to its unethical and fraudulent accounting activities. The company selected for the
purpose is 7-Eleven and its financial reports are evaluated for assessing the arsons if its failure.
Analysis of Reason of Failure of 7-Eleven with Respect to its Accounts
The 7-Eleven is a recognized Australian retail company that is widely known for
operating chain of convenience stores across the country. The company is a franchise of US
based 7-Elevne Inc and is involved in providing diverse products such as drinks, confectionary,
gift card and others (7 -Eleven: Annual Report, 2015). The company has however being alleged
of conducting corrupt and fraudulent activities in relation to its remuneration and financial
reports. The screenshot of the remuneration report of the company as extracted from its annual
report as follows:

The remuneration report aims to provide information in relation to the accounting
policies adopted for deciding over the matters of compensation provided to its directors and
employees. The remuneration report of 7-Eleven has stated its effective compliance with the
Corporations Act 2001 and AASB standards for developing and maintaining its remuneration
policy. The remuneration report of the company has also stated the remuneration of its executive
and non-executive directors is dependent on the operating profit of the company. This
remuneration policy of the board has introduced an organizational culture within the company of
driving the profitability by directors; in order to increase their compensation and as such
promoting the occurrence of corrupt financial practices (7 -Eleven: Annual Report, 2015).
The remuneration policy developed by the Board ensures that fair compensation is
provided to all of its employees and has disclosed the information of employee benefits and
expenses in its remuneration report. However, the company has faced allegations regarding the
occurrence of unethical employee wage policies and practices. The company has been accused of
forcing the employees to work till long hours and also providing them half pay. The management
was accused of threatening the employees to work till extended hours by saying that they would

be expelled of they complained to the parent company about their salary issue. The identification
of the wage scandal in the company has resulted in paying heavy penalties for compensating the
exploited workers and also negatively impacted the brand image of its parent company. This
wage scandal has caused the parent company of 7-Elevne to adopt strict compensation policies
and procedures for its Australia franchises as per the Fair Work Ombudsman (Ferguson, 2016).
Inventory Analysis
The company in its annual report has claimed of complying with AASB standards and
Companies Act for valuing its inventories. However, the analysis of the director’s report of the
company has inferred that it has not defined the accounting policies adopted for measuring the
inventories cost and recording the inventory losses. Thus, it can be stated that it does not comply
with AASB standards for valuing its inventories (CCH Australia Limited, 2009). The screenshot
of the inventories account maintained by the company as extracted from its director’s report is
depicted as follows:
Accounts Receivables

As analyzed from the accounts receivables financial position of the company, it has not
developed proper provisions for recording bad debts. The estimated account of cash inflows from
the accounts receivables is done on the basis of past events and this is not valued properly as per
the AASB standards by not taking into account the current information about its receivables
(Compiled Accounting Standard AASB 108, 2014).
Leases and Contingent Liabilities
The company also possesses contingent liabilities as evident from its annual report
analysis. The financial leases are valued at the fair value of the leased assets. The company
however has disclosed all the pertinent information about the financial figures in relation to it
total assets and liabilities in accordance with conceptual accounting framework. Also, the
company does not have any contingent liabilities as evident from its director’s report analysis (7
-Eleven: Annual Report, 2015).

Prudence and Its impact on Financial Reporting
The principle of prudence was removed earlier from the conceptual framework of
accounting as it was found to be in contradiction with accrual accounting concept. The concept
states that businesses should maintain a provision of recording the financial transactions that
have not year actually realized for developing hidden reserves to be used at contingent situations.
However, the prudence concept is gain included in the conceptual framework due to increase in
number of corrupt practices by business corporations by manipulating the accounts for their
personal benefits as evident form 7-Eleven wage scandal. The inclusion of prudence ensures that
business entities will record the financial transactions that have been occurred in reality with no
overstatement of profits and understatement of expenses. This is required for protecting the
investors interest and maintaining transparency in business operations (Hoffman, 2016).
Conclusion
As analyzed from 7-Elevnet accounting practices, the company has not adequately
complied with AASB and conceptual accounting framework principles. The company needs to
comply with all the principle of conceptual framework and include prudence at the time of
financial reporting for ensuring its sustainable growth and development.

References
7-Eleven: Annual Report. 2015. [Online]. Available at:http://www.7eleven.com.my/pdf/ar-
2015.pdf[Accessed on: 6 April 2014].
Compiled Accounting Standard AASB 108. 2014. [Online]. Available
at:http://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPdec09_01-
11.pdf[Accessed on: 6 April 2014].
CCH Australia Limited. 2009. Australian Master Accountants Guide. CCH Australia Limited.
Ferguson, A. 2016.7-Eleven's wage fraud sparks $170 billion blow back.[Online]. Available
at:http://www.smh.com.au/business/retail/7elevens-wage-fraud-sparks-170-billion-blow-back-
20160826-gr264h.html[Accessed on: 6 April 2014].
Hoffman, C.W. 2016.Revising the Conceptual Framework of the International Standards: IASB
Proposals Met with Support and Skepticism.World Journal of Business and Management 2 (1),
pp. 1-32.