Accounting Theory and Contemporary Issues: Harvey Norman Analysis

This report provides a comprehensive analysis of accounting theory and contemporary issues, focusing on the financial performance of Harvey Norman. The report begins with an executive summary outlining the key objectives and structure, followed by an introduction to Harvey Norman's business model. The core of the report involves an in-depth analysis of Harvey Norman's general purpose financial report (GPFR), remuneration report, inventory analysis, accounts receivable, liabilities, and income analysis. The report compares Harvey Norman's financial aspects with those of Wesfarmers, providing a comparative perspective. The analysis includes key financial metrics and their implications. The report also delves into the conceptual framework, particularly the concept of prudence, discussing its importance, benefits, and criticisms. The report identifies and discusses issues specific to Harvey Norman, such as shareholder concerns. The report concludes with recommendations for the company, based on the financial analysis, and a comprehensive list of references.

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting theory and contemporary issues
Name of the student
Name of the university
Author note

1ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Executive summary
The main objective of this report is to focus on the conceptual framework and prudence with
regard to accounting and financial statement. The report will focus on the analysis of the
general purpose financial report, remuneration report, inventory analysis, account receivable,
income analysis and liabilities of Harvey Norman. Further, the report will compare the
financial aspect of the company with that of Wesfarmers. Based on the outcomes, finally
some recommendation will be provided.

2ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Introduction................................................................................................................................3
Analysis of (GPFR) general purpose financial report................................................................3
Remuneration report and conceptual framework.......................................................................4
Inventory analysis......................................................................................................................5
Account receivable.....................................................................................................................6
Liabilities....................................................................................................................................7
Income analysis..........................................................................................................................8
Prudence in conceptual framework............................................................................................9
Importance of prudence............................................................................................................10
Benefits and criticism of prudence...........................................................................................10
Issues with the company..........................................................................................................11
Conclusion................................................................................................................................11
Recommendation......................................................................................................................11
Reference..................................................................................................................................13

3ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Introduction
Harvey Norman is the big multi-national, Australian based retailer for furniture,
computers, consumer electrical and communication products. Their operating structure is
different from others with respect to the fact that each of the store department is operated by
the separate management entity. Therefore, the superstores are the combination of three to
four different management of business that are independently managed through contribution
of revenue to the Harvey Norman Holdings Ltd. through the sales portion and lease
payments. The stores of Harvey Norman are operated and owned by Sydney based and ASX
Listed parent company Harvey Norman Holdings Limited. The main objective of the
company is to get the recognition as the global leader in delivering the retail services in fast
moving sector of consumer goods, generate sufficient returns for the stakeholders, creating
the inspiring workplace and to be welcomed by the communities under which they operate
their business (Harveynormanholdings.com.au 2016).
Analysis of (GPFR) general purpose financial report
The company is the profit company that is limited by shares and incorporated as well
as operated in Australia. The shares of the company are traded publicly under the Australian
Securities Exchange (ASX) and trading under ASX with the code HVN. The financial
statement of the company is the general purpose financial report and is prepared as per the
requirements of the Corporation Act 2001, interpretation of the Australian Accounting
Standards and the compliance of other law. The financial report of the company further
omplied with the AAS (Australian Accounting Standard) as issued by the AASB and the
IFRS (International Financial Reporting Board) as released by the IASB (International
Accounting Standard Board). Further, the accounts are prepared based on the historical cost
approach except for the land, buildings, investment properties, listed shares those are held for

4ACCOUNTING THEORY AND CONTEMPORARY ISSUES
trading, investments those are available for sale and few derivative instruments which are
measured at the fair value approach.
Remuneration report and conceptual framework
From the remuneration report of the company it is recognized the remuneration
strategy of the company is formed to retain, motivate and attract the high performance from
the individuals and to align the shareholder and executive’s interest.
The fixed remuneration includes the superannuation contributions, base salary and
other benefits and is paid for providing the competitive fixed remuneration with regard to the
market, experience and role. For payment of fixed remuneration, the performance of the
individual as well as the performance of the entity is taken into consideration during the
review of annual remuneration.
The STI is paid through cash as the performance cash incentive. STIs are paid to
reward the executives for the contribution under the achievement of the company as a whole.

5ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Out of the total STI, 50% is subject to the financial condition which is 50% satisfied at the
14% RONA, 100% satisfied at the 15% RONA and further 50% is subject to the non-
financial conditional performance. Finally, the LTI are paid for performance rights with
regard to the right to acquire 1 ordinary share of the company at zero exercise prices. Further,
the remuneration strategies are presented to the shareholders in the AGM for their approval.
Inventory analysis
The inventories of the company for June 2015 were $ 298,381,000 and increased to $
315,746,000 in June 2016. Inventories of both the companies are valued on net realisable
value or cost whichever is lower and are transacted at net of all the volume rebates, business
and marketing development settlement discounts and contributions. Costs are measured at the
weighted average approach and it involves the duty, freight, inward charges and acquisition
cost. Net realisable value is forecasted selling prices under the ordinary course of business
and from this the forecasted costs for making the sale is subtracted.
Particulars Wesfarmers Limited Harvey Norman
2015 (AUD Million) 2016 (AUD Million) 2015 (AUD
Million)
2016 (AUD
Million)
Inventorie
s
5497 6260 298.38 315.76
Table 1: Inventories of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)

6ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Inventories
0
1000
2000
3000
4000
5000
6000
7000
5497
6260
298.381 315.746
Inventories
Wesfarmers 2015 (US$
Million)
Wesfarmers 2016 (US$
Million)
Harvey Norman 2015
(US$ Million)
Harvey Norman 2016
(US$ Million)
Graph 1: Inventories of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)
It is recognized that the inventories of Harvey Norman is significantly low as
compared to that of Wesfarmers for both 2015 and 2016.
Account receivable
Particulars Wesfarmers Limited Harvey Norman
2015 (AUD Million) 2016 (AUD Million) 2015 (AUD Million) 2016 (AUD Million)
Accounts
receivable
806 835 1110.67 1096.57
Table 2: Accounts receivable of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)

7ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Account receivable
0
200
400
600
800
1000
1200
806 835
1110.67 1096.57
Account receivable
Wesfarmers 2015 (US$
Million)
Wesfarmers 2016 (US$
Million)
Harvey Norman 2015
(US$ Million)
Harvey Norman 2016
(US$ Million)
Graph 2: Accounts receivable of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)
It is recognized from the above figures that the accounts receivable of Harvey
Norman is better as compared to that of Wesfarmers for both the years (Rankin et al. 2016).
The companies shall increase the level of accounts receivable to meet its current obligation in
better way.
Liabilities
Particulars Wesfarmers Limited Harvey Norman
2015 (AUD Million) 2016 (AUD Million) 2015 (AUD Million) 2016 (AUD Million)
Total
liabilities
15621 17834 1769.80 1743.13
Table 3: Total liabilities of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)

8ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Total liabilities
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
15621
17834
1769.8 1743.13
Total liabilities
Wesfarmers 2015 (US$
Million)
Wesfarmers 2016 (US$
Million)
Harvey Norman 2015
(US$ Million)
Harvey Norman 2016
(US$ Million)
Graph 3: Total liabilities of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)
It is recognized from the above figures that the total liabilities position of Harvey
Norman is better as compared to that of Wesfarmers for both the years. The companies
reduce the level of total liabilities to improve their liquidity position (Picker et al. 2016).
Income analysis
Particulars Wesfarmers Limited Harvey Norman
2015 (AUD Million) 2016 (AUD Million) 2015 (AUD Million) 2016 (AUD Million)
Net income 2440 407 351.34 268.91
Table 4: Net income of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)

9ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Net income
0
500
1000
1500
2000
2500
3000
2440
407 351.34 268.91
Net Income
Wesfarmers 2015 (US$
Million)
Wesfarmers 2016 (US$
Million)
Harvey Norman 2015
(US$ Million)
Harvey Norman 2016
(US$ Million)
Graph 4: Net income of Wesfarmers Limited and Harvey Norman
(Source: Created by Author)
It is recognized from the above figures that the net income position of Wesfarmers
Limited is better as compared to that of Harvey Norman for both the years
(Wesfarmers.com.au 2016). The companies shall try to increase its net income position
through reducing the expenses.
Prudence in conceptual framework
The prudence as well as the consistency under the conceptual framework are
complied to identify the inconsistencies that may be found in the preparation and presentation
of the financial statements of any organization. To be stated more concisely, the terms like
prudence and conceptual framework assist to find out the inconsistencies or non-compliance
in the presentation, true and fair approach and accountability of the financial statements (Kent
and Zunker 2015). Normally, the organizations listed under the ASX used different strategies
for preparing their annual statement to increase its simplicity, clarity and transparency and
enable the users like shareholders, creditors, potential investors and other users to extract the

10ACCOUNTING THEORY AND CONTEMPORARY ISSUES
information easily as per their requirement. On the other hand, non-compliance explains that
the organization while preparing their annual statement has not followed the conceptual
framework of IFRS, IASB or AASB or did not followed the true and fair view approaches.
Importance of prudence
The financial statements of any organization are of biggest concern which is beyond
of just the true and fair approach and the contemporary issues of Accountability. Reliability
and prudence with regard to the financial statement accounting reporting has long record
(Zhang and Andrew 2014). Various arguments are there with regard to the significant
accounting standards, AASB and IFRS that must take into consideration the term prudence
and shall state its importance under the conceptual framework. Including the carefulness
while applying the judgements on the financial statements are required with regard to
probability and uncertainty in the circumstances, for example, the liabilities and the expenses
are not undervalued and the incomes and assets are not overvalued (Scott 2012.). Thus, the
concept of prudence is the big concern for the presentation of financial statement as per the
true and fair approach. Moreover, it offers wide initiative with regard to the operational as
well as the financial position of the company that is to be taken into consideration.
Benefits and criticism of prudence
The major advantage of prudence is the preparation of the financial statements on the
basis of going concern. It assists the accountant to forecast the future problems that may take
place in the business. Further, it assists the accountants to prepare the plan for the future and
allow them time to solve the financial problems. The prudence also assists in influencing the
financial statement to be useful for the investors (Schaltegger and Burritt 2013). On the other
hand, the criticism that is received against the prudence is that it failed to take into account
the fact that the economic value and book value of the asset are different. Further, the

11ACCOUNTING THEORY AND CONTEMPORARY ISSUES
contracting demand for the accounting of prudence is received with regard to the problem
that most of the part that is to be applied does not exist actually.
Issues with the company
One of the major issues of the company is the revolt of the shareholder for more than
$ 943 million for loans to the franchisees along with the proxy advisor that recommended the
fund managers to vote against the reception of the financial accounts. The main issue
regarding the matter was detail regarding the loan was not provided. The lack of transparency
in the account was a serious issue. It was also found that during FY16 the franchisees retailer
doubled the sales growth that was amounted to $ 5.33 billion with increase of 7.6% as
compared to 3.7% increase for the previous year. Though the company was happy regarding
this tremendous growth, as per ASIC the company is not transparent to their shareholders.
Conclusion
From above analysis it is found that both the companies are following the AASB
framework and IFRS interpretation while preparing their financial statements. However, the
inventories of Harvey Norman is significantly low as compared to that of Wesfarmers for
both 2015 and 2016 and that the accounts receivable of Harvey Norman is better as compared
to that of Wesfarmers for both the years. Further, the total liabilities position of Harvey
Norman is better as compared to that of Wesfarmers for both the years and net income
position of Wesfarmers Limited is better as compared to that of Harvey Norman for both the
years.
Recommendation
As it is found from the financial report of the company that the inventories of the
company are significantly low, the company shall accumulate some fund to purchase

12ACCOUNTING THEORY AND CONTEMPORARY ISSUES
inventories. Increasing the inventories will assist them in enhancing the current assets, which
in turn will enable the company to be in the better position to pay-off their obligations.
Further, as the remuneration of the executives are based on the performance, chances are
there that the management may falsify their own performances as well as the company’s
performance to receive more remuneration. Therefore, the company is recommended to find
out any other suitable approach for paying the remuneration.

13ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Reference
Harveynormanholdings.com.au. 2016. Reports. [online] Available at:
http://www.wesfarmers.com.au/investor-centre/company-performance-news/reports
[Accessed 16 Aug. 2017].
Kent, P. and Zunker, T., 2015. A stakeholder analysis of employee disclosures in annual
reports. Accounting & Finance.
Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L.,
2016. Applying international financial reporting standards. John Wiley & Sons.
Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., 2012.
Contemporary issues in accounting. John Wiley and Sons Australia, Limited.
Schaltegger, S. and Burritt, R., 2013. Contemporary environmental accounting: issues,
concepts and practice. Greenleaf Publishing.
Scott, W.R., 2012. Financial accounting theory (Vol. 2, No. 1, p. 12). Upper Saddle River,
NJ: Prentice hall.
Wesfarmers.com.au. 2016. Reports. [online] Available at:
http://www.wesfarmers.com.au/investor-centre/company-performance-news/reports
[Accessed 16 Aug. 2017].
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), pp.17-26.

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