HI6025 - Analyzing IFRS Impact on Wesfarmers: An Australian Study

This report examines the impact of International Financial Reporting Standards (IFRS) on Australian companies, focusing on a case study of Wesfarmers Limited. It discusses the advantages and disadvantages of IFRS adoption in Australia, including its effect on attracting investments, reducing management expenses, and filling gaps in Australian Generally Accepted Accounting Principles (AGAAP). The report analyzes Wesfarmers' lease recognition and accounting practices before and after IFRS implementation, highlighting the potential doubling of liabilities due to new accounting rules under AASB 16 Leases. It further explores the implications for key financial metrics, CGU impairment assessments, and the definition of insignificance, concluding with an assessment of the challenges and opportunities presented by IFRS for companies with extensive lease portfolios like Wesfarmers. Desklib provides access to similar solved assignments and study resources for students.

CONTENTS
 INTRODUCTION
 ADVANTAGES
 DISADVANTAGES
 IFRS AND AGAAP-CONVERGANCE
 IMPACT OF IFRS IMPLEMENTATION ON WESFARMERS
 CONCLUSION

IMPACT OF INTERNATIONAL
ACCOUNTING STANDARS ON
AUSTRALIAN COMPANIES
AFTER IFRS PERIOD- STUDY
ON WESFARMERS

INTRODUCTION
 Lawmakers have been adequately impacted to move to embrace
International Accounting Standards for the arrangement of records of
announcing elements in Australia.
 Their arrangement was to receive these Guidelines starting on or
after 1 January 2005. The Standards are obligatory on all substances.
 The Australian Accounting Standards Board (AASB) has issued
'Australian reciprocals to IFRS’, numbering IFRS gauges as AASB 1– 8
and IAS norms as AASB 101– 141.
 The AASB keeps on reflecting changes made by the IASB as nearby
professions

ADVANTAGES
 Help attract investments to Australia = bring down cost
of capital
 Bring down expenses for management, auditors and
clients of multinational elements' financial reports
 Fill a few gaps in Australian GAAP (AGAAP) for example,
financial instruments.

DISADVANTAGES
 Loss of AGAAP direction,
 Loss of opportunity to build up, claim revenue
driven element norms
 Execution expenses of progress
 Presentation of discretionary Accounting norms is
troublesome

CHALLENGES
Moving from a designer of local benchmarks to being a supporter
of global guidelines The AASB has needed to re-evaluate itself:
 drive inquiries about, for example, extractive Indusries and
elusive resources
 remarks on all IASB consultative reports, and urges Australian
constituents to do as such
 takes an interest in International Meetings, for example, the
NSS Group and the AOSSG

Continued..
 illuminate IASB/IFRIC of translation issues, instead of building
up possess elucidations
 association with New Zealand FRSB
 effectively partake in IPSASB exercises
 proceed not-for-benefit and open area ventures
 re-evaluate differential detailing structure

IFRS AND AGAAP
 IFRSs were more thorough, including: money related
instruments acknowledgment and estimation and post-
business benefits; and
 AGAAP was more thorough, including: protection, extractive
exercises, impalpable resources, and applied structure 11 IFRS
appropriation
 Key highlights of Australian protection and extractive exercises
measures were held.
 IFRS 4 Insurance Contracts and IFRS 6 Exploration for and
Evaluation of Mineral Resources grandfathered existing
applicable Australian GAAP meeting specific criteria

IMPLICATION OF
IAS ON
WESFARMERS
LIMITED

ABOUT THE COMPANY
 Wesfarmers Limited is one of Australia's greatest recorded
associations, retailers and organizations.
 Its different business exercises cover: supermarkets, retail
chains, home change and office supplies; coal mining;
assurance; chemicals, essentialness and fertilizers; and
mechanical and security things.
 Wesfarmers works from in excess of 4,000 discrete territories
across finished Australia and New Zealand and has in excess
of 6,600 rents over the social occasion, being fantastically
property leases.

IMPACT ON LEASE RECOGNITION
AND ACCOUNTING:
 Wesfarmers' liabilities is expected to double, due to
introduction of new Accounting rules.
 Under AASB 16 Leases, organizations will be compelled to
bring Operating leases onto their asset reports from January
2019.
 The new standard was activated in 2011 as book retailer
Borders
 But it lead to increased liability of $2.8 Billions in leases which
was seven times the announced obligation.

Continued….
 New IAS will affect key budgetary measurements
 The new standard will likewise influence benefit and cost
implications – changing EBITDA, EBIT and net profit.
 Wesfarmers has one of the biggest rent liabilities in Australia
(about $15 billion) because of its 3500 Coles general stores,
Bunnings, Office works, Target and Kmart stores.

CGU impairment assessments:
 The right-of-utilization resource recorded under the proposition
should be dispensed to the applicable money generating units
('CGU'),
 This will increase various contemplation from the present
position of Wesfarmers
 There will be no comparing change in genuine money streams
 The CGUs would be influenced by the incorporation of the
right-of-utilization resource and the consideration or rejection
of the risk to make rent instalments.

Continued..
 The proposition have changed the Operating lease cost for
Premium cost on the rent risk and amortization of the right-of-
utilization resource
 the NPV of the anticipated money streams of the CGUs are
increasing, as the premium cost and amortization would be
rejected from the money streams
 The net effect is reliant on whether the rebate rates utilized on
beginning of the right-of-utilization resource varies from the
Impairment test.

DEFINITION OF INSIGNIFICANT
 In the event that the hidden resource isn't property, a substance is
required to group a rent as a Type A rent .
 Unless the rent term is for a unimportant piece of the aggregate
financial existence of the fundamental resource.
 The presentation draft does not characterize unimportant.
 From the vast dissimilarity in accounting treatment emerging from
the characterization of the rent, it is likely that difference would
emerge countering the enhanced quality and likeness of monetary
detailing conceived under the proposition.
 This also encompasses disclosure of detailed cost-benefit analysis
and field testing.

Asset impairment assessments
 Steady with the prerequisites of IAS 36 the right-of-utilization
resource must be tested for Impairment.
 Where a right-of-utilization resource identifies with property
and delegated a Type B rent the underlying amortization is
lower.
 This would risk the straight-line cost profile foreseen for
property under the proposition.

CONCLUSION
 There will be various numerous components that will be oppositely
influenced by the movements, particularly from a capital raising
perspective.
 The divulgence necessities, are troublesome for organizations with
extensive changed rent portfolios, for example, Wesfarmers.
 The data revealed may not be valuable for stakeholders as it would
amount to disclosure of tremendous amount of information, which
may mislead them.
 Further, it might be conflicting of the Boards to actualize basic
changes in the rent accounting model whereby existing exposures
are brought onto the accounting report and increment the
divulgence necessities.

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