Contemporary Issues in Accounting: McMillan Shakespeare Analysis

This report analyzes the financial statements of McMillan Shakespeare Limited to determine compliance with the conceptual framework. It examines the presentation of financial statements, focusing on recognition criteria and qualitative characteristics. The report identifies that the financial report is a general purpose financial report prepared according to AAS, Corporation Act 2001, and AASB interpretations. It concludes that McMillan Shakespeare Limited complies with all the objectives of the conceptual framework in the context of GPFR. The analysis covers the elements of financial statements like assets, liabilities, equity, expenses, and revenues, their recognition and measurement as per the conceptual framework. The report also emphasizes the company's adherence to the qualitative characteristics of the framework, including faithfulness, relevance, comparability, understandability, and timeliness, and their importance in decision-making. The report highlights that the company discloses material items and decisions in its financial statements, ensuring that the information provided is useful for making economic decisions.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
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Executive summary
The aim of the report is to analyse whether the financial statements of McMillan Shakespeare
Limited has been prepared and presented in compliance with the requirement of conceptual
framework. The report will analyse the presentation of financial statement in context of the
requirement of recognition criteria and qualitative characteristics. Based on the analysis final
decision will be made regarding whether the entity is following the requirement of conceptual
framework. From the annual report of the entity for the year ended 2018 it is observed that the
financial report is general purpose financial report and is prepared as per the requirement of
AAS, Corporation Act 2001 and the interpretation of AASB. It is identified that all the objectives
of conceptual framework in context of GPFR are complied with by McMillan Shakespeare
Limited. Elements of the financial statements like assets, liabilities, equity, expenses and
revenues are recognised and measured as per the requirement of conceptual framework. Further,
it is complying with the qualitative characteristics requirement of the framework.

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Table of Contents
Introduction......................................................................................................................................3
Measurement requirements of the conceptual framework...............................................................3
Qualitative characteristics................................................................................................................4
Fundamental qualitative characteristics...........................................................................................5
Compliance with enhancing qualitative characteristics...................................................................7
Using financial reports for decision making purpose....................................................................11
Accounting knowledge required for carrying out the analysis of entity.......................................12
Objectives of General purpose financial reporting........................................................................13
Conclusion.....................................................................................................................................16
Reference.......................................................................................................................................17

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Introduction
McMillan Shakespeare Limited, an ASX listed entity, engaged in providing services
related to fleet administration, retail financial services, vehicle leasing administration and salary
packaging all over Australia, New Zealand and UK. The company basically operates through 3
segments – asset management, retail financial services and remuneration services. Through its
subsidiaries the entity is the largest provider for salary packaging and the novated leasing
services in Australia and also the leading provider for asset and fleet management as well as fleet
and consumer financing (McMillan Shakespeare 2019). Conceptual framework is defined as the
system of objectives and ideas that lead to creation of consistent set of the standards and rules.
Particularly in accounting, the standards and rules set the function, limits and nature of the
financial accounting and the financial statements.
Measurement requirements of the conceptual framework
Measurement is the procedure through which the monetary amount of the item at which it
is to be reported in the financial statements. It involves particular measurement basis selection.
Various measurements that may be used by the entities are –
 Historical cost where the assets are recorded at the cost that is paid or fair value of
consideration provided for acquiring the asset (Aasb.gov.au 2019).
 Current cost where the assets are carried at the amount to be paid for acquiring same or
equivalent asset at present.
 Realisable value where the assets are carried at the amount that can be received through
selling the asset at present

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 Present value where the asset is carried at present discounted value for future cash
inflows expected under normal course of the business (Aasb.gov.au 2019).
From the annual report of the entity it can be determined that except the cash flow
information, the financial statements are prepared on the basis of accrual approach of accounting
and based on the historical cost and are modified wherever necessary.
For example, assets like property, plant and equipment are reported at historical cost
reduced by provision for impairment loss and accumulated depreciation. Inventories are reported
at cost or realisable value, whichever is lower. Liabilities like trade and other payables are
initially reported at the fair value and consequently they are recorded at amortised cost
(McMillan Shakespeare, 2019)
Qualitative characteristics
To be useful, the financial statements shall be presented in faithful manner and it shall be
reliable as well as relevant for its intended purposes. Further, the financial statement will be

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considered as useful if it is comparable, understandable and verifiable and are represented in the
timely manner (Aasb.gov.au 2019)
Fundamental qualitative characteristics
Faithful representation – the financial statements shall be represented in faithful manner that
will enable the users to make decisions. For representing it faithfully the representation shall be
complete, neutral and error free. Financial reports of the entity for the period ended on 30th June
2018 are presented in true and fair manner as per the statement of the company’s directors
(Noon, Blyton and Morrell 2013)
Relevance – financial statements will not be relevant if the information provided in the financial
statements cannot create any difference in the process of decision making. From the financial
information of the company it can be identified that they are relevant for users and all the
amounts are reported under appropriate heads with the relevant amount (Mca.gov.in 2019).

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Materiality – information is material if its misstatement or omission influences the decision
those are taken on the basis of financial information. McMillan Shakespeare Limited discloses
material items as well as material decisions in context of the accounting policies through notes to
the financial statements (Griffith, Hammersley and Kadous 2015)

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However, the entity included the goodwill and other tangible assets under separate CGU.
As per the auditor’s view the entity shall carry out the impairment test on the goodwill and
various other intangibles at least once in a year (McMillan Shakespeare, 2019)
Compliance with enhancing qualitative characteristics
Comparability – the financial statements of the company is presented in such way that its
performance can be compared with other firms as well as the previous year’s performance of the
entity (Mca.gov.in 2019). For instance, changes in sales amount and expenses can be identified
compared with previous year clearly.

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Verifiability – information presented in the financial report of the company can be verified with
the disclosed notes as each of the items are presented with proper amount and under appropriate
heads (Deegan 2013). For instance, increase in the amount of plant, property and equipment and
its break up can be identified from the disclosure notes.

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Timeliness – information presented in the financial report shall be in timely manner so that it can
be used for making decisions. From the financial reports of the entity it can be observed that the
information provided are for 6 months period and 12 months period that helps the users to make
decisions (Aasb.gov.au 2019)

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Understandability – to make the information understandable it shall be presented clearly and
must be characterised and classified. McMillan Shakespeare Limited presented its financial
information under appropriate heads after characterised and classified it properly (Francis, Hasan
and Wu 2013)
Using financial reports for decision making purpose
Main objective of financial reporting is to assist the users of financial statements to make
decisions regarding accountability through providing useful information in context of the entity.
Further, the Conceptual framework obliges that the ASX listed entities shall deliver the
information in financial statements in such way that it will be useful for the users. From the
financial reports of McMillan Shakespeare Limited it can be observed that it has presented all the
useful information through tables and graphs those can be used by the users while making the
decisions (Cheng et al. 2014). Hence, from the financial reports of the entity it can be observed
that the information provided are useful and can be used for making economic decisions
(Bebbington and Larrinaga 2014)