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).