Advanced Financial Accounting Report: Financial Statement Analysis

This report analyzes advanced financial accounting practices, focusing on the application of Australian Accounting Standards (AASB). It examines the accounting concepts used, emphasizing the importance of judgments and estimations in areas like consolidation, fair value measurement, and segment reporting. The report details how a specific company applies these standards, including its approach to investment properties, rental income, and valuation processes. It delves into the issues surrounding measurement, particularly concerning AASB 9 and AASB 15, and assesses their impact on financial reporting. Furthermore, the report discusses relevance and representational faithfulness in financial statements, highlighting their importance for providing reliable and useful information to stakeholders. The analysis covers areas like classification, measurement, hedge accounting, and impairment provisions, offering insights into the complexities of financial accounting and reporting.

ADVANCED FINANCIAL ACCOUNTING 1
ADVANCED
FINANCIAL
ACCOUNTING

ADVANCED FINANCIAL ACCOUNTING 2
Contents
Accounting concepts used:...........................................................................................3
Issues with measurement:............................................................................................5
Relevance and representational faithfulness:..............................................................6
References...................................................................................................................7

ADVANCED FINANCIAL ACCOUNTING 3
Accounting concepts used:
The company under review has prepared its financial statements on the basis of the
laws that have been laid down under the Australian Accounting standards. This
could be said since these standards requires the use of the accounting estimates
along with the judgment for the purposes applying the relevant ant policies on the
financial statements if the company. The areas that require some significant
estimations and the judgements. These include the decisions with relation with the
consolidation and the classification of the joint arrangements and the estimation if
the fair values with regard to the investment properties and the borrowings and
liquidity with regard to the derivative financial instruments.
Thee company has employed some segment information which includes the
determination of the various operating segments based upon the different reports
that were undertaken for review under the chief operating officers. This is mainly due
to the fact that the relevant management is accountable for the purposes of
determining the operating segments. The company has reported a single operating
segment which operates in the country of Australia. The various different operating
segments reported by the company include the freestanding supermarkets along
with the various neighbourhood shopping centres and the sub regional shopping
centres. The company does not allocate the resources or assesses the performance
of the company on the basis of the reportable segments that were reported earlier.
There is only one reportable segment in the company that was being reported as an
operating segment. There is a nil effect of these operating segments on the
consolidated financial statements. The company has reported the various
investments, incomes and the expenses in their respective percentage of the
ownership. All of the investment properties held by the company are reported at their
respective fair values and the other assets along with the other liabilities are reported
at their balance sheet values. This has been done on the basis of the information
which has been laid down in the front of the board.
The rental income of the company represents the income from the properties which
have been earned by the company on its long term properties and the same has
been reported in the annual accounts on the basis of straight line basis over the term
of the lease period. The portion of the rental income is somewhat related with the
fixed increases in the operating lease rentals in the future years which has been
reported as a separate component if the investment properties. The properties
reported in the annual accounts include the asset worth of $10.5 million which had
the value if $10.7 million during the yearv2017 with an unamortised lease incentives
of an amount of $21.2 million during the current year and which had the value if
$16.6 million in the previous year. The rent is being reported in the annual accounts
on the basis of accrual concepts of accounting.
In respect of the various properties and the portfolio assets of the company it has
been reported that these consist mainly of the various investment properties held by
the company and the interests that have been held by the company through joint
ventures. The properties of an investment include the investment interests of the
company in land and the buildings that have been held for the purposes of yielding
long term benefits for the company. This goes on to include the different properties
that are under development and that are meant for the future use of the company.
These investments in the joint ventures that consist if the indirect interests in the

ADVANCED FINANCIAL ACCOUNTING 4
interests properties that have been held and that have a separable legal entity or the
company under review.
In respect of the process of valuation, the company conducts and follows a proper
valuation process for the purposes of the valuing the investments on sole semi
annual basis. These are the valuations that have been performed either by an
independent professionally qualified valuers or the internals valuers if the company
that hold sole significant and the recognised professional qualifications. The fair
values of the assets and the liabilities are being valued at the discounted cash flows
and by the way of following the various different methods of consolidation. The use
of the skills and the judgments of these independent external valuers is somewhat
on progressive basis and this has extended over the period of 3 years. Also these
valuations are done for the company on the basis if the material changes in the
carrying of the various different properties. In respect of the non development
properties, in case the property is more than 12 months old then an external valuer is
involved for the purposes of carrying on the valuation. In respect of the other
properties, wherein there have been some material movements as on the last date
of the reporting period, whether the revaluation is to be done or not by the external
sources or not is considered in case to case basis. In respect if the year ended on
June 30, 2018, 100% of the non-development properties of investment were valued
externally by the company which was 90% in the previous period.
In respect of the borrowings, the company reports these at their respective fair
values. This is being estimated on the basis of comparing the margin on the facility
pricing of the company. This is the valuation of the similar facilities that exists in the
current market and hence, are reported at their respective amortized costs by the
way of using the method of effective rate of interest. These could be reported at their
respective fair values as at the time off the acquisition in the case of the liabilities
that have been assumed in the business combinations. Under the method of the
effective rate of interest, any type of sort of the transaction, costs, discounts etc
along with the premiums which are connected with the borrowings would be reported
in the statement of financials over the life of the borrowings.
In such a case, the fair value if the adjustment is done and is applied on the basis of
the mark to market movement in the component of benchmark of the borrowings and
this is something or the fact which has been reported in the statement of financials.
With regard to the derivative financial instrument, the company uses the derivatives
to hedge the exposure of these instruments to the different rates of the interest and
the foreign currency on the foreign denominated borrowings. These financial
instruments are the ones that are reported at their respective fair values and are
measured following some recurring basis. The accounting of any sort of hedging
depends upon the derivative which is designated as the instrument to be hedged.
And in such of the case, the nature of that item would be hedged. The company
under review reports these derivatives as either being fair hedges or the cash flow
hedged. Any amount of gain or loss which relates with the effective portion of the
interest rate swap would be reported in the statement of profit or loss. The finance
costs are also reported in the statement of profit and loss. The changes that occur in
the fair values or the hedged fixed rate borrowings which are connected with the
derivative financial instruments are reported under the head of net gains of the
losses in the statement of profit or loss. In respective the cash flow hedges, an
effective portion of the changes that occurs in the derivative fair values are reported

ADVANCED FINANCIAL ACCOUNTING 5
in the statement of other comprehensive income along with the accumulated cash
flow hedge reserve in the statement of equity. With regard to the gains of the losses
that relate with the ineffective portion would be disclosed revenant statement of
performance under the head of net gains or losses from the financial instruments.
The amounts that are kept in the equity shall be reclassified to the profit and loss
during the periods when the hedging item affects the profit and loss statement. The
gains or the losses that are connected with the portion off the interest rate swaps
hedging of the fixed arte of the borrowings would be reported in the financials of the
company along with the costs incurred towards financing.
Issues with measurement:
The AASB 9 contains the rules with regard to the financial instruments of recognition
of financial assets along with the financial liabilities. These set out the new rules for
the purposes of hedge accounting and this applies to the new rules for the
impairment testing. This goes on to include the various requirements that have been
laid for the assessment of the credit losses that have been incurred under the AASB
139. The company applies the relevant rules of the AASB 9 from the reporting period
of July 1, 2018. The review of the business operations of the company with the
following issues of measurement with regard to the adoption of the AASB 9:
 Classification and measurement: this seeks the analysis of the confirmation
that there shall be no changes in the classification and the measurements of
the various financial assets and the liabilities. All of the financial instruments
shall either be reported at the amortised costs of the fair value through the
financials. This classification is as per the rules and regulations set under the
AASB 139.
With regard to the current hedge accounting, a relationship exists for the cross
currency interest rate swaps that would continue to function under the rules of the
AASB 9. With regard to the provision for impairment, there are new expected credit
losses for the purposes of calculating the impartment on the financial assets but this
is something that would not affect the provision of the doubtful debts of the company.
This is not line with the measurement since no outside consultation has been taken
in this regard. There is a new standard that explains the various different
requirements of the disclosures.
In respect of the AASB 15 which deals with the contracts with the customers, the
standard is based upon the revenue which has been recognised when the control
with regard to the goods or the services have been transferred on to the customers.
This helps in replacing the concept of risks and rewards. This is not line with the
rules and regulations laid down under the revenue recognition since the revenue is
reported in the annual accounts once the risks and the rewards have been
transferred to the customer. This standard applies to all of the contracts with the
customers apart from the leases, financial instruments and the contracts pertaining
to insurance. The AASB 15 requires the reporting of the entities that seeks to provide
the users of the financial statements with much more information along with the
relevant disclosures. If relied on these, then it is not expected that the recognition of
the current revenue or the measurement would have a material impact over the facts
in the financial statements. There is an immense change in the presentation of the
revenue items and the additional amounts of disclosures would be required for these
(Charter Hall, 2019).

ADVANCED FINANCIAL ACCOUNTING 6
These financial instruments are though reliable but only to the tune of the fact of the
same person and the different situations would yield different results. These
instruments are considered to be valid only when they are to measure as to what
they set out to measure. With the face validity, this measure that makes some sense
is the way of assessing the way in which these could be measured. Then there is a
criterion validity which goes for the assessing to the tune this measure helps in
correlating these measures (London deanery, 2019).
Relevance and representational faithfulness:
The financial statements of the company are assumed to be faithful and
represent true and fair view when correct results of the operations, financial
potion and the cash flows of the company have been reported correctly. The
financial statements of the company must have the following:
 They must be complete in all respects in the sense that an investor must
have a clear picture of all of the facts contained in the financial
statements. There must be no fact which is not there in the financial
statements (Bragg, 2019).
 They must be free from any sort of an error. This is in the sense that the
financial facts must represent a clear picture of the company. In case,
there are some continuing errors, then those errors would be regarded as
bias that would hamper the view of the investors and the users of those
financial statements. This is also considered to be a fraud of financial
reporting.
 These financial facts must be unbiased. This is in the sense that there
shall be no amplification of the results that could make the facts look like
the ones that they actually are not. In order to illustrate, when the financial
statements contain bias information or the facts, then that would cloud the
judgement of the buyers or the users of the financial statements (Ruhl,
2013).
Conclusion:
In terms of the relevance, the financial statements of the company must be able to
be compared with the other companies and also with other time periods. These
should be able to be independently represented and the observers that have some
basic information should be able to verify this information. There should be timely
disclosures of all of the facts contained in the financial statements. The information
contained in the financial statements must be able to be classified, presented clearly
and concisely (Accounting simplified, 2019).
In light of the above, from the point of an investor or any other user of the financial
instrument, it could be said that the financial statements of the company contain the
true and the fair view of the financial position of the company. Also, one could rely on
the opinion expressed by the auditors of the company since they are the ones that
have a higher degree of skill and judgement that helps them in expressing their
opinion on the financial statements. The audit opinion expressed is unqualified which

ADVANCED FINANCIAL ACCOUNTING 7
means that the auditor is of the view that all of the financial facts contained in the
financial statements are true and have been reported as per the rules, regulations
and the guidelines that have been laid by the relevant regulatory authorities. And
then this leaves no room in the mind of the user with regard to any doubt whatsoever
(IFRS, 2019).

ADVANCED FINANCIAL ACCOUNTING 8
References
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accounting/accounting-concepts-and-principles/accounting-relevance.html
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Available at: https://www.accountingtools.com/articles/what-is-faithful-
representation.html [Accessed 17 May 2019].
Charterhall.com.au. (2019). Charter Hall Retail REIT Annual Report 2018 - Charter
Hall. [online] Available at: https://www.charterhall.com.au/news/2018/charter-hall-
retail-reit-annual-report-2018/ [Accessed 17 May 2019].
Faculty.londondeanery.ac.uk. (2019). Issues of measurement — E-Learning
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issues-of-measurement [Accessed 17 May 2019].
IFRSbox - Making IFRS Easy. (2019). Conceptual Framework for the Financial
Reporting 2018 - IFRSbox - Making IFRS Easy. [online] Available at:
https://www.ifrsbox.com/ifrs-conceptual-framework-2018/ [Accessed 17 May 2019].
Ruhl, J. (2013). The Accounting Entity, Relevance, and Faithful Representation:
Linking Financial Statement Notes to the FASB and IASB Conceptual Frameworks.
[online] American Accounting Association. Available at:
https://aaajournals.org/doi/10.2308/iace-50522 [Accessed 17 May 2019].