Analysis of Bravura Ltd's Financial Accounting Practices Report

This report provides an in-depth analysis of Bravura Ltd's financial accounting practices. It begins with an introduction to the company and the accounting concepts it employs, including objectivity, matching, revenue recognition, and consistency. The report then delves into measurement issues, particularly the use of fair value versus historical cost, supported by examples from Bravura's financial statements. The discussion further explores the concepts of relevance and representational faithfulness in financial reporting, emphasizing their importance for decision-making. The report uses Bravura's annual report to illustrate these concepts, highlighting the company's adherence to accounting standards and its disclosure practices. Ultimately, the report concludes that Bravura Ltd provides relevant and reliable financial information, aiding stakeholders in their decision-making processes.

Advanced Financial Accounting

Bravura Ltd
Executive Summary
The annual report of any company is prepared with the aid of various accounting information.
The accounting information assumes a place of special importance as it helps in defining the
structure of the business. The current report revolves around the company name Bravura
Solution Limited, a company listed in the ASX and operating in the IT sector. The report
initiates with the introduction followed by the accounting concept used by the organization.
Secondly, the report discusses the measurement in accounting and is studied with the aid of
various examples. Finally, the discussion moves to relevance and representational faithfulness.
In the end, it can be concluded from the report that the relevant information is being provided by
the organization that will assist in the process of decision making.
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Contents
Introduction.................................................................................................................................................3
1. Identification and description of the accounting concepts used..........................................................3
2. Issue of measurement and provide examples........................................................................................4
3. Relevance and representational faithfulness..........................................................................................6
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9
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Bravura Ltd
Introduction
Bravura Ltd is engaged in the production of software for the financial services industry. The
headquarters is in Sydney, New South Wales. The company earned revenue of more than $250 m
and comprises of 85 employees. The report is based on the accounting concept used by the
organization. Relevant information is always needed by the investors because it comprises of a
confirmatory value. This provides a general understanding that the users contain an expectation
that is justifiable. The accounting concept utilization such as matching concept, revenue
recognition has been aptly used by the organization at large. Secondly, the conceptual framework
has been discussed in the light of this company. The base or the foundation of accounting is
defined as the conceptual framework (IFRS Foundation, 2010). To ensure effectiveness in the
framework, the company needs to ensure the strengthening of the level of accounting. It enables
to describe the information in a rational manner (Donius, 2012). The last part of the report
describes the Relevance and representational faithfulness that is two major aspects in the annual
report of the company.
Bravura Solution Limited
1. Identification and description of the accounting concepts used.
Accounting runs on a few concepts which form its backbone. The main concepts are Objectivity,
matching, revenue recognition, and consistency.
The principle of objectivity requires that the financial statements are a fair representation of the
transactions that have taken place and such transactions are backed by supporting documents. In
the case of Bravura Solutions Limited, the Management takes up the responsibility for the
preparation and presentation of the financial statements which is backed by the management
declarations and authority letters produced (Deggan, 2014). The Statutory Auditors verify the
true and fair nature of the financial information provided by the management and disclose any
material misstatements that are found out by making a qualification in their audit report.
The matching concept requires that the costs incurred by the company towards manufacturing,
selling and administration are supported by the revenues generated by the same. Bravura
Solutions Limited has incurred different types of costs. It can be understood from the Notes to
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the financial statements that if such expenses are expected to provide any benefit for the current
period, then it is treated as an expense in the Profit and Loss Account. If the benefits from the
asset are expected to be realized in the future periods, then such costs are capitalized and
disclosed in the statement of financial position.
The revenue recognition concept defines the criteria for the recognition of revenue. The Annual
Report of Bravura discloses information about revenue recognition. AASB 15 is followed which
provides a five-step model to be applied for revenue recognition with customers. Thus the point
of recognition requiring the transfer of risks and rewards of ownership, accounting for variable
consideration, costs of obtaining and fulfilling a contract are followed (Gowthrope, 2011). A
majority of the revenue stream in the consolidated entity is generated from professional services
rendered and the recognition of the same is done on time and materiality basis.
The next most important concept is consistency in the measurement and disclosure of
information on a year to year basis to help the stakeholders compare the information over the
years. As there is a choice among methods and also the newer business practices require shifting
the measurement from one method to another, the annual report makes a complete disclosure of
such changes in methods. The financial impact of the change from one measurement method to
another is quantified and if found to be material, then the figures are also disclosed. Thus the
various classes of assets are measured and disclosed in accordance with the accounting
standards.
2. Issue of measurement and provide examples.
In terms of accounting, measurement is the calculation of goods, services or man-hours in terms
of some measurable element to enhance the utility and comparability of the financial
information. Money is the most common mode of measurement widely recognized all over the
world (Horngren, 2013). Apart from money, the other measurement units used can be man-
hours, the number of units manufactured, so on and so forth. Depending upon the usage of the
report, the measurement units are selected accordingly to gain a more comprehensive picture of
the operations of the company *(Ndzi, 2015).
Accounting measurement has an impact on all the stakeholders whether directly or indirectly as
the business may be termed as a success or failure based on this measurement. There are
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increasing challenges and growing controversies around this concept of measurement as the
concept of fair value have surpassed the traditional historical cost concept as the mode of
measurement. Different jurisdictions have developed their own set of measurement standards
based on the business and regulatory areas of operation. Even within the same industry, different
measurement bases are adopted by different companies depending upon the ownership, size, and
governance (Ross et. al, 2014). These principles are also not being followed consistently and
systematically as it changes in response to the practical problems. Historical cost remains the
most convenient mode of financial reporting as it is the foundation of accounting and
bookkeeping. Transactions are initially recorded at historical cost as it is the simplest and most
accurate method. But during the subsequent years, measurement is being done at fair value due
to the inability of the historical cost concept to cope with the current market changes. As newer
ways of doing businesses have evolved, complex financial instruments are posing newer
challenges. A few examples could be leased assets, interest rate swaps and such other derivative
financial instruments. Newer business practices have also led to the creation of such assets which
have a long term maturity and the time frame is not definite. Hence accounting measurement at
fair values is being permitted. Historical cost is not well equipped to accommodate these
requirements as the businesses are subject to market risks and it is impossible to define the future
(Merchant, 2012).
The Annual Report of Bravura Solutions Limited is used as a base here. The financial assets are
either measured at fair value through profit and loss or loans and receivables or held to maturity
or available for sale. The guidelines laid down in AASB 13 are followed as it unifies the
definition of fair value and the Notes also disclose the measurement by following the fair value
hierarchy. The fair values of cash, trade receivables and payables are the approximate amounts
due to the inherent nature of the asset. These assets have very short-term maturities and so an
accurate amount is unpredictable. The fair values of financial liabilities are arrived at on the basis
of Level 1 calculations. For non-current receivables, a discount rate has been used to work out
the fair value and these discount rates are a reasonable approximate by the management. Hence
this is a limitation. The impairment of goodwill and such other assets is worked out by
calculating the future expected cash flows which are also based on the key assumptions of value-
in-use of the particular assets. Thus there are many such areas wherein the management makes
assumptions for the calculation of fair values.
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3. Relevance and representational faithfulness
Relevance and representational faithfulness are the two aspects being spoken about in the
discussion here. The relevance of information is very important to be a part of any financial
statement. This helps a lot in understanding the usefulness of the financial statement. A financial
statement without relevant information is of no use (Shah, 2013). A perfect example of the same
is as under:
The personal issue of an employee for which some help in the financial nature was done by the
CFO, from his personal funds. Although this transaction took place sorghum company premise,
it had nothing to do with the company funds and hence it need not be appearing in the financial
statements.
Also, there are innumerable transaction transactions happening day in and day out in a company.
They all may not be relevant to be reported definitely, but another aspect to take care is that the
representation of the expense should be faithful. There cannot be simply too much informal
dumped, and there also cannot be untrue or incorrect information on the books. These two
concepts are somewhat interrelated (Madura & Fox, 2011).
We tried to look at the books of Bravura Solution Limited. The books show that there are many
many risks and the valuation of risk is also enumerated in the financial statement. This is an
example of a transaction which has representational faithfulness (Deegan, 2011). It has been
quantified in monetary terms. There is evidence of the existence of such information. Another
example of representational faithfulness is the director's report. The directors have testified on it
that they have abided by all the regulations. There is relevant information on related party
transactions, remuneration paid to directors, the director’s capacity in which the money has been
taken by then (Deegan, 2011). Looking at the financial statement it is visible that there is full
disclosure of all the necessary information. There is relevance in the financials.
Now looking at the assets and liabilities of Bravura solution limited, we are clear on one
inference. We need relevance as well as integrity in the reporting of assets and liabilities.
Irrelevant reporting of assets and liabilities is of no use, and so is the reporting of incorrect or
inefficient numbers (Bravura Ltd., 2018). Such will impact the decision making process of the
users and will further hamper the goodwill of the company. Incorrect numbers reported, as is
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indicated by the phrase 'representational faithfulness', means any misguided information, be it
intentional, unintentional, mistaken or purported, by the company management or by the
auditor, any of the above which makes its way to the financial statement is unacceptable. Such
incorrect information sends wrong signals to the people and customers (Bravura Ltd., 2018).
Hence, it is imperative that the company should have a proper understanding of the entire matter
and provide the data in a meaningful manner that will enable transparency and clarity.
If we compare the cash and cash equivalent for the year ending 2018, to that for the year ending
2017, we shall notice, that the number is almost double in the 2018 year end books. This
information is supported by much other information’s so as to make the information more
credible. (Subramanyam & Wild, 2014 There is a detailed calculation of cash inflow and outflow
during the entire reported period. This justifies the concept of representative faithfulness. What is
being shown is justified, verified and hence it is faithful information.
Also, merely showing that the cash flow has risen, doesn’t make sense unless it is backed by
some calculation (Bravura Ltd., 2018). Hence the notes on cash and cash equivalent, on short-
term borrowing and market value of the cash and cash equivalent, the cash flow statement, all of
it is relevant information. Thus, reliance is done on the information. The information that is
present helps the users to understand the issue and provide a desired level of knowledge.
These two concepts are mutually inclusive of each other rather than being mutually exclusive.
The same goes for all the other information. For all assets, there is supporting evidence to back
up the calculation, there are clear policy details and all regulations that have been followed for
all the assets and liabilities calculation and representation (Bravura Ltd., 2018). For assets, if the
two concepts are mutually inclusive, the same applies for liabilities too. The liabilities are the
best place where more fraud or misrepresentation is possible. Hence careful vigilance on
calculation is anyways persuasive. However, there is no way in which integrity can be
compromised in reporting the same.
There are policies and regulations mentioned in the financial statements for the valuation of the
liabilities too, which clearly justifies the representational faithfulness. Also, every detail
regarding the same will not appear to be extra information but, is the right information to justify
its relevance. Therefore, one concept is not in any way more important than the other for the
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valuation of assets and liabilities and it's representation in the financial statements. It is in fact
mutually inclusive, so they go along together.
Conclusion
From the annual report of Bravura Ltd, it can be commented that the field of financial reporting
is vast and there should be a connection between the building blocks. This aids in solving issues
such as financial reporting issues, qualitative features, etc. the organization should prepare the
financial report so that the objectives are addressed accordingly. Without the presence of such a
link, the annual report will not be able to develop in an effective manner. As studied from the
annual report of Bravura Ltd, the Relevance and representational faithfulness are two concepts
that are mutually inclusive of each other rather than being mutually exclusive. Relevance, as well
as integrity, is required in the reporting of assets and liabilities. The overall discussion states that
the company Bravura Ltd is settled in an appropriate manner and hence the company is able to
project the information in the desired fashion.
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References
Bravura Ltd. (2018) Bravura Ltd annual reports an accounts 2018. Available from:
https://bravurasolutions.com/ [Accessed 23 May 2019]
Deegan, C. M. (2011). In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Deggan, C. (2014). Financial Accounting Theory. McGraw-Hill.
Donius, B. (2010) Profit Maximization - Ethics = The ‘Goldman Standard, Available from
http://www.huffingtonpost.com/bill-donius/profit-maximization---eth_b_553605.html
[Accessed 25 May 2018]
Gowthrope, C. (2011). Business accounting and finance for non specialists (3rd ed.). South
Western
Horngren, C. (2013) Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group.
IFRS Foundation. (2010). Conceptual Framework for Financial Reporting 2010. Retrieved from
http://www.ifrs.org/News/Press-Releases/Documents/ConceptualFW2010vb.pdf
Madura, R., & Fox, J. (2011). International financial management (2nd ed.). South Western
Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific
Accounting Review, 24(3), 1-34. doi: https://doi.org/10.1108/01140581211283904
Ndzi, E. (2015) Remuneration consultants: benchmarking and its effect on pay. International
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https://doi.org/10.1108/IJLMA-02-2015-0009 { Accessed 21 May 2019]
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Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014)
Shah, P 2013, Financial Accounting, London: Oxford University Press
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Subramanyam, K & Wild, J. (2014) Financial Statement Analysis. McGraw Hill
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