British American Tobacco Plc: Contemporary Issues in Accounting

This report analyzes the financial statements of British American Tobacco Plc to determine its compliance with general purpose financial reporting standards. It examines the company's adherence to the objectives of general purpose financial reporting, including providing relevant information to investors, assessing cash flow generation, and accurately representing assets, liabilities, income, and expenses. The report also assesses the company's recognition criteria for various financial statement items like assets, liabilities, revenues, equity, and expenses, referencing Australian Accounting Standards Board (AASB) guidelines. Furthermore, it evaluates the fundamental qualitative characteristics of relevance and faithful representation, as well as enhancing qualitative characteristics such as comparability, verifiability, timeliness and understandability. The analysis concludes that British American Tobacco Plc generally adheres to the principles and standards of general purpose financial reporting, ensuring its financial statements are presentable, accurate, and informative for stakeholders.

Running head: CONTEMPORARY ISSSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student:
Name of the University:
Author’s Note:

1
CONTEMPORARY ISSUES IN ACCOUNTING
Executive Summary
The main purpose of this assignment is to analyze the financial statement of a company and
inspect whether the company has been following General purpose financial reporting
appropriately. The company which has been selected for this assignment is British American
Tobacco Plc which is operating in Australia. The report will also analyze the various reporting
criteria of the company and inspect whether such criteria is as per the general financial reporting
standards.

2
CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
Discussions......................................................................................................................................3
Objectives of General Purpose Financial Reporting...................................................................3
Recognition Criteria of Items of Financial Statement.................................................................7
Fundamental Qualitative Characteristics.....................................................................................8
Enhancing Qualitative Characteristics.........................................................................................9
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................11

3
CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
The concept of General purpose financial reporting is related to a conceptual framework
which every business needs to follow in order to prepare the financial statement in a presentable
manner. It is very crucial for a business as the general purpose financial reports reflects the
financial position of an entity (Collis & Hussey, 2013). The reporting guidelines includes various
accounting standards and policies on the basis of which the entity is to prepare financial
statements. The framework of General purpose financial reporting was developed by
International Accounting Standard Board (IASB). The general purpose financial reporting needs
to followed by all business firms in order to ensure that the business is reporting all the items
accurately (Henderson et al., 2015).
The company for the purpose of this assessment is British American Tobacco Plc. The
company is engaged in the manufacturing tobacco goods such as cigarettes. The company has
operations in more than 180 countries and is regarded to be market leading brand. The four
largest selling brands of the company is Dunhill, Lucky strike, Pall Mall and Kent.
Discussions
Objectives of General Purpose Financial Reporting
As discussed above the frame which is provided for general purpose financial reporting is
essential to the business as it ensures that all the relevant standards are followed while preparing
the financial statements. The objectives of the General financial reporting framework are
discussed below in details:
1. The main objective of the General financial reporting framework is to ensure that the
financial statements are prepared in such a way that all the relevant information are

4
CONTEMPORARY ISSUES IN ACCOUNTING
reflected which can help the potential investors, lenders and creditors of the company to
take decisions regarding buying, selling or holding and similar other decisions
(Lawrence, 2013). In the case of British American Tobacco Company, the financial
reports of the company contain all the relevant information which can be of use to the
shareholders, lenders and other user of financial statements for the purpose of decision
making. The profit and loss account, balance sheet and cash flow statement are
effectively prepared which can provide the shareholders information regarding the overall
performance of the company.
2. Another objective of General Purpose Financial reporting framework is to effectively
asses how much cash inflows can be generated by the business and what are the resources
are needed in future. As per the financial statements of the company, the business has
effectively anticipated certain expenses which the business will need to incur in 2018
which are pension payments for the people who have worked for the company in
Germany and Netherlands. Moreover, as per the notes to accounts of the company it is
also expected that the company will be taking long term loans for the business n 2018
which will result in inflow of cash. In addition to this the general purpose financial
reporting framework aims at providing all the relevant information about the cash inflows
and outflows of a business in the cash flow statement (May, 2013). The cash flow
statement of the company shows all the relevant information regarding the cash inflows
and outflows of British American Tobacco Company.

5
CONTEMPORARY ISSUES IN ACCOUNTING
Figure 1: (Figure showing Cash flow statement for 2017)
Source: (British American Tobacco - Annual reporting. 2018)
3. Another objective of General Purpose Financial Reporting Framewoo depict all the
information which are relating to the assets, liabilities and the income and expenses of the
company which can provide clear information to the users of the financial statements
regarding the financial position of the company (Barth, 2013). British American Tobacco
Company has shown in the statement of profit and loss account all the relevant

6
CONTEMPORARY ISSUES IN ACCOUNTING
information about the income which is earned by the business and the expenses which
has been incurred.
Figure 2: (Figure showing Profit and loss Statement)
Source: (British American Tobacco - Annual reporting. 2018)
The financial statements are prepared for the displaying the financial position and financial
performance of the company to the stakeholders of the company. The major stakeholders of the
company are the shareholders, lenders, creditors. The company as per the financial statement
presented has provided all the relevant information s which can be required by the stakeholders
for decision making process (Zhang & Andrew, 2014). The financial statement of the company

7
CONTEMPORARY ISSUES IN ACCOUNTING
displays all the relevant information and the financial statement are also prepared following all
the relevant accounting standard and principles.
Recognition Criteria of Items of Financial Statement
The recognition criteria of the financial statement require recording of an item in the
financial statement of the company. Australian Accounting Standard Board (AASB) has issued
certain accounting standard which are to be followed for the purpose of recognition and
treatment of various items in the accounting statement. The various items which are of
significance and have been recognized by the company are discussed below:
1. Assets: The assets of the company are an important financial indicator which is shown in
the balance sheet of the company. The assets are further sub-divided into parts which are
namely current assets, fixed assets and intangible assets. The fixed assets of the company
as per the financial report of 2017 show that as a fixed asset the company has property,
plants and equipment which shows a figure of € 4,882 million. The fixed assets consist of
site where tobacco is processes, research and development activities and manufacturing
equipment. The assets are measured after deducting depreciation and impairment amount
of property, plant and equipment and also on intangible assets. Then there are the current
assets which are shown on a fair value basis such as inventories and other receivables.
The intangible assets of company are also shown in the balance sheet and the figure is
obtained by deducting amortization expenses.
2. Liabilities: The liabilities of the company are shown in the balance sheet and it comprises
of current liabilities and non-current liabilities. The current liabilities are made up of
short term borrowings, provisions, trade payables, retirement benefit plans and deferred

8
CONTEMPORARY ISSUES IN ACCOUNTING
tax liabilities. The company has contingent liabilities which are not shown in the financial
statements and disclosed in the notes of accounts part.
3. Revenues: The revenues which the company has earned during the year has been
recorded and shown in the statement of profit and loss account of the company. The
activities which generates most amount of revenue for the company is from the sale of
cigarettes and other tobacco products.
4. Equity: The equity of the company comprises of equity shares and the shares which are
acquired by the company during mergers and acquisitions and also from subsidiaries.
5. Expenses: As per the principles of accounting, the expenses which are incurred by the
business are recorded in the statement of profit and loss account in order to display the
financial performance of the business and also get the net profit of the business.
Fundamental Qualitative Characteristics
There are two fundamental qualitative characteristics which are given discussed below on
the basis of the company:
1. Relevance: This principle states that the financial statements should include relevant
information in the financial statements which are of use to the shareholders of the
company. in the case of British American Tobacco plc, the company follows AASB, IAS
standard which makes the information contained in the financial statements relevant and
moreover the company also includes all the relevant items in the financial statements
which are further clarified in the notes to accounts (Macve, 2015).
2. Faithful representation: In order to follow such a purpose that the financial statements are
showing true and fair view or not the financial statements are audited annually. The
auditors of the company are KPMG which is an audit firm (Eierle & Schultze, 2013). The

9
CONTEMPORARY ISSUES IN ACCOUNTING
auditor of the company confirms that the financial statements are showing true and fair
view.
Enhancing Qualitative Characteristics
The enhancing qualitative characteristics comprises of features which further improves the
financial statements which are given below:
1. Comparability: The financial statement results can be compared easily with the results of
previous years (Weil, Schipper & Francis, 2013). The company has provided significant
information which is related to previous year business performance which can be useful
for comparing the performance of the company.
2. Verifiability: This principle states that the books of accounts should be prepared in such a
way that it is verifiable by the stakeholders which can be done with the help of
explanations provided in the notes to accounts section of the annual reports (Edwards,
2013). In the case of British American Tobacco company proper notes to accounts are
given by the company.
3. Timeliness: The principle reflects the importance of time for publishing the financial
statements of the business so that it can be used by the users of financial statements.
4. Understandability: The financial statements are prepared for the users so that they are
able to interpret the financial information present in the financial statements and then
decisions based on the interpretation made on the same. This principle emphasis a
financial statement should be easily understandable by not only the users but also general
public.

10
CONTEMPORARY ISSUES IN ACCOUNTING
Conclusion
The above analysis of the General purpose financial reporting frameworks makes it clear,
that the financial statements when prepared using the framework will display all the relevant
information. The framework which is discussed in the assignment helps the users to accurately
interpret the financial performance of the business from the financial statement. British
American Tobacco company follows the general-purpose framework and prepares its financial
statement in adherence to the principles stated. In addition to this, the financial statements are
prepared following all relevant principles and standards and conceptual framework which makes
the financial statements presentable and accurate.

11
CONTEMPORARY ISSUES IN ACCOUNTING
Reference
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), 331-352.
British American Tobacco - Annual reporting. (2018). Bat.com. Retrieved 6 April 2018, from
http://www.bat.com/annualreport
Collis, J., & Hussey, R. (2013). Business research: A practical guide for undergraduate and
postgraduate students. Palgrave macmillan.
Edwards, J. R. (2013). A history of financial accounting (RLE Accounting) (Vol. 29). Routledge.
Eierle, B., & Schultze, W. (2013). The role of management as a user of accounting information:
implications for standard setting.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
Lawrence, A. (2013). Individual investors and financial disclosure. Journal of Accounting and
Economics, 56(1), 130-147.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
May, G. O. (2013). Financial accounting. Read Books Ltd.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

12
CONTEMPORARY ISSUES IN ACCOUNTING
Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), 17-26.