Financial Reporting Analysis of Billabong International Ltd - ACC510

This report provides a comprehensive analysis of Billabong International Limited's financial reporting practices, focusing on compliance with accounting standards. It examines provisions and contingencies, including guarantees and letters of credit, discussing their recognition and measurement based on AASB guidelines. The report further details the treatment of leased items, plant, and equipment under financial leases, referencing AASB 16, and explores hypothetical reclassification scenarios. It also identifies and analyzes non-current assets, specifically receivables, detailing their valuation methods and impairment considerations. The analysis concludes that Billabong International Limited generally adheres to accounting regulations, although improvements in disclosures are recommended. Desklib offers this student-contributed assignment and many other resources.

Running head: FINANCIAL REPORTING
Financial reporting
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Introduction................................................................................................................................2
Requirement 1............................................................................................................................2
Contingencies and Provisions....................................................................................................2
Requirement 2............................................................................................................................4
Recognition criteria and measurement in association with provision or contingent liability....4
Requirement 3............................................................................................................................5
Contingency recorded................................................................................................................5
Requirement 4............................................................................................................................5
Plant and Equipment under Financial Leases............................................................................5
Requirement 5............................................................................................................................6
Treatment of Leases...................................................................................................................6
Requirement 6............................................................................................................................7
Reclassification of the leased item.............................................................................................7
Requirement 7............................................................................................................................8
Non-current asset-impairment method.......................................................................................8
Requirement 8............................................................................................................................9
Valuation method for non-current assets...................................................................................9
Conclusion..................................................................................................................................9
Reference List..........................................................................................................................10

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Introduction
In this report, proper emphasis had been given on understanding whether the
accounting statement of Billabong International Limited are being prepared and in
compliance to the prescribed standards (Scott 2015). The purpose of the report is to evaluate
the reliability of using these accounting statements by Billabong International Limited in their
operations. The current segment analyses the financial report of Billabong International
Limited and discusses its significant points that are already highlighted in this report. The
primary focus of this report is to deal with providing a detailed understanding as well as
analysing the financial statements of Billabong International Limited.
Requirement 1
Contingencies and Provisions
In this requirement, it is needed to discuss about the contingencies and provisions of
Billabong International Limited. From the annual report of Billabong International Limited, it
is understood that the contingencies are disclosed in these accounting statements of the
Business Corporation further divided into several number of financial elements (Nobes
2014). Contingency means assets as well as liabilities that are not accounted as well as have
occurred in case of any emergency. Guarantee is the first component that is mentioned in the
financial report of Billabong International Limited under the heading Contingencies. To
explain in detail, financial guarantee contract are mostly realized and treated as liability
because the nature of financial can be seen at the time of issuing the guarantee. Furthermore,
this liability is measured at fair value method by following the standards as set by AASB.
Therefore, AASB that deals with this liabilities is mentioned under AASB 137 Provisions,
Contingent assets and contingent liabilities.

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On the other hand, the financial elements that is treated is the Letters of Credit where
most of the financial disclosures are given in the statements. Therefore, Billabong
International Limited had $2.4 million letters of credit as this is not limited to the leases as
well as insurances.
To explain further, the financial disclosure that are being mentioned in the accounting
statements had been presented below for the financial year 2017 where there is associated
contingent liability mentioned with the terminated agreement. There is further mentioned
about this component in the annual report where Billabong International Limited had incurred
the contingent liability up to $3.5 million (Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐
Ballesteros 2015).
Therefore, provisions are mentioned in the accounting statements of Billabong
International Limited and shown in the financial year 2017 and amount to $14,160.

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Figure: Contingent Liability of Billabong International Limited
Requirement 2
Recognition criteria and measurement in association with provision or contingent
liability
In this requirement, it is needed to discuss about the recognition criteria as well as
measurement issues that are linked with the provisions and the contingencies as listed below
with proper justification:
Guarantees- One of the recognition criteria that are mentioned in the accounting statements
and gets linked with specific liability of guarantees is the measurement as it had been carried
out by making use of fair value technique as it is properly highlighted in the AASB 137
(Luez and Wysocki 2016).
Letter of credit- Letters of credit gets recognized and considered as undrawn letters as well as
not limited to leases and insurances.
There is no particular information that are mentioned at the time of identifying contingent
liabilities
It can be seen that the provisions are measured and considered as one of the best
estimates by the management as it is needed for settling down the current obligations as or
within the balance sheet date. In addition to that, the discounted rate will be used at the time
of evaluating the present value at pre tax rate as it shows the present assessment of the market

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situation. The overall matter gets related to the present time value of money as well as related
risks at the same time. Therefore, the interest expenses need to be identified for given period
of time.
Requirement 3
Contingency recorded
In this requirement, it is needed to explain about the contingency recorded where it is
mentioned in the financial report of the company and termed as guarantees. From the annual
report, it can be seen that financial guarantees have been recognized as a part of the liability
as it is getting incurred when there is issuance done. In addition to that, the liability is
measured at a fair value. Furthermore, the contingency recorder cannot be used at the time of
considering other contingent liabilities because it is known that guarantees might fluctuate
that lead to improper reflection of the treatment of accounting elements. It will further affect
the qualitative characteristics of the accounting statements (Leuz and Wysocki 2016).
Requirement 4
Plant and Equipment under Financial Leases
In this requirement, it is needed to explain about the plant and equipment under
financial leases. The plant and equipment as shown under the heading financial leases are
those components that are mentioned in the accounting report of Billabong International
Limited and shown amount of $1189 for the financial year 2017. In the year 2016, the
financial leases arrives at $1253 (Hoyle, Schaefer and Doupnik 2015). However, the figure is
already mentioned in the balance sheet of Billabong International Limited where the rental
expenses is treated in relation to operating leases as it had been further categorized into
minimum leases payments, sub-leases as well as contingent rentals. The lease liabilities have
been occurred by the corporate entity that amounts to $1247 for the financial year 2017 and

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$1675 in the financial year 2016. Therefore, the accounting body of AASB had resulted in
establishing of the accounting standard of AASB 16.
Figure: Plant, Property and Equipment
Requirement 5
Treatment of Leases
In this requirement, it is needed to explain about the treatment of leases. This specific
accounting standards are needed to be used at the time of treating the leases as mentioned in
the accounting statements of the business and the standard is AASB 16 as it had been
established by the AASB. In addition to that, the recognition of the interest that have been
carried out for given leasing terms (Gigler et al. 2014). In that cases, the exceptions that have
been mentioned in the financial report can be either short-term or low value assets in that
case.
It is important to understand the fact that plant and equipment under financial leases
are carried out when the component are mentioned in the accounting report of the company
and shows an amount of $1189 for the year 2017 and $1253 for the year 2016. Therefore, the
lease liabilities that have been occurred by the business arrives at $1247 for the year 2017 and
$1675 for the year 2016.

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Figure: Balance Sheet
Requirement 6
Reclassification of the leased item
In this requirement, it is needed to explain about the reclassification of the leased
item. The issue that had been mentioned in the question where it had been asked to describe
to which a leased item might be needed or in that case reclassified (Gaynor et al. 2016). In
that case, several examples are listed below that will explain the above hypothetical situation:

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The leaser results in the transferring of ownership of the assets to the lease and this can be
done by the leasing term end
In this example, it is explained about the lease experiences where the option will be to
conduct purchase asset at an expected price as it is lowered to that of fair value
In this example, it is mentioned about the nature of leased assets that help in leasing and
utilizing without even incorporating any of the main rectifications (Amiram et al. 2018).
Requirement 7
Non-current asset-impairment method
In this requirement, it is needed to explain about the non-current asset impairment
method. One of the problem that is mentioned in the question is that about a specific asset
that had been mentioned in the financial statements of the business organization has been
asked to be recognized and needed details have been asked for verification purposes (Frias‐
Aceituno, Rodríguez‐Ariza and Garcia‐Sánchez 2014). To explain in details, this asset that
had been selected is receivables that had been mentioned in the accounting statements of the
Billabong International Limited and shows account balance of $7351 for the financial year
2017. On analysis, it is noted that the receivables account shows the amount that is pending
or in that case the amount that is received from the debtors of the business organization.
However, the receivables even account for the portion of sales that have been asked for
carrying out on credit. It is important to understand the fact that disclosures included in the
annual report of the company and mentions about the categorization of receivables and these
are prepayments, prepaid costs of borrowing as well as other receivables.

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In the annual financial report of Billabong International Limited, information
regarding to the valuation of receivables had been mentioned and even declared that the non-
current receivables are not impaired in that way (Francis et al. 2015).
Requirement 8
Valuation method for non-current assets
In this requirement, it is needed to discuss about the valuation method for non-current
assets. Fair value consideration or on that case historical cost valuation can be treated as one
of the alternative method that can be used for valuing the receivables of the company. There
are two valuation methods that impact increase in the valuation of the specific amount as it
overall give rise to negative effect. Furthermore, it is preferred to make use of fair value
techniques in comparison to historical cost techniques. It is because fair value accounting is
suggested by the Accounting Board (Flower 2016).
Conclusion
From the above analysis, it can be seen that the report renders a detailed analysis of
all the requirements mentioned. This report conduct detailed analysis of different points
relating to Billabong International Limited and with that, conclusion is being formed. It is
noted that corporate entity has more or less adhered accounting regulations that are needed at
the time of preparing financial statements. By this, it is understood that financial statements
have been prepared with much diligence as well as care at the same time. However, the
preparation of financial statements had been done by the Business Corporate Entity of the
company and it shows the fact where enough disclosures will be required for bringing
improvement and developing specific task of financial reporting by the corporate entity.

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Reference List
Amiram, D., Bozanic, Z., Cox, J.D., Dupont, Q., Karpoff, J.M. and Sloan, R., 2018. Financial
reporting fraud and other forms of misconduct: a multidisciplinary review of the
literature. Review of Accounting Studies, 23(2), pp.732-783.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Francis, B., Hasan, I., Park, J.C. and Wu, Q., 2015. Gender differences in financial reporting
decision making: Evidence from accounting conservatism. Contemporary Accounting
Research, 32(3), pp.1285-1318.
Frias‐Aceituno, J.V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I.M., 2014. Explanatory
factors of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), pp.56-72.
Gaynor, L.M., Kelton, A.S., Mercer, M. and Yohn, T.L., 2016. Understanding the relation
between financial reporting quality and audit quality. Auditing: A Journal of Practice &
Theory, 35(4), pp.1-22.
Gigler, F., Kanodia, C., Sapra, H. and Venugopalan, R., 2014. How frequent financial
reporting can cause managerial short‐termism: An analysis of the costs and benefits of
increasing reporting frequency. Journal of Accounting Research, 52(2), pp.357-387.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Leuz, C. and Wysocki, P.D., 2016. The economics of disclosure and financial reporting
regulation: Evidence and suggestions for future research. Journal of Accounting
Research, 54(2), pp.525-622.

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Luez, C. and Wysocki, P., 2016. Economic Consequences of Financial Reporting and
Disclosure Regulation: A Review and Suggestions for Future Research. J. Acct. & Econ., 50,
p.525.
Martínez‐Ferrero, J., Garcia‐Sanchez, I.M. and Cuadrado‐Ballesteros, B., 2015. Effect of
financial reporting quality on sustainability information disclosure. Corporate Social
Responsibility and Environmental Management, 22(1), pp.45-64.
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

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