Analysis of Woolworths Ltd's PPE Disclosure in Financial Reporting

This report provides an in-depth analysis of Woolworths Ltd's Property, Plant, and Equipment (PPE) disclosures, assessing their compliance with AASB 116 and the conceptual framework of financial reporting. The executive summary highlights the importance of adhering to accounting principles for strong organizational disclosure, focusing on the objectives of General Purpose Financial Reporting (GPFR) and qualitative characteristics. The report examines the extent to which Woolworths' annual report addresses PPE disclosures based on AASB 116, satisfies fundamental and enhancing characteristics of useful financial information, and aligns with the objectives of GPFR. It concludes that while the company generally meets disclosure requirements, some detailed information is missing, such as sales of PPE and their respective values. The report recommends enhancing disclosures to improve faithful representation and overall decision-making for users of financial statements. References include key accounting and financial reporting texts.

Executive Summary
It is important for the board to adhere to the accounting principles so that the disclosure pattern
of the organization is strong. The disclosure should align with the conceptual framework and the
qualitative characteristics. In this report, the major emphasis will be on the conceptual
framework and for this Woolworths Ltd has been selected. The report covers area pertaining to
disclosure need for PPE as per AASB 116 and a critical analysis has been done in this regard.
From the report, a conclusion can be derived that the company has done all the compliance.

Contents
Introduction.................................................................................................................................................2
a. Objectives of GPFR and qualitative characteristics of financial reporting............................................3
b. Extent to which the annual report addresses PPE disclosures based on AASB 116.............................3
c. Extent to which PPE disclosures satisfied fundamental and enhancing characteristics of useful
financial information...................................................................................................................................4
d. Extent to which PPE disclosures align with the objectives of GPFR.....................................................5
Recommendation and conclusion...............................................................................................................7
References...................................................................................................................................................8

Introduction
An appropriate and faithful representation of the financial statements is the most vital foundation
for every entity existing in this competitive world because these can directly influence public
reputation and confidence of the investors. Furthermore, the intentional fault of representation
can also facilitate in business crime (Spiceland et. al, 2011). Furthermore, disclosures must be
given due consideration by companies so that reporting quality can be enhanced. The example of
Woolworths has been analyzed with the help of this study so that it can be analyzed whether its
disclosures on PPE are appropriately aligned with the requirements of AASB 116 standard and
conceptual framework.

a. Objectives of GPFR and qualitative characteristics of financial
reporting
General Purpose Financial Reporting assists in portraying the financial information of businesses
who are obligated to prepare such reports in order to address the requirements of users. The
GPFR comprises of income statement, balance sheet, cash flow statement, etc that are required to
be prepared based on the current accounting standards. Further, estimates of liabilities, assets,
and expenses are also depicted through GPFR so that a list of company’s monthly expenses can
be offered in net sums to ascertain how much amount is expended every month. GPFR also do
not accommodate conclusions regarding particular qualities information must possess, form,
nature, and number of financial reports to be prepared.
Based on the conceptual framework for financial reporting, qualitative characteristics assist in
recognizing different types of information that can be used by users in their decision-making
processes. Nevertheless, reliability, faithful representation, and relevance are the most
fundamental qualitative characteristics of corporate reporting. Relevant financial information
assists in making a difference in the process of decision-making only if it pursues predictive,
confirmatory value or both. However, faithful representation also plays a vital role in restricting
errors or fraud from forming part of the financial information, thereby assist in enhancing
completeness, neutrality, and freedom. Further, reliability also assists the users in implanting
confidence and dependence on the part of users.
b. Extent to which the annual report addresses PPE disclosures based
on AASB 116
In relation to the annual report of Woolworths Ltd, it can be seen that the company has
efficiently attempted to disclose the requirements of PPE based on AASB 116 standards. The
PPE of the Group is recorded at cost minus accumulated amortization or depreciation and
accumulated losses of impairment. Further, the cost of its self-constructed assets comprise of
overhead, direct labor, and cost of materials. In addition, it can be seen that the Group’s assets
are depreciated on a straight-line basis over their useful lives (estimated). The Group also
discloses that the anticipated useful lives of its PPE possess 2.5 to 10 years of useful lives while
its property has 25-40 years of useful life. Moreover, based on the annual report of Woolworths,

the total carrying values of PPE at the initial period is $19000.4 million while the net
accumulated depreciation or amortization reports at $10737.6 million. Hence, the carrying value
at the end of the period reports at $8262.8 million. Woolworths has also disclosed relevant
information regarding the reconciliation of carrying values at the beginning ($9600.7 million)
and end of the period ($10062.1 m). Further, the company through this report has also showed
additions of $2120.7 million. Besides, losses of impairment of the company have also been
disclosed and it reports at $439.4 million that is reversed and identified in the company’s profit
and loss statement. Based on paragraph 76 of the AASB 116 standard, it can be seen that
disclosures may also derive from variations in estimates in relation to residual amounts and
present method of depreciation. However, in relation to the annual report of Woolworths,
adequate information on the depreciation method and residual value is not being disclosed for its
Property, Plant, and Equipment (Melville, 2013). Besides, enhanced information regarding the
sale of such property, plant, and equipment of the Group can also not be found in their annual
report. On a whole, the annual report of Woolworths does generally meet the disclosure
requirements of PPE based on AASB 116 standard but few detailed information regarding such
PPE is nowhere to be found in such annual report.
c. Extent to which PPE disclosures satisfied fundamental and
enhancing characteristics of useful financial information
It can be observed from the annual report of Woolworths that the company has satisfied the
fundamental qualitative characteristic of financial reporting. Since faithful representation and
relevance are the most fundamental characteristics, it can be seen that the carrying values of the
company’s PPE at the end of 2015 and 2016 is clearly present and the recognized depreciation of
the past years have not been changed. This means that the value of PPE at the year-end can be
easily predicted through the provision of such information. Hence, relevance is adequately
addressed by the company as such information not only has confirmatory value but also
predictive value. This means that with the help of information regarding the carrying value of the
company’s PPE, prediction can be easily done regarding the amount that will be witnessed at the
end of the year. Further, in relation to faithful representation qualitative characteristic of
financial reporting, information is said to be faithfully represented if all required details
associated with the concept is prevalent in the annual report. However, the Group has not

adequately endeavored in addressing the requirements of this characteristic because the sale
value of its PPE together with their respective residual values have not been disclosed by it in
their annual reports. Hence, the company has failed to satisfy the concept of faithful
representation.
In relation to enhancing qualitative characteristics, it can be seen that understandability is one of
them. This means that the users have presumed to possess significant accounting knowledge and
hence, they are able to conduct an evaluation and diligent review of such information.
d. Extent to which PPE disclosures align with the objectives of GPFR
The major objective of general purpose financial reporting is to offer financial information in
such a way that potential creditors and investors can easily anticipate or predict the future
economic value of such information. In simple words, this means that with the help of such
information, users must be able to extract the same to make relevant decisions for the future
(Lapsley, 2012). Moreover, it can be observed from the financial statements of Woolworths that
the financial information forming part of the annual report is clearly relevant in nature. In other
words, it can be seen that the carrying amounts of the property, plant, and equipment of the
company have been adequately and efficiently disclosed at the end of 2015 and 2016. With the
provision of such information, users like investors can easily predict their return on investment,
thereby satisfying the requirement of general purpose financial reporting. However, since the
company does not properly consider faithful representation, the information is not entirely
complete in the annual report, which means that users can also face issues while making
decisions based on such information (Needles & Powers, 2013). However, other characteristics
serving as a major requirement in obtaining the objectives of general purpose financial reporting
have been efficiently addressed that means the disclosures of PPE have mostly aligned with such
objectives.-

Recommendation and conclusion
It can be seen from the annual report of Woolworths that the company has adequately disclosed
relevant information relation to its property, plant, and equipment, thereby satisfying the
requirements of AASB 116 standards and conceptual framework for financial reporting as a
whole. However, some important information like the sales of PPE and their respective values is
nowhere to be found in the annual report that is a bad indicator. Therefore, it is recommended
that if the disclosures regarding the company’s PPE can be more comprehended, the qualitative
characteristic of faithful representation can also be attained (Williams, 2012). Overall, since the
company has expended massive resources and time to obtain its objectives, it must also endeavor
to make enhanced disclosure measures so that the users are not dissatisfied from the same.
Therefore, disclosures must be given due consideration by Woolworths so that they can assist
users in proper decision-making processes.

References
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23-44
Melville, A 2013, International Financial Reporting – A Practical Guide, Pearson, Education
Limited, UK
Merchant, K. A. 2012, ‘Making Management Accounting Research More Useful’, Pacific
Accounting Review, vol. 24, no. 3, pp. 1-34.
Needles, B.E. & Powers, M 2013, Principles of Financial Accounting, Francisco: Mc Graw-Hill
Brook co.
Spiceland, J, Thomas, W & Herrmann, D 2011, Financial accounting, New York: McGraw-
Hill/Irwin, University Press
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Spiceland, J, Thomas, W. & Herrmann, D 2011, Financial accounting, New York: McGraw-
Hill/Irwin,University Press
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Pearson Australia, Vic.