A Case Study Report: Conceptual Framework Analysis of 1300 Smiles Ltd

This report provides an in-depth analysis of the conceptual framework as applied to 1300 Smiles Limited, an Australian Stock Exchange listed company. The study begins with an overview of the conceptual framework and the business, followed by an examination of the company's compliance with the framework's requirements, including qualitative characteristics like relevance, reliability, and comparability. It assesses how the company adheres to Australian Accounting Standards (AASs) and the Corporations Act 2001. The report also discusses the usefulness of financial statements to users, limitations of the framework from a stakeholder's perspective, and the compliance of general-purpose financial reporting. Recommendations are provided for improvement, such as considering market trends and incorporating social aspects into corporate reporting. The report concludes by emphasizing the importance of a well-designed approach to financial statement preparation, aligning with the conceptual framework and relevant guidelines to enhance the usefulness of financial statements and support long-term sustainability.

AN ANALYSIS OF CONCEPTUAL FRAMEWORK:
A CASE STUDY OF 1300 SMILES LIMITED

Executive Summary
Corporate reporting is one of the primary aspects of the studies of financial accounting as the
process of such reporting same is complex and critical for the success of the business. The
Conceptual Framework provides the overall guidance about the objectives behind such reporting
by the companies. The instant report makes a detailed discussion about the overview of such a
concept in the context of a real-world company, 1300 Smiles Limited. At the beginning of the
study, the general idea about the concepts and also the business has been provided. In the latter
part of the report, the researcher analyses the application of such framework and also the
compliance requirements as laid down in the framework in the light of the company's corporate
reporting process. The discussion also involves the limitation of the conceptual framework and
the significance of general purpose financial reporting. Finally, the researcher attempts to
summarise the discussion by providing recommendation and wraps up by way of a concluding
note.
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Table of Contents
1.0 Introduction................................................................................................................................4
2.0 Conceptual Framework: An Overview......................................................................................5
3.0 Organisational Overview...........................................................................................................6
4.0 Analysis of Organisational Conceptual Framework..................................................................7
4.1 Compliance Requirements for Conceptual Framework.........................................................7
4.2 Compliance and Enhancement of Qualitative Characteristics of Conceptual Framework....8
4.3 Usefulness of Financial Statements to the Users...................................................................9
4.4 Limitations of Conceptual Framework: Stakeholders’ Perspective.......................................9
4.5 Compliance of General Purpose Financial Reporting..........................................................10
5.0 Recommendation.....................................................................................................................11
6.0 Conclusion...............................................................................................................................12
References......................................................................................................................................13
Appendices....................................................................................................................................15
Appendix 1: Consolidated statement of comprehensive income...............................................15
Appendix 2: Consolidated balance sheet...................................................................................16
Appendix 3: Consolidated statement of cash flows...................................................................17
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1.0 Introduction
Accounting is also considered to be the language of the business as the same includes the
consideration of stakes of different stakeholders associated with the business. An efficient
financial reporting is the key to the corporate responsibility towards the larger stakeholders and
society as a whole (Herath, McCoy, Lucas, and Mensah, 2011). Therefore, it is quite expected
that the reporting should follow a standard and benchmark protocol for the companies. A
conceptual framework has been developed by the standard setters in order to provide a general
overview about the functionality of the standards and also the scope and objective of financial
reporting for the organisation (Fasb.org, 2018).
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2.0 Conceptual Framework: An Overview
The conceptual framework is issued by the International Accounting Standards Board (hereafter
may be referred to as “IASB”) may be construed to be the basis of corporate reporting by way of
laying down the standards guidelines as to the treatment, presentation and disclosure of various
financial events and transactions. In short, it provides the overall structure of the financial
reporting for a firm (Haslam, 2017). Since the financial data and information may be technical,
the regulators have pronounced certain guidelines as to the qualitative characteristics of the
financial statements in terms of relevance, reliability, comparability and timelines which jointly
help management to make the financial reporting more useful to the users (Kampanje, 2013).
Conceptual framework provides a holistic approach as to how to perform such preparations and
make the reporting effective to the stakeholders.
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3.0 Organisational Overview
For the purpose of the report, a business organisation has been chosen in respect of which the
application of the conceptual framework has been analysed. The organisation is 1300 Smiles
Limited (hereinafter may be referred to as "the business' or "the firm", as the case may be) and
listed in the Australia Stock Exchange (ASX). The principal activity of the business is to provide
dental facilities across the country through own setups and acquired dental facilities as well. The
core objective of the management is to maximise the returns of the shareholders and reward of
the employees by increasing profit through the provision of efficient dental facilities to the
people of the nation.
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4.0 Analysis of Organisational Conceptual Framework
4.1 Compliance Requirements for Conceptual Framework
In the conceptual framework, there are certain compliance requirements for the management
which must be followed in order to ensure the efficient corporate reporting. Such requirements
may be segregated in a few different types. The first type of requirements revolves around the
qualitative characteristics of the financial statements which will include the reliability, relevance,
understanding ability and comparability of the financial data as contained in the financial
statements (HAMPTON, 1999). In other words, the financial statements should be made in such
a manner that the users may take their respective decisions based on the financial data therein.
The second type of compliance requirements attempts to ensure that the recognition and
measurement criteria of the financial items are in line with the standards set for them and in
accordance with the generally accepted accounting principles (GAAP) and any other directives
and regulations in force for the time being (Lion, 2012). In addition, the use of present value
consideration in the financial data is also a critical component which the conceptual framework
advocates to apply (HAMPTON, 1999). In case of the stated company, it has been noted that the
firm prepares its financial statements on the accrual basis of accounting method and in line with
the Australian Accounting Standards (AASs) and also the Corporations Act 2001. Therefore, it
may be noted that the company has been able to meet with the basic compliance requirements in
terms of the basis for preparation of financial statements.
In the case of the firm, it has been observed that the management has adopted AASB-9: Financial
Instruments for the classification, measurement and de-recognition of financial assets and
financial liabilities. The new impairment model, as suggested by given AASB has also been
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applied in valuing the assets. However, the management expects that new pronouncement will
not have material impact on the results of the business as there remains lesser scope for change
in the value of financial liabilities. AASB-16; Leases which will replace existing AASB-17:
Leases will have, on the contrary, significant impact on the booms of accounts of the firm as
there have been considerable amount of lease commitment of the company. However, it has been
asserted that the all the leased assets have been properly valued and recognised in the booms
complying with the standards in force. In this context, it may be construed that the qualitative
characteristics like materiality has been satisfied in the given scenario as the management has
already performed an impact assessment of adoption of new accounting standards.
4.2 Compliance and Enhancement of Qualitative Characteristics of Conceptual Framework
The qualitative characteristics, as mentioned earlier, are an important part of the financial
statements preparation process. In terms of relevance and reliability, it may be observed that the
audit report is unqualified with special reference to the key audit matters. In the words, the
financial data has been asserted to be reliable by the independent auditors. Moreover, the same
has been in compliance with the International Financial Reporting Standards (IFRSs) and hence
the same is considered to be comparable. Another critical point is faithful representations which
may be corroborated from the fact of verifiability of the books by way of referring to unqualified
audit opinion issued by the auditor. Besides, the notes of the accounts exhibit that the fixed
assets like property, plant and equipment have been valued as per the historical cost methods,
less depreciation which is in line with the respective standards in force. In case of complex
accounting assumptions like the assessment and recognition of liabilities arising out of the
termination benefits for the employees, the firm has complied with AASB 137: Provisions,
Contingent Liabilities and Contingent Assets which establishes the fact that the business has
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been in compliance with the relevant accounting standard and thereby applying the given
framework in practice.
4.3 Usefulness of Financial Statements to the Users
As per AASB framework 2004, the definitions of main elements of financial statements like
assets, liabilities, incomes, expenses and equities are provided in terms of their future economic
benefit (Jhunjhunwala, 2014). In other words, how the business may get future economic benefit
out of these elements or absorb the same into the operations decides the criteria for them to be
selected under specific terminology (He, Evans and He, 2016). In the case of the given case
study, the annual report shows the notes to the financial statements consist of a detailed
discussion and compliance related disclosure relating to AASB pronouncement on various
matters such as financial instruments and revenue from contracts and adherence with respect to
those pronouncements.
4.4 Limitations of Conceptual Framework: Stakeholders’ Perspective
Firstly, the researchers question about the applicability of conceptual framework in practical
scenario especially when the definitions of main elements of financial statements are dependent
on unspecified rules and conventions (Smith, Haniffa and Fairbrass, 2010). In addition, there
have been issues regarding the clarity on the explanation provided for items like deferred tax
credits or even current value accounting (Jhunjhunwala, 2014). In the case of 1300 Smiles
Limited, there is no reference to the current value accounting as far as the valuation of
investment in securities as per equity method is concerned.
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4.5 Compliance of General Purpose Financial Reporting
As per the Annual Report 2018, the business prepares its books of accounts as per the AASs and
Corporations Act 2001 and thereby performs compliance with respect to the regulations and
legislations. A perusal of the annual report establishes that the Board has always been proactive
in assuring the higher returns to the stakeholders in the form of dividend and the scenario shows
adequacy of control over resource and strong financial position of the firm. In addition, the cash
flow statement shows the financing and investing activities in details that helps the stakeholders
to evaluate the financial health of the business on a holistic basis in line with the cash flow from
operating activities. Besides, the report shows the managerial perspective about the future plans
and expansion strategies which are based on the efficient utilisation of financial resource and
solvency of the firm. Therefore, it may be construed that the management has been accountable
to the general stockholders, who are not in a position to command the preparation of financial
statement tailored to their individual needs, in terms of compliance and transparent reporting.
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5.0 Recommendation
The management should consider the market trend and assess the investment and equity value
under current value accounting method. In addition, the social aspect of the business should also
be exhibited in the corporate reporting to make it exhaustive. Lastly, the management should also
consider the disclosure about the non-accounting regulatory compliance in the report so that the
stakeholders, while evaluating, may also consider such observance with the legality and
legislation.
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6.0 Conclusion
The conceptual framework provides a holistic guidance as to the overall preparation process of
financial statements. The management should make every attempt to prepare the financial
statements of the company in such a way that the same will render to be useful to the users of
financial statements. Finally, it is concluded that a well-designed approach as to the preparation
of financial statements considering the conceptual framework and relevant direction and
guidelines as provided by the regulated and standard setters will significantly contribute towards
the enhancement of usefulness of the financial statements and help the business to attain its goals
of attaining sustainability in the long-run (Rihanna and Dr.B.Mahadevappa, 2011).
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