Financial Accounting Report: AASB and Financial Reporting Analysis

This report delves into key aspects of financial accounting, beginning with an introduction to the conceptual framework and qualitative characteristics of accounting information, emphasizing their role in effective decision-making. It then explores the concept of fair value, as defined by AASB 13, and its implications for financial reporting and transparency. The report examines how fair value impacts the valuation of assets and liabilities, and its influence on investor decisions. Furthermore, the report includes a section on the accounting treatment of intangibles, providing a comprehensive overview of financial accounting principles and practices. The report concludes by highlighting the significance of qualitative characteristics in enhancing the value of corporate reporting and aiding in the enhancement of the company's goodwill.

FINANCIAL ACCOUNTING

Contents
Part - I..........................................................................................................................................................2
Introduction.................................................................................................................................................2
Qualitative characteristics of accounting information.................................................................................2
Conclusion...................................................................................................................................................4
Part – II........................................................................................................................................................6
Introduction.................................................................................................................................................6
Concept of fair value...................................................................................................................................6
Conclusion...................................................................................................................................................7
Part – III (Intangibles)..................................................................................................................................9
Introduction.................................................................................................................................................9
Measurement and recognition....................................................................................................................9
Evaluation on Harvey Norman...................................................................................................................10
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12
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Abstract
The chief objective of AASB is to shed light on the ideas that pertains to the financial information
and its qualitative features. The presence of those qualitative features enables to provide meaningful
information that is of paramount use in terms of economic decision-making for the end users. In this
report, the major stress is to consider the qualitative features that lead to a better decision-making
process. The report is introduced with the conceptual framework followed by the qualitative
features that pertains to the accounting information. The accounting information is dealt in a
detailed manner and a strong analysis is done in this regard. The report concludes with the fact that
the qualitative features aids in enhancement of the value of the corporate reporting.
Part - I
Introduction
The key objective of financial reporting is to offer high quality corporate financial information
concerning various economic entities, especially of financial nature, useful in effective decision-
making. Such provision of high-quality information is significant because it can assist in
influencing stakeholders in making credit, investment, and other decisions that can enhance the
overall efficiency of the market. According to the conceptual framework for financial reporting,
financial information is useful only if it adheres to the qualitative characteristics. Business owners
can utilize such accounting information to undertake a financial analysis of their companies.
Without the presence of the proper information, it becomes difficult to take proper decision. The
business owners are unable to take proper action if the qualitative features are absent. Such
information plays a leading role in influencing the decision-making process. Decision making can
be effective when the qualitative features are established and presented in a better fashion
(Damodaran, 2010). Besides, qualitative characteristics consist of business owners’ perceived
significance of the financial information.
Qualitative characteristics of accounting information
The fundamental qualitative characteristics are faithful representation and relevance that can
enhance the quality of financial reporting. In short, the qualitative features helps in providing a
strong foundation for the financial reporting and making decision-making more meaningful in
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nature. Further, other characteristics like verifiability, timeliness, comparability, and
understandability form part of the conceptual framework to enhance decision-usefulness when these
are properly established (IASB, 2010).
Based on the conceptual framework, accounting information can be regarded as relevant if it
possesses the ability to manipulate the financial decisions of users by assisting them to assess
present, past, or future scenarios. This means that relevant information must have confirmatory or
predictive value. Besides, the predictive value can assist users in assessing the past, future, and
present events (Bodie et. al, 2014). Furthermore, to possess predictive value, information must not
be in the kind of explicit forecast. Nevertheless, the capability to make anticipations from financial
statements is maximized by the kind in which the detail on the past is reported. In addition,
information can have confirmatory value if it assists the users in confirming or verifying their prior
assessment. On a whole, information can be considered as relevant when it is offered in a timely
way so that decision-making can be influenced. The second characteristic is a faithful representation
that represents faithfully the events and other transactions it intends to either depict or can
reasonably be expected to depict. It involves recognition of all obligations and rights arising from
an event and accounting for the event in such a way that depicts its economic substance (Deegan,
2011). The information must be accounted for and represented in relation to the economic substance
of a specific transaction and not simply its legal form. Further, the legal form of an event is not
often consistent with the financial reality of the transaction. In such circumstances, the reporting of
property sale will not faithfully depict the transaction entered into. To sum up, financial statements
must represent faithfully every transaction and other events that can assist in giving rise to
liabilities, assets, and owners’ equity. Further, the profit and loss statement of the company must
depict the transaction faithfully that can give rise to income and expenditure in a particular period
(Bence & Nadine, 2012). The third characteristic is materiality that assists in offering guidance as to
how a particular transaction must be classified in the financial statements and/or whether it must be
disclosed separately instead of being aggregated with other items. Such characteristic assists in
dictating any item or transactions that can significantly affect the financial statements, and which
must be accounted for utilization of GAAP exclusively (IASB, 2010). In simple words, if an event
or cost that happened during the year can influence how an investor must view the company, it must
be accounted for utilizing GAAP on the financials. Nevertheless, transactions that are deemed to be
immaterial can be ignored as they cannot influence how such investors can view the financials to
make decisions (Fang & Jin, 2012). The fourth characteristic is comparability that assists an
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individual in enabling comparisons within and across the entities. Further, when such comparisons
are being made within an organization, information is compared with one financial accounting
period to another. For instance, an income of a company is compared for the years 2015, 2016, and
2017. Nevertheless, such qualitative characteristic of financial accounting across organizations can
play a key role in enabling evaluation of differences and similarities betwixt various companies.
The fifth characteristic is verifiability that plays a key role in corporate reporting as it assures users
that the data represents faithfully what it intends to represent. Further, financial information assisted
by evidence and other independent individuals can verify them to observe whether such data is
faithfully represented or not. In simple words, information in the financial statements is verifiable if
it can be easily audited (Mangena, 2007). The sixth characteristic is timeliness that is one of the
most vital elements in decision-making. If an individual cannot make a decision in a timely manner,
the organization may miss the profits of customers and much more. Therefore, in simple words,
timeliness refers to the provision of information to the decision-makers of financial statements
inappropriate time so that they are able to influence their decisions. Moreover, such provision of
data must not be significantly delayed otherwise it will be minimal or no value to the users (Carol
et. al, 2016). The seventh characteristic is understandability that necessitates financial information
to be comprehensible or understandable to the users of financial statements with ample knowledge
of economic activities and business. Besides, in order to be understandable, information must be
presented concisely and clearly. However, it is inappropriate to discard complicated items in order
to make the reports understandable and simple. The last characteristic is Prudence that allows
preparers of financial information to exercise prudent views while making a judgment about
uncertain transactions like asset lives, provision for doubtful debts, etc (Ibrahim et. al, 2013). The
major crux of this qualitative characteristic is that it assists preparers in encountering uncertainties
so that expenses and liabilities are not understated, and income and assets are not overstated (Carol
et. al, 2016). This is one of the major reasons why it is considered one of the most significant
qualitative characteristic.
Conclusion
Qualitative characteristics are the attributes that provide usefulness to financial information in the
financial statements. Based on the framework, such qualitative characteristics are all vital in nature
and various similarities and differences can be found. One may argue that such fundamental
characteristics are requirement-enhancing characteristics for information to be highly useful to the
users. On a whole, effective judgments can be only made if the qualitative characteristics assist in
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enhancing the value of corporate reporting, thereby serving as a major tool for enhancement of the
company’s goodwill as a whole.
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Abstract
The thought of the fair value can be defined as the price that can be grabbed by the selling of an asset or can
be the price that is required for the shifting of a liability in a particular transaction that forms a bridge
between the companies in a market. This definition is as per the AASB 13. The crucial point to be
represented by the AASB 13 is to decisions made as in concern with the fair value which can be a boon to
the people using the financial statements.
Part – II
Introduction
In May 2011 the IASB issued a rule for the evaluation of the fair value price, and the topics covered under
the IFRS 13 is in correspondence to this rule only. Attention was also paid towards the fair value evaluation
in the form of AASB 13 which was issued on September 2011 by the AASB. Increase in the potential and
the transparency of the corporate reporting in the form of financial statements is the main motive of
following the above rules which would help the users of the financial statements and positively affect their
decisions. But it should be noted that categorization of a particular liability or asset is not taken into
attention, rather a fair value estimate is the only output as per the need and demand (Whittington, 2008).
Many statements against such rules are put up which are broadly explained in the study.
Concept of fair value
It is already explained that fair value can be defined as the price that can be grabbed by the selling of an asset
or can be the price that is required for the shifting of a liability in a particular transaction that forms a bridge
between the companies in a market. The base target of the followed concept can be said to be independent of
the alteration which takes place with time in the market. For instance, a reduction in the standard of the
liabilities and the assets cannot affect the marketing conditions as it always considered as the date of
evaluation. It is also seen that the value of an asset is in accordance with the marketing companies. There are
some non-profit entities that provide assets for the sake and profit of the public (Porter & Norton, 2014). But
it may happen that these assets are combined with the others in a way so as to provide profit to the
companies as the market never lacks in buyers. This depicts a clear state of demarcation between assets
which are used for the same caused. Processes in accordance with a transaction like share-based payments
and leasing transactions are started to be eliminated by this concept. It is also estimated that the as per this
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concept, if a liability or asset is sold the followed process, is genuine in nature going on between the
marketing companies (Mark & Michael, 2016). Also, this estimate is based on the idea that no ill-equipped
transaction related to the liability or asset is recorded in it and only a particular type of process is taken into
account. Thus, the concept of fair value can be put up in the circumstances in which the IFRS requires
exposure of the evaluation of the fair value. In this concept attention towards the marketing, conditions are
also paid. The IFRS 13 acts as a boon to the users of the financial statements by positively affecting their
decisions and also helps the companies by disclosing their concealed facts and figures and also evaluates the
assets and the liabilities aligned with the fair value price on a recurring or non-recurring form but only after
the initial scanning (Libby et. al, 20110. A whole lot of public thinks the concept to be a boon for them but
as in accordance with the timely alteration and manipulation in the accounting standards, many a people
have raised questions about the effectiveness of such concepts. The reasons of such questioning are the facts
that the many alterations made involve the approval of such concepts (IASB, 2010).
The usefulness of fair value accounting plays a vital role in influencing the down market in a negative
manner. When it comes to the process of evaluation of an asset in a downward manner that happens due to a
market fall, the assets lower value can play a pivotal role in increasing the selling of assets at a price that is
lower in consideration of the expectation of the seller. However, when there is an absence of the valuation
then it is focused on the concept of fair value so that additional downward valuation can be negated. Further,
it is even argued that the information that is present in the financials offered by the method of fair value
accounting is reliable and relevant only for a specific period (ICSA, 2016). Hence, when the information
present in the financials is based on time for the market scenario that is prevailing then any variation in the
scenario of the market will lead to a major difference in the present financial projection of the organization.
The financials tend to have a change undergoing a difference in the financial projection (Shah, 2013). Hence,
to have reliable information, a new financial statement needs to be requested leading to more cost for the
organization. This provides a factor of additional charges for the company and the cost of operations are
enhanced hence, leading to a burden on the cost of the company.
Conclusion
It is seen that the AASB 13 pays more attention towards the data required for the evaluation of the fair value,
but it to be noted that the upper hand is always of the fair value output. Many times questions has been raised
about the profits gained by the users from the concept because at times it is not at all convincing and not at
all required. So as a whole the potential of the concept is under question because it is always confusion
always prevails about the positive effect of the concept in the accounting framework (Davies & Crawford,
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2012). The profitability of the concept comes from the dark side because many a time loopholes are detected
in the concept. A whole lot of a people believe that the concept of fair value is the best ever way but the
changing time has given birth to many manipulative techniques which are not covered in the concept’s
safety. Finalization of the concept in a proper way is not sure because alterations in the market affect the
concept severely. Moreover, users have also stated it as the most important approach because the variations
that happened n the accounting standard is a big threat to the present course of action.
.
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Abstract
This report highlights the effective selection of the intangible assets. The main target of the report is to
highlight the points and the factors which are related to the evaluation and also the process of identification
and the undertaken work procedures of the prevailing accounting standards. In this report, Harvey Norman is
selected that is listed on the ASX. The topic of discussion broadly explains the working and the process of
evaluation of different terms related to the accounting standards which are necessary to be represented.
Part – III (Intangibles)
Introduction
In today’s worlds, the innumerable transaction takes place on a single day and it is a matter of great concern
that which transaction are to be stated and which are not be exposed by the company. It is obvious that a
bunch of transactions which are depicted in the financial statements can affect the decisions of certain
individuals which use the statements for their profits. A specific rule to be followed by all to survive in the
market has been set up by the AASB and IASB from a long time. But it is also correct that a single rule is
never efficient enough to cope up with the thinking and the dream of every individual. So it is advised that to
totally rely on a particular set of rule is a very dumb move by anyone (ASC, 2016). Materiality is the term
that must be paid attention and in accordance with it, the transaction necessary to be depicted must be done
the same and the negligible ones are free to be neglected in the financial statements. Materiality is a key
factor which solely depends on the amount and size of the transaction which is different for different
organizations or companies. This is why materiality is a subjective factor. The differences between
companies are the output of the various policies and the methods of survival adopted by them. This is a
perfect reason of different materiality for different companies which have demarcations (Williams, 2012).
Measurement and recognition
All the corporate reports like the financial statements are to be made in accordance with the rules set up by
the International Financial Reporting Standard which is IAS 39. The IAS-39 plays a key role in providing
input for the intangibles. Credit can be seen as a process that formally welcomes a particular product into the
company which can be categorized as either liability or asset or expense or proceeds. Credited products are
also included in the financials of the organization in both words and figures (Harvey Norman Holdings Ltd,
2016). Similarly, evaluation is the method to compile the amounts with the key elements. Costs related to
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intangibles are seen as expenses till they are able to satisfy the conditions of an intangible (Maines &
Wahlen, 2006). Many times it may happen that the intangible costs get mixed up with the ones spent for
increasing the respect of the company. That’s the reason why costumers bill, generated brands are not
recognized as intangibles. As in the case of intangibles, it is seen that after their evaluation, their value
remains as cost minus gathered amortization. Many a times outlook of the fair value is needed in such cases
and this can be grabbed from an active running market. It is so advised that the entry of a product into the
financial statements of a company is only possible if it satisfies the four conditions of the accounting
standards which are in accordance to the materiality doorsill and the efficiency hold back (Needles & Power,
2013). The first situation is ‘definition’ which can be thought of as recognition stage of a particular product
into the financials of the company. The second situation is ‘relevance’ in which the provided data must be
capable enough to affect and alter the decisions of the individuals (Melville, 2013). The third situation is
‘measurability’ in which the product is necessary to hold a pertinent trait quantifiable amid plenty
steadfastness. The last but not the least situation is ‘reliability’ which guarantees realistic demonstration,
verifiability, and objectivity of financial information. The GAAP is the one that answers all questions to the
measurement and recognition requirements (Berk et. al, 2015).
Evaluation on Harvey Norman
The company Harvey Norman has been for incorporated with intentions and purpose of doing study and for
that, the company has carried out work in compiling different and substantial aspects of corporate
governance to facilitate the interested and aspiring offshore investors will be able to know regarding the
composition and functioning of the Board of an entity. Hence, such aspects are designed proposition in this
regard. In the annual report of Harvey Norman, there is mention of the details comprising of composition
and selection of the board of directors, independent members, board meetings and the other important
informations. In addition, it can be noticed from the report that the company has provided all the applicable
details in relation to recognition and measurement of intangible assets. This implies that the company’s
board has taken an ethical stand in implementing a policy where the business process and accounting are
based on prescribed accounting standards (Brealey et. al, 2011). The company trusts that the accounting
standard principles are the demonstrative principles that lead to the better business system.
Furthermore, regarding the goodwill of the company, the report spells out the in excess of the acquisition
cost over the fair value of share against the total attributable assets purchased by the date of procurement. In
addition to that, the company Harvey Norman possess plenty of enterprise value that is associated with its
cash-generating unit in Australia appraises such as brand image, location premium and other additions to the
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share of profit (Harvey Norman Holdings Ltd, 2016). This assessment on part of the company engrosses the
management’s enthusiasm to continue and use such intangible assets in the future growth (Samaha &
Dahaway, 2010). None-the-less the company has provided its intangible assets are having an everlasting
lifespan that is derived at cost minus accumulated impairment losses, as the intangible assets are having an
indefinite workable lifespan are not subject to amortization with regard to impairment testing and are
evaluated annually for depreciation. The impairment losses of these assets are perceived as the value by
which the carry-forward value of the assets exceeds its recoverable value.
Conclusion
In conclusion, taking into consideration the detailed analysis, for an effective decision-making process can
be undertaken by adapting to in recognition and measurement principles into the system and in the due
course of time more focus is being given by professional approach, as it allows and provide assistance in
eliminating of mistakes from the book of accounts thereby helping in preparation of healthy financial report
of the company. Furthermore, that giving a boost to the decision-making process in the company. The
recognition and measurement of intangible assets also provide assistance in assessing the carry forward value
of the intangible assets to allow the process of disclosures of the assets can be actualized. Further, the
management of Harvey Norman is successful in implementing effective adequate decisions in recognition
and measurement of distinctive intangibles such as goodwill and premium etc. In short, the disclosure of all
those information’s in the financial statement by the company can allow the clients in making a suited choice
as well as the company in implementing accounting standards.
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