BAO2202 - Financial Accounting Report: Intangibles, Liabilities, Tax

This report critically evaluates the disclosures related to intangible assets, liabilities, and income tax of Myer Holdings Limited and Adelaide Brighton Limited, assessing their compliance with Australian Accounting Standards. The analysis involves reviewing the companies' 2018 annual reports, focusing on accounting policies and associated disclosures. The report examines the concept of a reporting entity, compares liabilities and intangible asset disclosures, and evaluates the disclosure of benefits, income tax expenses, and obligations. The study finds that while both organizations make assumptions and estimates in accordance with applicable standards, Myer Holdings provides more detailed disclosures of contingent liabilities and provisions compared to Adelaide Brighton. The report concludes by offering recommendations to enhance the transparency and usefulness of accounting information, highlighting the importance of adhering to general purpose financial reporting frameworks for effective decision-making by stakeholders.

Running head: FINANCIAL ACCOUNTING
Financial accounting
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FINANCIAL ACCOUNTING
Executive summary:
The report demonstrate the critical evaluation of the disclosures related to intangible assets,
liabilities and income tax whether they are in compliance with the relevant accounting
standards of Australia. For the analysis purpose, Myer holdings limited and Adelaide
Brighton limited is selected from retail sector and material sector respectively. The evaluation
of the accounting policy and the associated disclosures are done by reviewing the annual
report for the financial year 2018. After the analysis of each section, the report also outlines
the recommendation concerning the accounts explained and its contribution to the
transparency and usefulness of accounting information.

FINANCIAL ACCOUNTING
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................5
Evaluating the concept of reporting entity in the creation of quality information for financial
statements users:.........................................................................................................................5
Evaluating the compliance of the firms with the relevant accounting standard by comparing
the liabilities disclosure:.............................................................................................................7
Evaluating the compliance of the firms with the relevant accounting standard by comparing
the disclosure of intangible assets:...........................................................................................11
Evaluating the compliance of the firms with the relevant accounting standard by comparing
the disclosure of benefits, income tax expense and obligations:.............................................15
Conclusion:..............................................................................................................................19
References list:.........................................................................................................................20

FINANCIAL ACCOUNTING
Introduction:
The study elucidates the effects of the legal needs of the organizations listed on the
Australian stock exchange to conform to the financial reporting standards of Australia. It
demonstrates the compliance of the publically listed organizations to the relevant accounting
standards in various areas such as liabilities, leasing, earning per share, tax effect accounting
and intangibles. Reporting entity are required to make a reasonable expectation of the fact
that the users uses the framework of general purpose financial report to obtain an
understanding of the overall financial performance of entity. Assessment of the information
presented according to the reporting framework helps users in assuring the facts that
information have been represented faithfully. Such users can be employees, shareholder,
lenders, creditors and potential investors. It is essential for the entity to document whether
they have users who are dependent on assessing the entity as per the general purpose
financial reporting with the help of people charged with the governance (Efrag.org 2019).
The report prepared demonstrate the evaluation of compliance of reporting entire with the
relevant accounting standard in terms of contingent liabilities, intangible assets, earning per
share and taxation effect. For the analysis purpose, two companies have been chosen from
different industries that are Myer Holding limited from Retail industry and Adelaide Brighton
limited from Material industry.
For explaining the compliance of the reporting standards by different companies, it is
essential to discuss briefly the overview. Adelaide Brighton limited is a manufacturing
company based in Australia that is involved in the manufacturing of lime, cement and dry
blended products. Myer Holdings on other hand is a department store company that is based
in Australia and owns a designer brand for women’s wear and bide and sass. The evaluation

FINANCIAL ACCOUNTING
of the compliance of the companies with the relevant accounting standards are discussed in
the section below.
Discussion:
Evaluating the concept of reporting entity in the creation of quality information for
financial statements users:
The existing regulations and legislation specifying the entities about general purpose
financial reporting have number of implicit alternative reporting entity concepts. The concept
of reporting entity is associated with the objective of general purpose financial reporting
which requires the entities to prepare the general purpose financial report if they are
dependent upon it. Users will be provided assistance in determining the financial position and
performance of reporting entity with the help of disclosures of the industry and the
consequence of deployment. Therefore, it is essential for the reporting entity to deploy the
information for managing the resources with the help of administrative or legal structure. It is
evident from the reporting entity concept that is reflected in the statement that the creation of
company does not mean that they would qualify as the reporting entity. The objective of
preparing the general purpose financial report is associated with the dependence of user on
the report for evaluating and making decisions relating to the allocation of resources (Simnett
and Huggins 2015).
The concepts of reporting entity developed through the financial reporting framework
helps in making the reporting and financial accounting logical and consistent, enabling the
overall enhanced communication and economic development of accounting and increasing
consistent by enhancing the compatibility of the standards. In addition to this, there is a

FINANCIAL ACCOUNTING
significant contribution of the concept of reporting entity to the public confidence and in the
credibility of the financial information. Such reporting framework tends to emphasize on the
information usefulness that is contained in the financial report that is considered significant
for the users. However, there is criticizing of the focus of accounting principles on the
transactions and economic phenomenon that is expressed in monetary values (Aasb.gov.au
2019). It has been ascertained that the high quality of reporting helps users in providing
information that is relevant for making decisions and representing the economic reality of the
activities of company along with its financial condition in a faithful manner.
The current study on the importance of the reporting entity concepts is significant
because of continued growth of research in this particular area. This is in relation to the
substantial debate surrounding the implications of the approach of principle based concept to
the reporting entity and its potential impacts. It is pointed out by the researcher that there are
subjective issues in the basis of concept of reporting entity and this have a consequence on
the decision making of the individual. Nevertheless, the adopters and practitioner acts
genuinely and objectively in their compliance with the reporting framework which does not
results in generating significant cause of concern (Aasb.gov.au 2019). Furthermore, due to
the differential use of reporting methods, there is an impact on the quality of financial
reporting as well along with the concern of level of compliance. Therefore, accounting for
such issues would create an impact of the quality of the financial information provided by
reporting entity to the users of the financial statements. Some other researchers have also
presented the basis of arguments that the principle based approach of reporting entity does
not make any significant differences in the outcome of reporting. From the analysis of
different case studies by the researchers found that the concept of reporting entity is not
appropriately applied. Since the reporting entity concept is based on the principle, it is
essential to make choices that are made in the key financial information reporting. In such

FINANCIAL ACCOUNTING
situation, any choices made by reporting entity to increase the relevance may results in
reducing the reliability of the information and users may not find high reliable information
relevant. Despite the fact of some issues associated with the reporting entity concept, it has
been found that the entities adopting the concept of reporting entities tends to provide
financial information that are of higher quality (Velte and Stawinoga 2017.). With regarding
the compliance issues faced by the firm, the rate of adopting the general purpose financial
reporting framework by the firm is lower that it probably should be. Therefore, from the
analysis of the reviews presented in the literature, it is inferred that the concept of reporting
entity helps in providing higher quality financial information though, there some areas where
it lacks in presentation if the financial information that helps in forming the decision making
of the users.
Evaluating the compliance of the firms with the relevant accounting standard by
comparing the liabilities disclosure:
In this section of the report, the disclosure of the liabilities of the chosen companies
has been evaluated by review their recent financial statements published in the annual report
of the financial year 2018. For analyzing the disclosure of liabilities such as provisions and
contingent liabilities, the accounting policies used by the firms have been accounted for.
Measurement of provisions is done at the present value of the best estimate of the
expenditure of management for settling the obligations at the date of reporting. All the
liabilities and the contingent liabilities that occurred in the business combination are
measured at the date of acquisition at their fir value. For determining the benefits concerning
non employee provisions, the expected future cash flow is discounted at the rate of tax that
helps in reflecting the assessment of the market for the risk specific to liability and time value

FINANCIAL ACCOUNTING
of money (Adbri.com.au 2019). In addition to this, any increase in the provisions resulting
from the passage of time is recognized as interest expense.
Provisions:
(Source: Adbri.com.au 2019)
Adelaide Brighton limited also has an unrecognized contingent liability for acquiring
the interest that is not owned by some of its joint venture. The joint venture partner can
exercise the acquisition of interest and all the factors that have an impact on the value of
interest. For the parent entity other than the bank guarantee, there are not any other
contingent liabilities. In respect of the contingent liabilities, there is no anticipated material
loss. The detail of the provisions and contingent liabilities are explained by the group in their
notes to financial statement.
Contingent liabilities:
(Source: Adbri.com.au 2019)

FINANCIAL ACCOUNTING
For the provisions, there is a constructive and legal obligation on part of the group
that helps in estimating it in a reliably manner. The obligations concerning provision would
be settled by the outflow of economic benefits. Recognition of provision is done even when it
is likely to have an outflow with respect to the items include in the same obligation class
(Adbri.com.au 2019).
Myer Holding limited has constructive and legal obligations in recognizing the
provisions that occurred due to past events. In addition to this, there is a provision for future
operating losses as well. For settling the present obligation relating to provisions at the
reporting date, measurement of provisions are done at the best estimate of the measurement
made by management. Recognition of the provisions is done based on the claim projects
which are an estimate of the claims that have been incurred but they are not reported.
Moreover, determination of provisions are done by the group by utilizing an actuarially
determine method that is based on certain assumptions such as average claim size, future
inflation and administrative expenses that are to be claimed. There is annual review of all
such assumptions and the compensation expense of workers is affected by the reassessment
of such assumptions (emeraldinsight.com 2019). Therefore, it is outlined by the group that
the recognition of the provisions are done by deciding about the assumptions and judgment in
confirmation with reference to the accounting policies for computing the provisions relating
to strategic decision.

FINANCIAL ACCOUNTING
Provisions:
Source:
The contingent liabilities at the initial level are measured at the fair value at the date
of acquisition. It has been found from the financial report that in the current year that is 2018
there are no contingent liabilities for parent entity. Myer Holdings limited has contingent
liabilities in respect of Myer chadstone store and guarantees amounting to $ 7 million. In
respect of all these contingent liabilities, there were no material loss incurred with the timing
and amount of contingencies remaining uncertain. Therefore, it is said that recognition and
determination of contingent liabilities aligns with the accounting standard requirement.
Contingent liabilities:
(Source: Investor.myer.com.au 2019)

FINANCIAL ACCOUNTING
The above section presented an analysis of the recognition and determination of
provision and liabilities for the two chosen companies. It has been found by reviewing the
financial statements that Myer holding limited provided a detailed disclosure of the
recognition of contingent liabilities and provisions compared to Adelaide Brighton limited.
However, both the organization has made the assumptions and estimates in the recognition of
liabilities in accordance with the requirements of the applicable Australian standard. All the
components of the provisions of the Myer holding is described separately as against Brighton
that only provided the disclosure of the figures and value of such accounts.
The disclosure quality relating to the liabilities can be done by disclosing higher
quantity of information. Moreover, the quality of the liabilities should be disclosed in an
adequate manner along with determination of measurement basis for the same. The
usefulness of the information relating to liabilities gets limited by the conceptually
inconsistent measurement of liabilities in the financial statements. Investors would be better
guided in their investment decision making if the measurement framework is established that
defines how the liabilities are measured and uses an economically relevant basis of
measurements. In addition to this, a complete and clear disclosure of the liabilities should be
provided to investors along with the measurement basis (Adbri.com.au 2019). There should
be a summary of all the types of contract, financial arrangement and commitments for
enhancing the transparency of information related to liabilities.
Evaluating the compliance of the firms with the relevant accounting standard by
comparing the disclosure of intangible assets:
This section of the report conducts an investigation into the compliance of the firms to
the relevant accounting standard in relation to the disclosure of intangible assets by reviewing
their financial statements. The obligations, benefits and expense associated with the income

FINANCIAL ACCOUNTING
tax are an accounting concept and there exist differences between income tax payable and
income tax expense.
The intangible assets of Adelaide Brighton limited comprise of lease rights, goodwill,
software and some other assets. Measurement of goodwill is initially done at the fair value at
the date of acquisition and any non controlling interest is recognized at the fair value or in
proportion to the share of net identifiable assets of the acquire. Goodwill is tested for
impairment frequently or on annual basis when there is an indication of change in
circumstances or due to the occurrence of any events. In addition to this, goodwill is carried
at the cost by deducting the impairment loss. For the value in use calculations of goodwill,
there are certain key estimates and assumptions made by the management. The testing of
goodwill is done on annual basis along with some other intangible assets having indefinite
life. For the cash generating units, the recoverable amount is determined based on the
calculations of value in use. In addition to this, evaluation of the estimates and judgment are
done on continuous basis on the factors and other historical experience along with the future
events impacting the financial performance of group (Adbri.com.au 2019). For the analysis
of cash generating unit within the business segments, the assumptions have been done for the
analysis.
Goodwill: