Advanced Financial Accounting Report: Afterpay Touch Evaluation

This report provides a comprehensive analysis of Afterpay Touch Group's financial statements, focusing on its classification as a reporting entity and the application of key accounting principles. The analysis begins with an introduction that sets the scope of the study, followed by a detailed discussion of the reporting entity concept, including its definition and criteria. The report then evaluates Afterpay Touch's financial characteristics, size, and indebtedness to determine if it meets the requirements of a reporting entity. Furthermore, the report examines the relevance and faithful representation of financial information, considering the qualitative characteristics of useful information as defined in the conceptual framework. The report assesses whether the financial information disclosed by Afterpay Touch is relevant and faithfully represented, evaluating the unit of measurement basis, recognition criteria, and factors considered when selecting the measurement basis. The report concludes by summarizing the key findings and implications of the analysis.

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:..................................................................................................................1
Discussion:...................................................................................................................2
Description of reporting entity:......................................................................................2
Evaluating the criteria of reporting entity of AfterPay touch limited:.............................2
Describing the relevance and faithful representation in relation to the useful
information of the financial statements:........................................................................3
Conclusion:...................................................................................................................4
References list:.............................................................................................................5

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Introduction:
The study is undertaken to provide a detailed discussion on the criteria and
the factors of reporting entity and evaluating the fact that the chosen company is a
reporting entity or not. The selected company for analysing its criteria of reporting
entity or not is AfterPay Touch group which is a payment company driven by
technology operating globally. It was in June, 2017, Afterpay Touch was established
after the merger of Touch group and Afterpay. The financial report published by the
company has been assessed for evaluating the faithful representation and relevance
in relation to the useful information.
Discussion:
Description of reporting entity:
The system of differential reporting by the entities in Australia is founded by
the concept of reporting entity. The issue pertaining to differential reporting was
addressed by IASB (International accounting standard board) and in this regard, the
concept of reporting entities and its principles was proposed in the exposure draft.
Reporting entities concept was introduced for ensuing that the financial reports
based on full GAAP is prepared by more economically, larger and politically
significant entities (Aasb.gov.au 2020).
Any organization can be categorized into a reporting entity if they can produce
the general purpose financial reports. Any organization or entity cannot be qualified
as reporting entity because of statutory authority, organizational structure and
creation of company. For an entity being classified as reporting entity so that it fulfils
all the criteria requires to make the judgment. All the entities of which the users gain
information from the general purpose financial reports that assist them in evaluation
and making of the decision regarding the allocation of the scarce resources
available. It is important and required by all the reporting entities to prepare general
purpose financial reports” (Birt et al. 2019). Preparation of such reports should be
done complying with the requirement of the accounting standards and accounting
concepts statement. Entities producing less complicated financial reports and special
purpose financial reports that does not complies with the accounting standards or
are based on lesser reporting standards are not classified as reporting entities.
Therefore, the classification of entities as reporting entities is primary dependent on
the fact of the dependency of the potential users of the financial statements of the
users on the financial reports issued for general report to base their investment
decisions. The principle guiding the classification of entity as reporting entity is the
separation of economic interest from the management and the entities more
financially, economically and politically significant, it is more likely that the users
would be dependent upon their financial statements to base their decisions (Adams
et al. 2017).
Evaluating the criteria of reporting entity of AfterPay touch limited:
The fulfilment of criteria to be classified as a reporting entity has been
evaluated by reviewing notes to the financial statements and the financial report
published by AfterPay Touch Group. AfterPay touch group was established as a
profit entity and the concept being tied to the objectives of general purpose financial

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reporting. Financial report of the company is prepared by complying with the
requirements of the general purpose financial report” (Afterpaytouch.com 2020).
AfterPay prepares general purpose financial statements that complies with the
requirements and other authoritative pronouncements of AASB (Australian
accounting standard board). In addition to this, entity has used a going concern basis
of accounting using historical cost. Any necessary and comparative information has
been restated s that ant changes in the presentation of the information is conformed.
It can be inferred from the fact that the company prepares general purpose financial
statements is that the users base their economic decisions based on the information
provided in the financial report (Herath and Albarqi 2017).
The financial statements establishing the reporting entity concept is found to
be associated with the information requirements of the users of the statements of
AfterPay Touch group in evaluating and making the decision of resource allocation.
In addition to this, the reporting entity boundaries is determined for the information
provision for the purpose outlined in the criteria. Afterpay Touch group comprise of a
group of entities and all the other entities are controlled by one of the entities within
the group so that their objectives are consistent (Afterpaytouch.com 2020).
Another factor evaluating the dependency of users on the general purpose
financial statements for allocating the resources is the size of the firm and its
indebtedness. Greater the size of indebtedness and greater the size of the firm,
users are more likely to depend upon such financial statements to base their
investment decision. It is quite evident from the consolidated statement of financial
position of Afterpay Touch that the total level of indebtedness in the current reporting
year has increased considerably along with increase in the total size of the company.
This has the implication from one of the factors determining the reporting entity
concept that users or investors are reliable on the financial statements produced by
the entity to base their decision. The particular basis represents the financial
characteristics of establishing the decision using the general purpose financial
reports (Afterpaytouch.com 2020). From the overall analysis of the facts gathered
from the financial report, it is inferred that Afterpay Touch Group is classified as a
reporting entity.
Describing the relevance and faithful representation in relation to the useful
information of the financial statements:
The qualitative characteristics of the useful information is set out in the
conceptual framework. The two fundamental qualitative characteristics determining
the understandability, timeliness, comparability and verifiability of the financial
information provided by the reporting entities are faithful representation and
faithfulness. The decision making requirement of the users are supposed to be
relevant to the given financial information. The auditors and the accountants of the
organization need to be focused on the financial information which impacts the
user’s decision. The primary need of the organization is expected to have a fair and
faithful representation which in order words can be said to be free from any
misstatements. On other hand, faithful representation is the most primary feature
which requires the financial information to be honest and fair meaning it should be
free from all kinds of misstatements. A balance is stroke between faithful
representation and faithfulness so that the users are provided with the useful
financial information (Janowicz 2018). It is required by the reporting entity to replace

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the information having high degree of uncertainty with the information that has fewer
uncertainty when it comes to providing explanations (Ifrs.org 2020). The substance
of financial information must be represented faithfully and should be relevant so as to
make such information useful.
Measurement basis of organization should be selected accounting for the key
characteristics of financial information such as faithful representation and usefulness.
Information disclosed in the financial report of the entity is regarded as relevant if it
can cause a difference to the user’s decision and for this such information should
have confirmatory or predictive value. On other hand, information is regarded to be
represented faithfully if it is neutral, complete and error free to the maximum extent
possible. Any uncertainty in the level of measurement affects the faithful
representation of information. A faithful representation of any event or transaction
that has caused arising of any income, assets, expenses or liabilities is provided by
the unit of account. An information that is represented faithfully need not be accurate
in all the respect and usefulness of the financial information should not be weakened
by the use of estimates that forms an important and essential part of preparing the
financial statements (Iasplus.com 2020).
Relevance of information is determined by choosing a unit of account so that
users are provided with the relevant information about liabilities and assets and any
related expenses and income. The recognition criteria also determines the relevance
of information such as whether any recognition criteria causes any existence of
uncertainty or flow of any economic benefits has a low probability ( Ifrs.org 2020). In
addition to this, whether there is any faithful representation of recognizing any item
and the representation is affected by recognition uncertainty, measurement
uncertainty and disclosure and presentation. Reporting entity when selecting the
basis of measurement should have a faithful representation and relevant in order to
enhance the qualitative characteristics of the information’s provided to the users
(Velte and Stawinoga 2017). Some factors impacting the faithful representation of
the information disclosed includes inconsistency in recognition, measurement
uncertainty and disclosure and presentation. Any liabilities or assets that is faithfully
represented is required to be derecognized with appropriate disclosure and
presentation
Whether the information produced or disclosed by Afterpay Touch group in
their financial report has been represented faithfully or not and whether the
information disclosed is relevant or not has been identified by evaluating the unit of
measurement basis of the items to be measured, criteria of recognition and factors
accounted when selecting the basis of measurement.
The recognition criteria used by the company to measure assets and liabilities
is considered to be appropriate if relevant information is produced about the
liabilities, assets, expenses, and income. This can be explained by taking examples
of various items in the financial statements such as income, tax and revenue.
Recognition of income tax expense is done using the method of balance sheet that
compute the temporary differences based on the carrying amount of financial
liabilities and assets and tax bases for liabilities and assets (Afterpaytouch.com
2020). However, the financial report mentions about the existence of uncertainties
with respect to the tax regulations interpretation and timing and amount of future
income to be taxed. The treatment of income tax is uncertain, although the

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measurement and recognition criteria is applied as per AASB 112 income tax
(Mbobo and Ekpo 2016).
The basis of measurement of revenue generated from different sources such
as from integration services and transaction revenue are specified. Recognition of
revenue generated from integration services is done by referring to the contracts in
progress or on completion of contracts. On other hand, recognition of transaction
revenue is done when a transaction is completed successfully. It is mentioned that
due to the payment and invoicing terms, no contract assets are owned by the group
(Beerbaum et al. 2019). Moreover, adjustment of any transaction price to the time
value of money is not done. Therefore, there exist lower probability of having
economic benefits flow.
The provision matrix established based on the historical credit experience of
the group is adjusted for the economic environment and other factors that is forward
looking and is established specifically to debtors (Afterpaytouch.com 2020). This
implies that the information provided relating to the provision of matrix is relevant as
the users are provided with more predictive information by identifying some variation
in the current value (Jana and Schmidt 2018).
Any change in the current value of liabilities and income recognized in the
statement of other comprehensive income would enhance the faithful representation
and relevance of the information disclosed about the liability or assets. The faithful
representation can be identified from the impairment testing of the goodwill. It is
mentioned by the group that any indicators of impairment is reviewed by accounting
for the factors specific to cash generating unit and relationship between book value
and market capitalization. A detailed impairment review has been performed by the
group concerning the goodwill (Gaynor et al. 2016). This implies that the information
is faithfully represented and is relevant for the investors in their investment decision
making.
Conclusion:
The report discussing about the evaluation of the factors of reporting entity
has identified various criteria for determining the reporting entity concept. Afterpay
Touch group has been classified as reporting entity based on the financial
characteristics, ownership characteristics and size of entity. Afterpay Touch group
has been classified as a reporting entity because of the preparation of general
purpose financial statements that adheres to the requirements of the applicable and
relevant accounting standards. In addition to this, account for assets and liabilities
have been done by using the different basis of measurement and recognition criteria
that implies that the information provided with faithfully represented and is relevant to
the investment and financial decision making process of investors.

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References list:
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https://www.afterpaytouch.com/images/28082019-FY2019-Appendix-4E-and-Annual-
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Iasplus.com., 2020. Conceptual Framework Phase A – Objective and qualitative
characteristics. [online] Available at:
https://www.iasplus.com/en/projects/completed/framework/framework-a [Accessed
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Standards (IFRS). Finanse, Rynki Finansowe, Ubezpieczenia, 94(4 (1)), pp.99-107.

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Lin, S., Riccardi, W.N., Wang, C., Hopkins, P.E. and Kabureck, G., 2019. Relative
effects of IFRS adoption and IFRS convergence on financial statement
comparability. Contemporary Accounting Research, 36(2), pp.588-628.
Mbobo, M.E. and Ekpo, N.B., 2016. Operationalising the qualitative characteristics of
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Velte, P. and Stawinoga, M., 2017. Integrated reporting: The current state of
empirical research, limitations and future research implications. Journal of
Management Control, 28(3), pp.275-320.

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Appendix:

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