Fletcher Building: Accounting Concepts, Framework, and Measurement

This report provides an in-depth analysis of Fletcher Building's financial reporting practices, focusing on key accounting concepts, the conceptual framework, and measurement issues. It begins with an introduction to Fletcher Building, a major New Zealand-listed company, and outlines the scope of the assignment. The report then explores various accounting concepts, including money measurement, business entity, going concern, dual aspects, accounting period, accounting cost, realization, and accrual concepts, illustrating their application within Fletcher Building's financial statements. The core of the analysis delves into the conceptual framework, addressing measurement issues and the transition from historical cost to fair value, referencing IASB and FASB discussions. The report examines the impact of NZ IFRS 9 on Fletcher Building's financial instruments, highlighting changes in hedge accounting and impairment requirements. Finally, it discusses the fundamental qualitative characteristics of relevance and representational faithfulness, crucial for financial statement quality. The report concludes by summarizing the key findings and their implications for understanding Fletcher Building's financial performance and position.

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Fletcher Building Foreign Exempt NZX

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Contents
Introduction................................................................................................................3
Descriptions of Accounting Concepts.......................................................................3
Conceptual framework, and the Issue of Measurement...........................................7
Fundamental Qualitative Characteristics - Understanding of Relevance and
Representational Faithfulness.................................................................................10
Conclusion...............................................................................................................14
References..............................................................................................................16

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Introduction
Fletcher Building limited has been chosen for the review. It is one of the largest New
Zealand listed company having wide capitalization of NZ$4 billion. The company is
engaged in the business of manufacturing, home builder, as well as partner on major
constructions as well as infrastructure projects. It is also the only organization that
has been local manufacturer of cement left in New Zealand. The business has been
widespread globally with 20000 employees and 34 business units. In this
assignment, we will discuss about the accounting concepts , conceptual framework
of measurement , issue in measurement and how the same have direct impact on
the financial report of Fletcher Building. Further, we have discussed about the
qualitative characteristics that must be present at the time of preparation of financial
statement. It has been observed that the selected company has follows the same
adequately at the time preparation (Annual Report, 2018).
Descriptions of Accounting Concepts
Money Measurement Concepts- this accounting concepts states that a company
must recognize only transactions & events which are capable of being measure in
term of monetary value in the financial statements. In the stated case of Fletcher
building, it has been appearing that the focus of the company has been made on the
transactions with quantitative information rather than qualitative information. Some of
transaction that cannot be recorded in the financial statement has resultant not
recorded by the Fletcher Building is as follows:

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 Working condition of employee
 Employee skill level
 Customer support quality
Business Entity- this accounting principle states that an organization must record
all transactions pertain to the business separately from their owner & other business.
In the stated case the company has issued 156306701 shares during the year. The
company has also accounted 2820341 shares as treasury stock that has been
reduce directly from the number of ordinary shares
Going Concern Concept- As the name suggest, it states about the assumptions
which provides that the entity would work or remain inbusiness in the future. In the
state’s case of Fletcher Building limited, the annual report clearly pretends the
business is working on going concern concepts. Some of the instances for the same
are
Capital Risk Management- the annual report in this regard depicts that the main
purpose of the company for managing the capital has been to safeguard the group’s
ability in concerned with the going concern that resultant give return to their
shareholder and benefits to the stakeholder by way of maintaining optimum capital
structure which will then reduce the cost of capital.
If we talk about the brands, it has considered to have indefinite use life when there
are various factors which indicates that there has not been any limit on the capacity
for generating foreseeable cash flow from the same. Here, it has been concluded
that there are no factors that that provide the evidence of obsolesces because of a
regulatory condition or technology. Hence, the business is running at going concern
concepts.

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In the directors’ report page, it has been if director held responsible to assess the
ability of Fletched Building group to continue as going concern (Annual Report,
2018). The same has been assesses by disclosing the applicable matter related to
going concern as well as by use of going concern base.
Dual Aspects Principle- this principle depicts or requires every organization to
comply with accrual accounting. It resultant make assumptions that every incurred
transaction has dual impact in the books of account in their respective opposite
sides. it provides that transactions are recoded based on double entry system which
provides necessitates about the recognition of all accounting aspects. For instance,
debit transaction inversely increases the expense & assets and decreases the
income as well as equity, Liabilities. This accounting concepts has been properly
used by the stated company and the same has further be ensured in the auditors
report Annual which states that the company has been maintain proper books of
records as per the relevant regulations and following the proper dual aspect in
maintaining their books of account.
Accounting Period Concepts- it callaeid states all the moving transaction incurred
during the period must be recorded by the company in the books of account with an
assumption that the profit arises from the transactions must be ascertained for the
mentioned specific period. It resultant helps to predict the future asp[acts of
businesses & helps various financial institutions, banks etc for assessing as well as
analysing the performance of organization for the period (Annual Report, 2018).
Accounting Cost Concepts- this concept clearly depicts that all the assets must
be recorded in the books of account of company at PP i.e. purchase Price that would
include all expenses such as installation exp, cost of acquisition, transportation exp.

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Etc. the significance of this concepts has been to show the assets at a price which
has been acquired that can be verified using the supporting documents. The annual
report of the company depicts that noncurrent assets of the company such as P & M,
land & Building, Fixtures, resource extractions, Leased assets has been recognised
at cost less accumulated depreciation using SLM method. Further leased assets is
recognized as capital lease & considered as non-current assets taking under
consideration the Accounting cost concepts.
Realisation Concept- this concept depicts that the organization revenue incurred
during the must be recorded when it is realised. Here the word “ realisation” states
that legal right creation to receive the money. For instance, sale of good is
realisation, receiving of order is not realisation. The revenue earned during the
period by the organization have been disclosed at Income statement , the amount so
shown is realised amount and the receivable is shown in balance sheet under the
heading “ current Assets” i.e. amount yet to be received against sale. Therefore, the
Fletcher building has been properly following Accounting concept of Realisation.
Accrual Concepts- Accrual means something which become due however yet to
be paid or received during the accounting period. As per the annual report of
Fletcher Building, the accrual base concepts have been properly applied as follows:
It has been stated in the annual report that creditors as well as other liabilities have
been stated at cost and the estimated liabilities when accrued. Entitlement given to
the employees during the year including annual leave have been recognized in the
financial statement on an accrual basis. All the income & expenses during the year
have been recognized taking under consideration the accrual base of accounting.
For instance, as stated in the annual report interest income & expense have been

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recognized in the profit or loss account on accrual basis by use of effective interest
method
(Annual Report, 2018)
Conceptual framework, and the Issue of
Measurement
Issue of measurement
Measurement of financial reporting for the performance as well as financial position,
direct or indirect have impact on everyone. The way of measurement used by
company helps user and other stakeholder to determine about the expected failure
or success of the organization, whether employees entitle to bonus, dividend
amount investors are receiving as well as the amount of tax business is paying. The
controversy regarding the measurement for the financial reporting has been

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surrounded by many questions this is mainly due to the movement of measurement
process from tradition base i.e. historical cost to the new which fair value is.
It has been depicting that setter of financial exporting has risen certain measurement
question taking it as one of the general principles:
In the year 2005, IASB i.e. International Accounting Standards Board issued one
discussion paper namely “ Measurement Bases for FR- Measurement on Initial
recognition.
In the same year both IASB and FASB ( US financial accounting standards board)
have been agreed for tackle the conceptual framework regarding the measurement
considering it as phase C as part of their 8-phase project. Further it is provided that
any change resulting from the change of measurement base have effect on greater
numbers of things or would have greater influence.
However, with growing controversy in measurement concepts the same has not
generated the required interest may be because it would be impacted many of the
companies from the view of accounting profession as well business community.
As per para 4.54 of IASB, measurement has been prescribed as the process to
determine the value at which all elements pertain to the financial statement would be
recognised in the income, statement & balance sheet. It requires to select base for
the measurement purpose which in result attributes numbers to various items which
have been appearing the report. The companies use either current cost or historical
cost for measurement purpose. However later ASBJ debates on the binary basis of
measurement as they find it insufficient to meet the objective of AASB. Based on
debates , IASB suggested the following for measurement purpose:
 Cost base

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 Fair value or prevailing market price
 Other cash flow base
ASBJ then also suggest using market value for measurement with certain
conditions..
Fletcher Building uses NZ IFRS 9 for measurement of financial instrument which is
replacement of NZ IAS 39. The effect of adoption of this NZ IFRS9 for fletcher
Building is as follows:
 In accordance with the NZ IFRS 9, it states about the measurement as well as
classification of the financial liabilities & the financial assets which were earlier
in the scope of NZ IAS 39. There would not be any amendments for the
carrying amount or classification of the assets & liabilities in the financial
report under NZ IFRS 9. In nutshell, there had not be any change in the
classification of assets & liabilities.
 As per NZ IFRS 9 regarding the hedge accounting rules, they have aligned
hedge accounting in this reference more closely to the risk management
activities for the group which in result permit for the hedge of the aggregated
exposure. Additionally, the effectiveness test would have been replaced. i.e.
bright line test that were prevailing under NA IAS 39 has been replaced with
the new principle that requires to have economic relation between hedged
items and the hedging instrument (Annual Report, 2018).
 In nutshell, on overall analysis it has been found that adoption of this
measurement principle for hedge accounting does not bring any significant
change as an 1st July 2017 for the group’s hedging accounting relationship as
this NZ IFRS 9 has been applies with retrospective impact from the initial

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date. In nutshell, the new hedge accounting does not have any direct impact
since the company does not have any hedges to which the hedge accounting
could apply.
 This NZ IFRS 9 also replaces or incurred loss method prevalent under NZ IAS
39 . NZ IFRS 9 states that impairment requirement has been based on the
expected credit loss model (Annual Report, 2018). Keeping the impact of NZ
IFRS 9 immaterial , the Fletcher building group has made application of
simplified approach regarding the trade & other receivables. In nutshell,
change in measurement policy does not have any material impact on the
financial assets of the company
Fundamental Qualitative Characteristics - Understanding of Relevance and
Representational Faithfulness
A financial statement quality can be recognised by analysing the fundamental
qualitative characteristics which include proper or depth analysis of :
Relevance- the information provided must be relevant that enable the user to make
decision. These information’s are capable to make difference for the decision by any
user. This concept requires the financial information so provided must relate to the
economic decision. In other case the information would be useless.
The information would be considered as useful only when the same is confirmatory
value or Predictive value. As the name suggest the predictive value enables the
users to predict future outcomes based on available relevant information. On the
other hand, the confirmatory value helps the users to proper analyse , check and
according confirm the predictions made earlier.

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Materiality has been one of the aspects or concepts of relevance that is entity-
specific. It clearly states that information which is material for one organization or
entity may not be have same relevance or materiality for the other. The same is
relative. When an information has been significant impact that can influence the
user’s decision then the information is material. Further, the materiality of any
information has been affected by the magnitude Ans nature of the various item so
presented in the financial report.
In the stated case of Fletcher Building, the report clearly states that all items in the
financial statement have been stated in realistic way as well as all material
information have been adequately provided. Let’s take one example form the annual
report of the company of Significant Events (Annual Report, 2018). The annual
report clearly states that the items would be classified as significant only when the
same meet the certain fixed criteria that is further approved audit & risk Committee,
the items so determines are in accordance with the relevancy, consistency as well as
clarity principle. Some of the transactions covered by fletcher Building as Significant
events such as impairment of assets, disposal cost, business integration as well
other events incurred outside the group which have significant effect on the profit of
the company (Anon, (2019).
Faithful representation- As discussed or stated above the information present in
the financial information is required to represent what it purports to represents. It
depicts that the report must show what really present and what happened. It has
been further categorised into three characteristics for the faithful representation:
1. Full or complete disclosure of all the necessary information i.e. completeness
2. Freedom from biasness i.e. neutrality

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3. No omission or inaccuracies i.e. free from errors.
The annual report of the stated company clearly depicts the compliance of Faithful
representation. (Annual Report, 2018). The same has been further ensure by the
auditors. They have clearly reported in their report that on the bias of the audit
conducted by them and books of accounts maintained by the company the financial
report has present fair and material aspects in regard to all the items presented in
the financial statement (Accounting-simplified.com. (2019).
both above are considered important however if we must take one as better, we will
go with faithful representations (Ifrs.org. (2019). This is mainly due to more emphasis
on the characteristic of faithful representation that been briefly discussed below:
Full or complete disclosure of all the necessary information i.e. completeness-
it ensures that the financial statement contains all the required information and have
been proving clear picture regarding the financial performance, result so arose las
cash flow of the organization as well for the users or readers to make investment
decision (Bragg, S. and Bragg, S. (2019). It also depicts that no material information
has been omitted which might have direct or indirect impact on the decision of reader
or that may lead the user to have difference opinion (Annual Report, 2018). For
instance: an entity has shown that they have taken loan of $ 5,00,000 but the same
would be considered as incomplete unless the entity provide addition information in
the notes regarding the interest rate , maturity period etc.
Freedom from biasness i.e. neutrality- to ensures that the financial report of the
organization provides actual states without any type biasness or without trying to
amplify the net result from the actual or real result. For instance- n entity can provide
biased financial statement to influence the users for investment decision. On other