Financial Reporting Analysis: Estia Health Limited's Performance

This report analyzes the financial reporting of Estia Health Limited, an Australian aged care provider, focusing on its 2019 financial statements. It examines the application of AASB accounting standards, the concept of the reporting entity, and fundamental qualitative characteristics like relevance and faithfulness in financial reporting. The report details Estia Health's consolidated financial statements, the going concern basis, and the impact of AASB 15 (Revenue from Contracts with Customers) and AASB 9 (Financial Instruments). It also discusses Estia Health's adoption of new interpretations and fair value measurements, concluding with the importance of accounting standards for providing reliable information to stakeholders for decision-making. The analysis highlights how Estia Health discloses relevant information to users, reflecting a true and fair view of the company’s financial position and performance, prepared under the guidelines of AASB and relevant standards.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Estia Health Limited..............................................................................................................2
Reporting Entity.....................................................................................................................3
Fundamental Qualitative Characteristics...............................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
Financial Statement is very crucial for all the stakeholders as it displays the scorecard
of an entity through which they can take their economic decisions. It is the responsibility of
the company to disclose the relevant information in its financial report. Reliable and relevant
information in the report of a company helps an investor to have an accurate view of the
company that helps them in their decision-making (Chea 2014). The report aims to develop
an understanding of the need for an accounting framework within the preparation of the
financial report. The company chosen here is Estia Health Limited, which is Australian aged
care that provides aged care to the whole of Australia from the last fifty years (Estia Health
2020). Further, the report will demonstrate the reporting entity, relevance, and qualitative
characteristics and related to Estia Health’s financial statement for the year 2019. The
concluded part will reflect the importance of the AASB accounting standard, where it has
formulated a framework of accounting that consists of specific rules and regulations for
effective reporting.
Discussion
Estia Health Limited
Estia Health provides aged care services across Australia that is included in Victoria,
Queensland, New South Wales, and South Australia. It is considered as one of the largest
aged care providers in Australia, which is operating from the last fifty years from now. Estia
Health Limited is listed on the Australian stock exchange. The organization has given equal
opportunity to the women in their operations to perform (Estia Health 2020). Estia supports
to proceeds accordingly as per the accounting framework prescribed by the AASB. Estia
Health Limited, as a healthcare sector, has prepared its financial report for the year 2019 is
prepared on the going concern basis (Estiahealth.com.au 2020). The group linked its home in

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local networks, which share expertise, knowledge, and experience to provide top care for the
Australian residents.
Reporting Entity
AASB accounting’s conceptual framework has defined the reporting entity as an
entity that is required to prepare or have chosen to prepare financial reports. The entity or
organization is not required to be a legal entity (Carey, Potter and Tanewski 2014). As per the
AASB framework, an entity can be single or can be a part of any entity, or it can be a
combination of one or more than one entity.
For maintaining minimum quality while preparing the financial report, SAC 1 has
defined a certain point that sets a benchmark for the quality reporting of an entity.
 Entity: It denotes any administrative or legal or an organizational structure or an
individual with the ability to arrange the scarce resources to gain objectives.
 Economic entity: This means a group of entity, which consists of one or more than
one controlling entity, initiates to perform together in such a way so that they can
achieve their objectives.
 Control: It refers to the capability of an entity to manage the decisions (directly or
indirectly) with respect to the economic and operating policies of others to allow the
other entity to operate and achieve the controlling entity’s objectives.
 General-purpose of financial reporting: It refers to the kind of financial report, which
meets the need of the users who is unable to understand the reports so, that to satisfy
the user’s informational requirement.
Paragraph 13 in SAC 1 definition of reporting entity includes that its acceptance is
neither dependent on the public sector or in the private sector (Aasb.gov.au 2020). Further, it
is neither dependent on the business/ non- business nor on legal nor other. Thus, the reporting

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entity consists of entire economic entities from which it is expected that the users are
dependent on its financial reports in their decision-making.
The reporting entity concept discusses the need of the users that are to be fulfilled
with the evaluation of the decision regarding the allocation of scarce resources. Paragraph 8
of the reporting entity concept denotes that the financial statements are to be prepared so that
to meet its objectives.
Estia Health Limited is a Reporting entity as the group is the liable present financial
report for the users and operates within the healthcare sector in Australia. Paragraph 3.11 of
the Conceptual Framework of financial reporting launched by AASB suggests two different
situations of maintaining financial reports. According to this, when a parent entity has control
of its holdings or subsidiaries, then the entity has to maintain consolidated financial reports
that are referred to as the consolidated financial statement (Kuliikova and Gafieva 2014).
Estia has prepared its financial statements as a consolidated financial statement in the year
2019 because the group as a parent entity has control over its many subsidiaries.
AASB, as a Conceptual framework of financial reporting in its Paragraph 3.15, states
that consolidated financial reports prepared by an entity have to reveal the components of
assets, liabilities, income, expenses, and equity (Cristea 2014). The information revealed
within such elements is beneficial for the financial report’s users as it allows them to identify
the net cash inflow to the parent and current position of the entity.
The financial report of the year 2019 of Estia Limited is prepared on a going concern
basis and tends to continue its operations in the future. As per Paragraph 3.9, the group as a
reporting entity has assumed to meet all its obligations within the specified period. Estia
reports its current liabilities are more than its existing assets by $865,175,000 that reflects its
net deficiency in the current assets. The group has mentioned its reason for such an increase

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in their need for RAD and ILU entry contributions. Estia has involved AASB 15 for reporting
so that to show their items separately with contract asset and liability and receivable (Seyam
and Brickman 2016). As a significant accounting policy, Estia limited identifies revenue
within AASB 115 revenue from a contract with customers that replace AASB 118 unless the
contracts are in the scope of different standards.
Fundamental Qualitative Characteristics
A fundamental qualitative characteristic is essential to maintain the financial
statements; otherwise, the entire purpose of preparing the report will be defeated. Paragraph
2.5 of AASB conceptual framework of reporting states two fundamental qualitative
characteristics, which are as follows-
i. Relevance- It refers to all the material information that should be disclosed which can
be helpful for the users of the financial report for their decision-making. According to
paragraph 2.6 of AASB, relevant financial information is essential in making a
change in the decision of the users (Aasb.gov.au 2020). In other words, relevance
means the information within the reports, which find to be useful for the user in
understanding and making decisions.
ii. Faithfulness- The term faithfulness reflects the complete and unbiased information
that should be present within the entity’s financial reports. A faithful representation of
financial reports means that a report should not indulge with a material misstatement.
The report must give a true and fair view of the entity (Cohen and Karatzimas 2017).
According to the AASB conceptual framework of financial reports, a faithful
representation of a report can be provided with the data that is complete, neutral and
error-free in the financial statements.

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Estia Health has disclosed consolidated financial statements, cash flows, and changes
in equity with including clear notes at the end of each section in its report. The report is
prepared under the compliance of AASB, Corporations regulations 2001 and it has fulfilled
the ethical requirement of the accounting professional to provide an accurate and impartial
view of the report, which is found as relevant to the auditors.
The group has adopted new AASB interpretations of AASB 15 that is Revenue from
contract with customers and AASB 9 financial instruments that have been revealed in the
financial report, and can be relevant for the users (Grossi 2014). Within AASB 15, revenue is
identified at the cost, which shows the concern to the expectation of the entity to be entitled
in exchange for transferring goods, or services to a customer. On the other hand, AASB 9
does not result in any material changes to the sorting of financial assets and liabilities. The
report declares the AASB 9 has replaced the incurred loss model in AASB 139 with a new
impairment model, which applied to the financial assets that have been measured at
amortized cost. Trade receivables are shown as reclassified to fiscal assets at amortised value
from loans and receivables that have resulted in a change in the balance from $9,845,000 to
$9,394,000 (Estiahealth.com.au 2020). The group has adopted AASB 117 leases, on the basis
of which the management has analyzed the recognition of the lease liabilities of approx. $85
million. Estia Health has used fair value measurement, which is based on a hypothesis. The
assumption or hypothesis states that transaction to sell the asset or transfer the liability takes
place in the primary market either for the asset or liability or in the absence of a primary
market (Joubert, Garvie and Parle 2017). Property, plant, and equipment are measured at fair
value. The financial report has disclosed their terms of the lease and the changes in the
figures accordingly within the notes.
The group has given all the relevant information that can be useful for the users and
has prepared the financial report as per the guidelines of AASB and relevant standards so that

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to reveal a faithful reporting for the users (Barth 2014). The separate data within the notes of
the entire section gives a clear and fair view of the figures represented within the report.
Further, independent auditing of the report specifies that the group has made a true and fair
financial reporting for the year 2019.
Conclusion
The accounting standards are essential for any entity in preparing its financial report.
The AASB specifies certain rules and guidelines to all the reporting entity for effective
financial reporting. The framework of accounting in financial reports is necessary for an
entity to provide a better understanding of the users for the financial reports. Estia Health
Limited has prepared its financial report for the year 2019 as per the guidelines of the AASB
and Corporations Act 2001. The group has disclosed all the relevant information and
reflected a true and fair view of the entity so that will be useful for the users in their decision-
making.

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References
Aasb.gov.au 2020. online Aasb.gov.au. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/Conceptual_Framework_05-19.pdf
Accessed 28 Jan. 2020.
Aasb.gov.au 2020. online Aasb.gov.au. Available at:
https://www.aasb.gov.au/admin/file/content102/c3/SAC1_8-90_2001V.pdf Accessed 28 Jan.
2020.
Barth, M.E., 2014. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Carey, P., Potter, B. and Tanewski, G., 2014. Application of the Reporting Entity Concept in
A ustralia. Abacus, 50(4), pp.460-489.
Chea, A.C., 2014. Fair value accounting: Its impacts on financial reporting and how it can be
enhanced to provide more clarity and reliability of information for users of financial
statements. International journal of business and social science, 2(20).
Cîrstea, A., 2014. The need for public sector consolidated financial statements. Procedia
Economics and Finance, 15, pp.1289-1296.
Cohen, S. and Karatzimas, S., 2017. Accounting information quality and decision-usefulness
of governmental financial reporting. Meditari Accountancy Research.
Estia Health 2020. Estia Health - The Leading Aged Care Provider in Australia. online Estia
Health. Available at: https://www.estiahealth.com.au/who-is-estia-health/about-us Accessed
28 Jan. 2020.

9ADVANCED FINANCIAL ACCOUNTING
Estiahealth.com.au 2020. online Estiahealth.com.au. Available at:
https://www.estiahealth.com.au/assets/media/files/Estia%20Health%20-%20Annual
%20Report%202019.pdf Accessed 28 Jan. 2020.
Grossi, G., 2014. Consolidated financial statements in the public sector. In Public sector
accounting (pp. 63-76). Routledge.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for
Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The
Journal of New Business Ideas & Trends, 15(2), pp.1-11.
Kulikova, L.I. and Gafieva, G.M., 2014. Development of financial reporting
principles. Mediterranean Journal of Social Sciences, 5(24), pp.38-38.
Seyam, A.A. and Brickman, S., 2016. The new requirements relating to going concern
evaluation and disclosure provide a critical improvement to the financial statements taken as
a whole.