Analysis of Accounting Practices: Harvey Norman and Wesfarmers Report

This report provides an in-depth analysis of the financial statements of two Australian companies, Harvey Norman Holdings and Wesfarmers, focusing on contemporary issues in accounting. The study evaluates their compliance with Australian Accounting Standards Board (AASB) standards and the conceptual framework for financial reporting. The report examines the income statements, balance sheets, and consolidated financial positions of both companies, highlighting key findings such as revenue and profit trends. It also analyzes the importance of incorporating the prudence principle in financial reporting to protect the interests of end-users. Recommendations are provided, including the suggestion for investors and creditors to consider the companies' financial health and transparency while also suggesting the companies implement the prudence principle for more reliable financial statements. The report concludes by emphasizing the significance of adhering to international reporting standards to provide relevant and reliable financial information.

Contemporary Issues in Accounting

Executive Summary
This report addresses the significance of conceptual accounting framework for the
preparation and development of general purpose financial statements by the business
corporations. The report also takes into account the necessity of reintroducing prudence principle
in financial reporting for protecting the interests of end-users. In this context, the report ahs
analyses the annual reports of two Australian companies listed on ASX for evaluating their
compliance with AASB standards and conceptual framework requirements.

Contents
Introduction.................................................................................................................................................4
Analysis of Harvey Norman Holdings and Wesfarmers Annual Report as per the AASB and Conceptual
Framework Requirements...........................................................................................................................4
Harvey Norman Holdings.........................................................................................................................4
Future Compliance..................................................................................................................................5
Auditor’s Declaration...............................................................................................................................6
Financial Statement Analysis...................................................................................................................7
Income Statement...............................................................................................................................7
Income Statement- Analyses...................................................................................................................8
Findings:..............................................................................................................................................8
Income Statement- Graphical analyses...................................................................................................8
Balance Sheet......................................................................................................................................9
Consolidated Position of Financial Statement- Analyses.......................................................................10
Findings:-..........................................................................................................................................10
Consolidated Position of Financial Statement- Graphical presentation................................................11
Recommendations:................................................................................................................................11
Wesfarmers...........................................................................................................................................12
Future Compliance................................................................................................................................14
Auditor’s Report....................................................................................................................................14
Financial Statement Analysis.................................................................................................................16
Income Statement- Screenshot.........................................................................................................16
Income Statement- Analyses.................................................................................................................16
Findings:............................................................................................................................................17
Income Statement- Graphical analyses.................................................................................................17
Balance Sheet- Screenshot................................................................................................................18
Consolidated Position of Financial Statement- Analyses:..................................................................19
Findings:-..........................................................................................................................................19
Consolidated Position of Financial Statement- Graphical presentation................................................19
Recommendations.................................................................................................................................20
Conclusion.................................................................................................................................................20

References.................................................................................................................................................21
Introduction
The conceptual accounting framework is developed by the International Accounting
Standards Board (IASB) for providing guidance to the business organizations globally in
development of general purpose financial statements. This is done mainly to improve the quality
of financial reports for increasing their usefulness to the end-users. In this context, the present
report analyses the significance of current accounting framework in meeting the needs of users of
financial reports (Hoffman, 2016). For the purpose, the compliance of annual reports of two
ASX listed companies’ accordance with the AASB (Australian Accounting Standards Board)
and conceptual accounting principles is being done. The companies selected for the purpose are
Harvey Norman Holdings and Wesfarners, both involved in retail industry of Australia. The
report also analyses the need of including prudence concept again in the conceptual framework
for addressing disparity in corporate reporting.
Analysis of Harvey Norman Holdings and Wesfarmers Annual Report as
per the AASB and Conceptual Framework Requirements
Harvey Norman Holdings
The director’s report of the company states that Harvey Norman Holdings Limited is a
retail company publicly traded on ASX and operating mainly in Australia and New Zealand
(Harvey Norman Holdings Ltd: Annual Report 2016, 2016). The report incorporates a statement
of compliance that states all its financial statements are developed as per the Corporations Act
2001 as depicted from the below screenshot:

The company has also mentioned in its directors; report the information about the method
adopted for measurements of its financial and intangible assets as depicted from the below
screenshot:

Future Compliance
The company has also disclosed information about its future compliance with the AASB
9 and AASB 139 standards as evident from the screenshot:
Auditor’s Declaration
The auditor’s report of the company also declares that director’s have developed the
financial report of the company in accordance with the AASB and Corporations Act 2001 as
evident from the attached screenshot:

Financial Statement Analysis
Income Statement

Income Statement- Analyses
Harwey Norman Limited
Analysis of income statement for the F Y ended on 30.06.2016
Components Amount in AUD $m Amount in AUD $m
2016 2015 Variance (+/-)
Revenue and other income $ 2,826.00 $ 2,581.00 9.49%
Expenses $ 2,477.00 $ 2,313.00 7.09%
Profit / Loss for the year $ 349.00 $ 268.00 30.22%
Findings:
 Revenue of the company is increased by 245 million dollars showing the positive
variance of 9.49%.
 Expenses in the year 2016 have been increased by 7.09% as compared to year 2015.
 Profit is increased by 30.22 %
Income Statement- Graphical analyses
Revenue and other income Expenses Profit / Loss for the year
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
Analysis of income statement
2016
2015

Balance Sheet

Consolidated Position of Financial Statement- Analyses
Harwey Norman Limited
Analysis of Balance Sheet for the F Y ended on 30.06.2016
Components Amount in AUD $m Amount in AUD $m
2016 2015 Variance (+/-)
Current Assets $ 1,606.00 $ 1,676.00 -4.18%
Non Current Assets $ 2,826.00 $ 2,682.00 5.37%
Total Assets $ 4,432.00 $ 4,358.00 1.70%
current Liabilities $ 1,279.00 $ 1,283.00 -0.31%
Non-current liabilities $ 486.00 $ 538.00 -9.67%
Total Liabilities $ 1,766.00 $ 1,821.00 -3.02%
net assets $ 2,666.00 $ 2,537.00 5.08%
Share capital $ 385.00 $ 380.00 1.32%
Total equity $ 2,666.00 $ 2,537.00 5.08%
Findings:-
 There has been 1.70% increase in total assets of the company
 Total Liabilities were decreased by 3.02%
 Net assets were increase to 2666 million dollars in year 2016 as compare to 2537 million
dollars in year 2015 (Harvey Norman Holdings Ltd: Annual Report 2016, 2016).

Consolidated Position of Financial Statement- Graphical presentation
Current Assets
Non Current Assets
Total Assets
current Liabilities
Non-current liabilities
Total Liabilities
net assets
Share capital
Total equity
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
$4,000.00
$4,500.00
$5,000.00
Analysis of Balance Sheet
2016
2015
Recommendations:
It is recommended on the basis of evaluation of annual report of Harvey Norman
Holdings that investors should invest in the company as it has recorded a net increase in its total
assets with decrease in its financial liabilities. The company has complied with the AASB
standards and accounting conceptual framework principles that have enabled it to maintain a
good brand image in the eyes of all its stakeholders. The company has promoted transparency in
its business operations by disclosing all the significant information related to the preparation of
its financial statements (Harvey Norman Holdings Ltd: Annual Report 2016, 2016). However the
company is recommended to implement the principle of prudence for developing its financial
accounts for enhancing their usefulness. The principle of prudence is re-introduced in the
conceptual accounting framework as per which a business entity should record its expenses at the
time of their realization but only report the income when it is actually gained. This is done for
the prevention of manipulation of accounts for personal benefits by the company’s executives
and therefore securing the interests of the end-users of financial reports (Araujo and Gomes,
2015). The annual report of the company has not published nay information about the
compliance with the prudence principle that is required for further increasing the usefulness of its
financial statements in the eyes of its stakeholders (Harvey Norman Holdings Ltd: Annual
Report 2016, 2016).

Wesfarmers
The note to the financial statements section of the company has stated the compliance of
the general purpose financial statements with the AASB standards and Corporations Act 2001 as
evident from the attached screenshot:
The director’s report of the company also publishes information about the method
adopted for valuing its intangible assets as follows:

The notes to the financial statements of the company have also disclosed information
about the methods adopted for recognition of its leases and depreciation as evident from the
attached screenshot:

Future Compliance
The company has also disclosed information about the future AASB standards that will
be implemented by it as per the Corporations Act (Wesfarmers: Annual Report 2016, 2016). The
screenshot for the same is as follows:
Auditor’s Report
The auditor’s report of the company has also inferred the preparation of its general
purpose financial statements in accordance with the AASB and Corporations Act 2001 as evident
from the attached screenshot:

Financial Statement Analysis
Income Statement- Screenshot
Income Statement- Analyses
Wesfarmers Limited
Analysis of income statement for the F Y ended on 30.06.2016
Components Amount in AUD $m Amount in AUD $m
2016 2015
Variance
(+/-)
Revenue and other income $ 65,512.00 $ 62,102.00 5.49%
Expenses $ 65,105.00 $ 59,662.00 9.12%
Profit / Loss for the year $ 407.00 $ 2,440.00 -83.32%

Findings:
 Revenue of the company is increased by 3410 million dollars showing the positive
variance of 5.49%
 Expenses in the year 2016 have been increased by 9.12% as compared to year 2015.
 Profit is decreased by 83.32 % (Wesfarmers: Annual Report 2016, 2016).
Income Statement- Graphical analyses
Revenue and other income Expenses Profit / Loss for the year
$-
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.00
Analysis of income statement
2016
2015

Balance Sheet- Screenshot

Consolidated Position of Financial Statement- Analyses:
Wesfarmers Limited
Analysis of Balance Sheet for the F Y ended on 30.06.2016
Components Amount in AUD $m Amount in AUD $m
2016 2015 Variance (+/-)
Current Assets $ 9,684.00 $ 9,093.00 6.50%
Non Current Assets $ 31,099.00 $ 31,309.00 -0.67%
Total Assets $ 40,783.00 $ 40,402.00 0.94%
current Liabilities $ 10,424.00 $ 9,726.00 7.18%
Non-current liabilities $ 7,410.00 $ 5,895.00 25.70%
Total Liabilities $ 17,834.00 $ 15,621.00 14.17%
net assets $ 22,949.00 $ 24,781.00 -7.39%
Share capital $ 21,909.00 $ 21,844.00 0.30%
Total equity $ 22,949.00 $ 24,781.00 -7.39%
Findings:-
 There has 0.94% increase in total assets of the company
 Total Liabilities were increased by 14.17%
 Net assets were decrease to 22949 million dollars in year 2016 as compare to 24781
million dollars in year 2015 (Wesfarmers: Annual Report 2016, 2016).
Consolidated Position of Financial Statement- Graphical presentation
Current Assets
Non Current Assets
Total Assets
current Liabilities
Non-current liabilities
Total Liabilities
net assets
Share capital
Total equity
$-
$5,000.00
$10,000.00
$15,000.00
$20,000.00
$25,000.00
$30,000.00
$35,000.00
$40,000.00
$45,000.00
Analysis of Balance Sheet
2016
2015

Recommendations
On the basis of analysis of Wesfarmers annual report as per the AASB and conceptual
framework requirements, it is recommended to the company to publish true and faithful financial
information to the end-users. The company need to adopt the principle of prudence for ensuring
there is no manipulation in its financial accounts. The principle of prudence should be applied by
the company at the time of recognition of its income and expenses for protecting the interests of
the end-users such as investors and creditors (Araujo and Gomes, 2015). The financial statement
analysis of the company reflects that company is in profitable position and thus the investors
should invest in the company. It also complies with all the AASB standards and thus has
maintained transparency in its business operations. Therefore, the inverts and creditors are
recommended to invest in the company as it has adopted fair and transparent business procedures
for conducting its business operations (Wesfarmers: Annual Report 2016, 2016).
Conclusion
It can be inferred from the overall discussion held in the report that business companies
need to prepare and publish their general purpose financial statements as per the international
reporting standards. The Harvey Norman Holdings Ltd and Wesfarmers are Australian
companies and hence should develop and prepare their financial reports as per the AASB
standards and conceptual framework requirements. This is essential for enriching the quality of
financial reporting in order to provide all the relevant and reliable information to the end-users
Thus, the accounting conceptual framework is meeting the need of the end-users by proving
them relevant, reliable and understandable financial information. Also, the companies need to
include the principle of prudence at the time of developing their financial statements so that end-
users achieve reliable and true information without any manipulation of accounts.

References
Araujo, V. and Gomes, A. 2015. Analysis of Opinions Issued in Comment Letters on the Term
Prudence. Journal of Education and Research in Accounting 9(2), pp. 209-225.
Harvey Norman Holdings Ltd: Annual Report 2016. 2016. [Online]. Available at:
http://www.asx.com.au/asxpdf/20160930/pdf/43bm2qvqrgqf2y.pdf [Accessed on: 17 August
2017].
Hoffman, C.W. 2016. Revising the Conceptual Framework of the International Standards: IASB
Proposals Met with Support and Skepticism. World Journal of Business and Management 2 (1),
pp. 1-32.
Wesfarmers: Annual Report 2016. 2016. [Online]. Available at:
https://www.wesfarmers.com.au/docs/default-source/reports/2016-annual-report.pdf?sfvrsn=4
[Accessed on: 17 August 2017].