Holmes Institute HA3011 Advanced Financial Accounting Report

This report provides an in-depth analysis of accounting concepts, focusing on their application within the context of financial reporting. It begins with an executive summary outlining the report's scope, which includes an examination of key accounting concepts such as going concern, dual aspect, cost and revenue, and money measurement. The report then provides background information on Caltex Australia Limited, the company chosen for analysis, and proceeds to analyze its financial statements in relation to these core accounting principles. The discussion includes an exploration of the issue of measurement and the conceptual framework that underpins financial reporting, along with an assessment of the relevance and representational faithfulness of financial statements. The report also touches upon the Australian accounting regulatory framework and the importance of adhering to accounting standards. The report concludes by summarizing the key findings and implications of the analysis. The assignment aims to provide a comprehensive understanding of the theoretical models of accounting and their practical application.

Running head: ACCOUNTING
ACCOUNTING
Name of the Student
Name of the University
Author Note

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Executive Summary
The Accounting is a serious measure which helps the firms in communicating the
results of the organization with the investors by means of analytical representation of
the data. The report is based on the overall financial and accounting concepts of any
report, which has then been followed by the issue of measurement and the conceptual
Framework. In line of this the qualitative characteristics of the report have also been
discussed. The Caltex has been chosen as the firm which has been analysed and the
real life scenarios have been assessed.

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Table of Contents
Introduction........................................................................................................................3
About the company............................................................................................................3
Analysis..............................................................................................................................3
The key accounting concepts........................................................................................3
The issue of Measurement and Conceptual framework................................................6
Analysis of the Relevance and Representational Faithfulness of the financial
statements......................................................................................................................6
Conclusion.........................................................................................................................7
References.........................................................................................................................9

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Introduction
Accounting can be considered to be essentially crucial to the different operations
of the firm and in line of this, it can be understood that if the firm aims to attain overall
success in the long run, then it will be required to ensure that it is being able to maintain
its books of accounts in the right manner and additionally is being able to follow all the
standards as well as the policies on which accounting relies upon. However, these
policies and procedures are not always simple in nature and in line of this, the
organization must ensure that the related concepts and frameworks are being followed
diligently as this ensures the success of the firm in the long run. The given report
focuses on the various theoretical models of accounting and the importance of the
Australian board standards (Barr and McClellan 2018). The report has chosen Caltex,
Australia as the company, the annual report of which will be analysed critically in order
to determine whether the company has been able to follow the accounting standards
and concepts. The report will be following a systematic format with respect to which a
brief introduction of the company will be provided, which shall then be followed by the
analysis of the accounting concepts as found in the reports of the company. This shall
then be followed by the understanding of the issue of measurement which exists in
accounting and the qualitative characteristics of accounting.
About the company
The Caltex Australia Limited can be understood to be an Australia based
transport fuel supplier and a convenience retailer organization. The company is not only
engaged in the purchase, selling, refining and the distribution of the petroleum products
but is also engaged in operating a large range of convenience stores in Australia
(Catlex.com 2019). The company`s convenience stores can be understood to be one of
the largest companies as present around the globe. In addition to this, the organization
tends to ensure that it is performing well in the competitive market.
Analysis
The key accounting concepts
The accounting concepts tend to form a crucial part of the organization and in
line of this, it is required to be understood by the firm that if it aims to ensure success in
the long run, the financial statements of the firm will be required to follow the key
accounting concepts which will then assist the firm in achieving its overall clarity and
transparency in the books of the accounts (Brealey et al. 2012). The different
accounting concepts which the Caltex makes use of can be understood to be as follows:
Going concern concept
All firms generally tend to follow the going concern aspect. As per the going
concern aspect, any business would be essentially required to ensure and assume that
it is engaging in operations which will bring about the long term profitability and
continuity of the firm (Damodaran 1996). This means that, when the accounts assess

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the different transactions of the firm, they will be required to keep in mind the
assumption that the business will continue its operations for a long time and hence, the
long term benefit of the firm needs to be considered. The firm, Caltex makes use of the
going concern accounting basis by ensuring that the different operations which a firm
aims to undertake in the long run will be with respect to the long term future of the firm.
It has been mentioned in the annual report of Caltex that, the ability of the group to
continue operations with respect to the going concern needs to be assessed adequately
and that the directors of the firm have been given the duty to see to it that, the going
concern basis of accounting are undertaken in all the dimensions of the firm. This is
included while disclosure, liquidating decisions or the related alternative actions
(Catlex.com 2019). Hence, relating to the capital management of the firm, the Caltex
takes into consideration the going concern of the business.
Dual aspect concept
The dual aspect concept can be understood to be as an essentially crucial
concept which states that, all the business and the related transactions need to have a
two way impact on the different operations of the firm. This means that, in case of a
credit, there needs to exist a corresponding debit. In line of this, it is also required to be
understood that, when the company borrows a loan from a bank then the loan comes in
the liabilities side of the accounts of the firm and also comes down in the Bank or the
cash balance, thus balancing the transaction (Damodaran 2010). Generally, the
accounting standards using which Caltex tends to operate is based on the Dual aspect.
This means that, the firm ensures that for all debit transactions, there exists an
alternative credit transactions. In line of this, the firm also seeks to ensure that, it follows
the standard financial reporting standards and reflects it results in the financial
statements such as the Balance sheet, Income statement, the Equity statement and the
Cash flow statement.
Cost and revenue concept
Another crucial concept can be understood as the cost and revenue concept
which suggests that, the profits as incurred by the firm at a particular time period are
required to be accurately classified against the cost and revenue of the company which
will then assist in ensuring that, the true profit as incurred by the firm can be understood
(Kimmel et al. 2016). The profit making can be considered to be an integral part of the
firm and with respect to this, it becomes adequately crucial for the firm to ensure that, it
is successfully being able to assess the revenue as well as the costs of the company in
the right manner and at the right time period as it assists in getting the accurate results
of the firm. As the firm is one of the best companies as present in Australia and one of
the top firms of the Australian exchange, there exists an adequate standard which the
firm is required to follow. In line of this, it has to be understood that the firm reflects the
true profit of the period and this has been greatly audited by the external auditors of the
firm which proved that no such discrepancy could be found in the statements
(Catlex.com 2019).

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The money measurement
The accounts refer to as money and with respect to this, it can be considered
relatively important for the business to understand that if it wants to ensure success in
the long run then in such a case, it needs to understand that, it will be required to record
everything and every entry in the books of accounts in terms of their monetary value.
Hence, although there may exist or there may take place certain events in the firm
which may not be necessarily connected with the overall monetary matters, however, it
might be considered to be critically crucial for the firm to see to it that, they are
successfully being able to only record those matters which are of adequate financial
importance and ensure that this helps in reflecting the true positioning of the company in
the long run (Mayer 1988). As the Caltex tends to follow the particular concept which is
based on the money measurement, it becomes critically important for the firm to ensure
that, it is successfully being able to simply follow and record the monetary values in the
financial statements (Catlex.com 2019). Although all relevant matters have been
adequately mentioned in the annual statements of the firm, only the ones with the
adequate monetary value have been mentioned in the financial statements.
The Accounting Period
The accounting period theory is another concept which mentions that the books
of accounting need to be prepared in a manner such that, they are restricted within a
uniform period. This makes the comparability of the books of the accounting
considerably easier and additionally, also helps in ensuring that a business is being
successfully able to bring about efficiency in the operations. If the accounting
statements follow different accounting periods then it becomes difficult to measure the
profitability of the firm and also makes it difficult to compare the overall performance of
the firm with the past performance of the firm or with the other companies as present
with the industry. Just like all firms in the business environment are required to follow a
specific accounting period which brings out the uniformity in the operations, even Caltex
ensures the same and follows the Accounting period of January to December and with
respect to this, all the books of the organization tend to end in the month of December,
the 31st.
Verifiability of the Objective concept
Under the particular concept, it is largely mentioned that, all the figures as well as
the amounts which are mentioned in the financial statements of the firm will be required
to be backed by adequate proof. This means that, in order to bring about transparency
in accounting, the financial statements of the firm need to be supported by adequate
documents (Ross, Westerfield and Jordan 2008). These documents may take the form
of vouchers, bills as well as the different cheques as present. In addition to this, it can
also be considered for the business to ensure that it forms relevant notes with respect to
the accounting statements which have been presented which makes it considerably
important for the business to ensure that prove the honesty of the financial statements

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through this method. In line of this, it can also be understood that, in order to fulfil the
verifiability of the objective concept, the Caltex has given the notes to accounts which
then go a long way in seeing to it that, the transparency maintains (Catlex.com 2019).
The issue of Measurement and Conceptual framework
All accounting as well as the financial statements are prepared with the help of a
conceptual framework which acts as a guideline and goes a long way in deciding that
the firm is successfully able to meet with the financial needs and the investor returns of
the different stakeholders as present. However, various firms often tend to face
problems with respect to this whereby the organization is not able to adjust within the
given conceptual framework as present and tends to often face issues in fitting the
overall results of the business to the different customers. Additionally, according to Berk
and DeMarzo (2007), the measurement in the financials has a key role to play whereby
very often , the firm finds it adequately difficult to ensure that it is successfully being
able to identify and measure the value of the different assets and the liabilities so that
they can be portrayed effectively in the books of accounts. Although it is crucial for the
different businesses to come up with a common measurement, one of the most popular
methods of measurement which is being used currently can be understood to be the fair
value measurement system.
However, the businesses like Caltex will be required to understand that there
does not exist a single accounting measurement system which will then help them to
see to it that, all their business needs are met with. The primary solution to the different
measurement issues which are generally faced by a firm can be largely understood to
be the fair value system (Shefrin 2001). In line of this, the Caltex also makes use of the
fair value system in financial reporting thereby measuring the different foreign exchange
contracts, assets, liabilities and other funds using this concept (Catlex.com 2019). The
page 102 of the annual report measures that, the group has an established framework
for the fair value measurement which assists it in the measurement of the profits as well
as the related losses of the firm. The measurement is divided into different levels and in
line of this, the different hierarchies of the fair value are used and then the fair value
measurement is categorized accordingly. This fair value measurement system has
helped the group to outline its reports in the right manner (Whittington 2016).
Analysis of the Relevance and Representational Faithfulness of the financial
statements
Another aspect of the financial statements can be understood to be the
qualitative characteristics of the financial statements of the organization. In addition to
telling the investors about the overall performance of the firm, it is also important for the
firm to ensure that their financial statements will be required to be of good quality in
nature. The qualitative characteristics of the financial statements can be understood to
be the relevance and the faithful representations (Tirole 2010).

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The Faithful representation
The faithful representation as a concept can be understood to be the logic that all
financial statements need to be present in a manner such that, they are able to
represent the complete, error free and unbiased image of the organization at large. The
financial report is usually divided into different parts and hence, it becomes considerably
crucial to ensure that, all the parts are accurate and an exact representation (Bekaert
and Hodrick 2017). The different characterises that the report is required to possess can
be stated to be as follows:
 The report is required to be complete in nature and none of the parts of the
financial report need to be left incomplete or non-reviewed.
 The financial statements need to be error free in nature as this will assist the
different investors in undertaking the right decision as possible (Finkler, Smith
and Calabrese 2018).
 In addition to this, the financial reports cannot be subject to the thinking and
biasness of the accountant and no efforts to change the overall financial
statements are required to be undertaken (Cannon 2019).
Relevance
With respect to the relevancy of the financial reports as present, it is crucial for
the firm to ensure that, the information which is shared with the different investors is
relevant in nature. This means that, the reports would be required to comprise of all the
information which is crucial for the decision making of the firm and in line of this, it can
also be understood that the financial statement needs to be easy to interpret by the
different investors. Key information like the annual profits, annual earnings per share
and other related information will be required to be shared by the firm adequately (Berk
and DeMarzo 2007).
In the case of the Caltex, Australia, it can be understood that the large group
assures that it is able to maintain the faithfulness of the report. This means that the
financial results and the other statements which are offered by the organization are
error free, non-biased and complete in nature (Catlex.com 2019). Moreover, as the
reports of the firm have been reviewed by the external auditors as well, in such a case,
the relevancy and the faithfulness of the financial reports can be adequately
guaranteed. All the relevant information which is required to be present in the reports
like the annual share earnings, profits and related information is present adequately.
Conclusion
Therefore, from the report, it could be rightfully understood that in order to ensure
long term success of the firm, the auditing can be considered to be an essential part of
the organization and also acts as a communication tool which helps the different
customers in conveying the information of the firm to the different customers as present.
The report analysed the basic accounting concepts as present and additionally
compared it to the overall performance of the firm. The Caltex group is a good firm
which follows all the accounting concepts and uses the fair value system to measure the

8ACCOUNTING
different assets of the firm. Moreover, the faithful representation and the relevancy of
the financial statements were also verified in the report.

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References
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher
education. John Wiley & Sons.
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge
University Press.
Berk, J.B. and DeMarzo, P.M., 2007. Corporate finance. Pearson Education.
Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012. Principles of corporate
finance. Tata McGraw-Hill Education.
Cannon, M.L., 2019. An Exploration of Key Accounting Concepts Through Case
Studies (Doctoral dissertation, University of Mississippi).
Catlex.com 2019. Annual report. [online]. Available at:
https://www.caltex.com.au/annual-report-2018 (Retrieved on: 25 May. 2019).
Damodaran, A., 1996. Corporate finance. Wiley.
Damodaran, A., 2010. Applied corporate finance. John Wiley & Sons.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public,
health, and not-for-profit organizations. CQ Press.
Kimmel, P.D., Weygandt, J.J., Kieso, D.E. and Trenholm, B., 2016. Financial
Accounting. Wiley Custom Learning Solutions.
Mayer, C., 1988. New issues in corporate finance. European Economic Review, 32(5),
pp.1167-1183.
Ross, S.A., Westerfield, R. and Jordan, B.D., 2008. Fundamentals of corporate finance.
Tata McGraw-Hill Education.
Shefrin, H., 2001. Behavioral corporate finance. Journal of applied corporate
finance, 14(3), pp.113-126.
Tirole, J., 2010. The theory of corporate finance. Princeton University Press.
Whittington, G., 2016. Accounting and economics. The New Palgrave Dictionary of
Economics, pp.1-6.