Analysis of Financial Statement Presentation as per AASB 101

This report provides an analysis of financial statement presentation requirements as per AASB 101, focusing on fair representation and compliance. It covers the definition and recognition criteria as per the conceptual framework, including assets, liabilities, income, and expenses. The report also addresses the necessary corrections to Whirl Ltd's financial statements to align with AASB 101 standards, such as proper classification of assets and liabilities, separate presentation of trade receivables and inventories, and accurate reporting of various financial items. The document emphasizes the importance of adhering to accounting standards for reliable and comparable financial reporting.

Running head: FINANCIAL ACCOUNTING
Financial accounting
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Table of Contents
Presentation requirement as per AASB 101....................................................................................2
Definition and recognition criteria as per conceptual framework...................................................4
Reference.........................................................................................................................................7

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Presentation requirement as per AASB 101
AASB 101 requires an entity to fairly present the financial statements regarding its
financial performance, financial position and regarding the cash flow if the company.
Requirement for fair representation is faithful representation of the impact of the transactions,
other condition and events as per the definition as well as the recognition criteria for the
expenses, revenues, assets and liabilities that is set out under framework. Further, application of
the AAS with the additional disclosures wherever required is assumed to be resulted into the
fairly presented financial statement (Aasb.gov.au, 2019). Fair representation also requires that an
entity (i) must select as well as apply the accounting policies as per the requirements of AASB
108 regarding accounting policies, changes in the accounting estimates and errors (ii) present the
information regarding policies in the way that delivers reliable, relevant, understandable and
comparable information (iii) providing the additional disclosures while the compliance with
particular requirement under AAS is not sufficient for enabling the users in understanding the
impact of any specific transactions, other conditions and events under the financial performance
as well as financial position of the entity (Aasb.gov.au, 2019). The entity is not able to rectify the
inappropriate accounting policies through disclosures of accounting policies used or through the
explanatory materials or notes. If under any exceptional and rare condition the management is in
the view that the compliance with AAS will be significantly misleading and will have a conflict
with objective of financial statements required by the framework, the entity must depart from the
requirement (Hodgson & Russell, 2014).
As per Para 21 of AASB 101, while any entity departs itself from any requirement of
AAS in prior period and the same has an impact on the recognized amount under the financial

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statement for current period, it shall disclose the same through proper disclosures. However,
while any entity departs from any requirement of AAS, it must disclose – (i) theta the
management has concluded that financial statement has been presented fairly regarding its cash
flows, financial position and the financial performance (ii) that the entity complied with the
applicable AAS except for the departure of the particular requirement for presenting the financial
statement fairly (AASB, 2014) (iii) title for AAS from which the entity has departed, nature of
departure, treatment that will be required by AAS, reason behind such departure and the reason
why the treatment will be significantly misleading and will have a conflict with objective of
financial statements required by the framework (iv) for each of the period presented, financial
impact of departure on each of the item presented under financial statement that will be
recognised in compliance with the requirement (AASB, 2014).
For example, in the given case of Whirl Ltd the entity uses single format for the profit
and loss statement. However, as per the requirement of AASB 101 the entity shall present the
profit and loss statement as per the requirement of conceptual framework for recognising the
income and expenses (Standard, 2015). The entity shall present the profit and loss statement by
function on statement that is the expenses shall be segregated as operating expenses and
administrative expenses as follows –

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Definition and recognition criteria as per conceptual framework
Assets – future economic advantage embodied in any asset is potential for contributing indirectly
or directly to flow of the cash and the cash equivalent of the entity. Asset shall be recognised
under balance sheet if it is feasible that future economic advantages will flow in future to the
organisation and the value or the cost of the asset can be reliably measured (Baker & Burlaud,
2015). However the asset shall not be recognised if the expenses made for which it is considered
as doubtful that economic advantages will flow to the entity even after the current period of
accounting. This amount shall be reported as expense in the profit and loss statement
(Aasb.gov.au, 2019).

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Liability – essential characteristic of any liability is that it has present obligation and the
obligation is the responsibility or duty with regard to perform or act in any particular way.
Liability shall be reported under the balance sheet while it is apparent that the resource outflow
covering the economic advantage will be resulted from settlement of present obligation (van
Mourik & Katsuo, 2014). Further, another requirement is the amount for which the settlement is
required can be reliably measured. Generally, the obligations under any contract that are yet to
be performed proportionately are not recognise as the liability (Aasb.gov.au, 2019).
Income – definition for income covers both gains as well as revenues. Income shall be reported
under the profit and loss statement while any increase in the future economic advantage
associated with the increase in the value of asset or reduction in the value of liability generated
and the value can be reliably measured (Macve, 2015). In other words, income recognition
simultaneously takes place with recognition of increase in the value of asset or reduction in the
value of liability. For instance, net increase in the assets generated from sale of the services or
goods or the reduction in the liabilities generated from waiving-off any amount owing to debt
(Aasb.gov.au, 2019).
Expenses – definition for expenses covers both losses as well as the expenses arises in the
ordinary business course. Expenses shall be reported under the profit and loss statement while
any reduction in the future economic advantage associated with the reduction in the value of
asset or increase in the value of liability generated and the value can be reliably measured (Zhang
& Andrew, 2014). In other words, expenses recognition simultaneously takes place with
recognition of reduction in the value of asset or increase in the value of liability, for instance,
depreciation on any equipment or accrual of the employee entitlements (Aasb.gov.au, 2019).

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In the presented statements of Whirl Ltd shall made following corrections to represent the
financial statement as per the requirement of AASB 101 –
1. Assets shall be property classified as current assets and non-current assets
2. Liabilities shall be property classified as current liabilities and non-current liabilities
(Aasb.gov.au, 2019).
3. Trade receivable and inventories shall be presented as different items and shall not be
presented together
4. Accumulated depreciation on property, plant and equipment shall be deducted from the
value of property, plant and equipment rather than showing under liabilities
(Aasb.gov.au, 2019).
5. Prepaid insurance expenses that has been shown under income statement shall be
recorded under current assets
6. Current tax and deferred tax liabilities shall be reported as different items and shall not be
presented together
7. Under the statement of changes in equity in transaction with owners along with showing
the contributions by and distribution to owners, the statement shall also show the changes
in the ownership interests for subsidiaries that does not results into loss of control
(Aasb.gov.au, 2019).
8. In the statement of profit and loss cost of sales shall be shown right below the revenue for
showing the gross profit.
9. Operating expenses shall be presented below the gross profit and shall not be presented in
the haphazard manner as presented by the accountant (Aasb.gov.au, 2019).

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10. After reporting all the operating expenses, operating profit shall be represented by
deducting total operating expenses from gross profit
11. Finance cost shall be reported below operating profit and from operating profit, finance
costs shall be deducted to arrive at profit before tax.
12. Income tax expenses shall be reported below profit before tax and from profit before tax,
income tax expenses shall be deducted to arrive at profit for the year (Aasb.gov.au,
2019).

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Reference
AASB, C. A. S. (2014). Financial Instruments. Project Summary.
Aasb.gov.au. (2019). Retrieved 4 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-
14.pdf
Aasb.gov.au. (2019). Retrieved 4 April 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Baker, C. R., & Burlaud, A. (2015). The historical evolution from accounting theory to
conceptual framework in financial standards setting. The CPA Journal, 85(8), 54.
Hodgson, A., & Russell, M. (2014). Comprehending comprehensive income. Australian
Accounting Review, 24(2), 100-110.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Standard, I. A. (2015). Presentation of Financial Statements. Balance Sheet, 54, 80A.
van Mourik, C., & Katsuo, Y. (2014). The IASB and ASBJ conceptual frameworks: same
objective, different financial performance concepts. Accounting Horizons, 29(1), 199-
216.
Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), 17-26.

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