HA3011 Advanced Financial Accounting: Hewlett-Packard Case Analysis

This report provides an analysis of accounting concepts and practices, focusing on Hewlett-Packard. It discusses the importance of accounting standards, the conceptual framework, and qualitative characteristics in financial reporting. The report covers key accounting concepts such as money measurement, business entity, accrual, matching, realization, and dual aspect concepts. It also examines the role of the International Accounting Standard Board (IASB) and the Australian Accounting Standard Board (AASB) in setting accounting policies. Furthermore, the report delves into different measurement methods, including historical cost and fair value, and their implications for financial statements. Finally, it emphasizes the significance of qualitative characteristics like relevance and representational faithfulness in ensuring the reliability and understandability of financial information. Desklib provides a platform for students to access past papers and solved assignments related to accounting and finance.

auditing and assurance
Module Number-
[DATE]
Hewlett-Packard
[Company address]

Table of Contents
Introduction...........................................................................................................................................1
Descriptions of Accounting Concepts...................................................................................................2
Conceptual framework, and the Issue of Measurement.........................................................................4
Fundamental Qualitative Characteristics - Understanding of Relevance and Representational
Faithfulness...........................................................................................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7

Introduction
There are several accounting standards which are used by the company to record the
financial data in the books of account and strengthen the transparency of the recorded items
in the books of accounts. There are different organizations in the world and every listed
organization operating in the “globalised world of corporations” wants to attract more
investors. All the investors consider some factors while choosing the segment for investment
like position of the organization and performance levels. Investors get the information about
the companies in their annual reports. But there is an issue in analysing the annual reports of
the companies because every company prepares and presents their financial statements in
their own way and there is a lack of standardisation. Because of this, it becomes difficult for
investors to assess profitability and performance. Absence of standardisation in creating
financial statements leads to chaos for the investors all around the world. To resolve such
issue, there is an introduction of accounting framework that includes different accounting
standards, concepts and qualitative characteristics. However, these all the standards needs to
be followed by every company while preparation and presentation of financial statements.
This allows in bringing uniformity for all organizations. In the given report, there is a
discussion about the importance of such components while preparing and presenting financial
statements of SCA Property Group.
SCA Property Group was created by Woolworths Limited and it was a stapled trust structure.
The trusts were formed by the Woolworths for transferring the ownership to shopping centres
to SCA property group to Woolworth’s shareholder. One stapled unit had been given to each
shareholder in SCA property group in lieu of every five shares. SCA Property Group have
many shopping centres located all over Australia. Its focus is on convenience retailing by
ownership and management of the portfolios related to its shopping centres. They also raised
a capital of $ 472m while listing on ASX. It is earning approximately $175.2 m statutory
profits after tax.

Descriptions of Accounting Concepts
There are some assumptions that are known as accounting standards that have been used by
every organization in preparing and presenting financial statements. There are Generally
Accepted Accounting principles that are basically developed with the help of these
accounting assumptions and results in a proper understanding and interpretation of financial
data. Some accounting concepts used by SCA Property Group are-
 Money measurement concept: According to this concept, SCA Property Group record
everything in terms of money while preparing financial statements. It is known that it is not
possible to measure each and everything like skill level, honesty and hard work so these are
ignored. It is mandatory to record financial transactions in home currency and not in the
currency belong to any other country (Bujaki, Lento & Sayed, 2019). This concept helps
SCA Property Group to record the financial transactions in the books of account considering
the value currency effect and other aspects which may impact the financial books of account.
 Business entity Concept: Business entity concept states that the owners and the business are
altogether different from each other SCA Property Group does not record personal
transactions of shareholders in the books of accounts. This business entity concepts helps in
assessing the recording of the financial transactions and keep the personal transactions
separate from the recorded business transaction in the financial statement of company.
 Accounting Cost Concept: It is necessary to record assets of the business at historical cost
on the starting. The main reason behind the same is he to revalue assets at fair value to show
a clear picture of the status of the organization. Historical cost includes installation cost,
delivery fees and purchase price. The assets that are not acquired by paying an amount are
not allowed to record in the financial statements. E.g. Goodwill of an organization.
 Accrual concept: According to this concept, the revenue of SCA Property Group is only
allowed to record only when company raised the right to receive. It can only be done when
there is a delivery of services by the company. Cash receipt is not important for this even if
the amount is payable in upcoming years then also it must be done when the services are
actually provided to the customers (Steenkamp & Steenkamp, 2016).
 Matching concept: There is a concept that all the expenses of a financial year needs to be
deducted from the overall revenues of the same period. It is not allowed to carry forward

expenses without deducting them from the amount of revenue of the financial year as it is not
allowed (Gogan & Draghici, 2013). The matching concept reveals that the transactions of the
one year should be recorded in the same year in which it has been incurred irrespective the
cash inflow and outflow of the same. The recording of these transactions should be done on
the basis of its outstanding nature in the particular year (Auditing and Assurance Standards
Board, 2015b).
 Realisation concept: According to the realisation concept, SCA Property Group is not
allowed to recognise the revenue in the books of accounts when customers ordered for the
services. Revenues can only be considered when the organization get the right to receive the
payment by provisioning services to the clients and its totally depends upon the delivery of
services (Saito, 2011).
 Dual aspect concept: According to the Dual aspect concept, it is required to follow the
concept to form financial statement by using the accounting equation “Assets = Liabilities +
Capital”. It is required for both to get matched because every transaction has dual impact and
affect two accounts of the business. SCA Property Group also use this principal and match
the dual impact of the transaction.
 Going concern concept: Financial statement of SCA Property Group has been prepared with
an assumption that business will continue its operations forever and there are no plans for
shut down the same. The main concept behind this assumption is that the total amount of
capital expenditure is not deducted one time in the financial year when asset was purchased
but in each year in the form of depreciation. Depreciation is charged every month from the
cost of the asset as reduction in the working life of the asset or capital expenditure (Чорна,
2015).
 Accounting period concept: It is necessary to assess the results of the financial statement in
a periodic manner and for a time duration to present the position to public. The period has to
remain the same. For every reporting so that the information can become helpful for the
investors and stakeholders and can easy to compare. There are different patterns that different
countries are following like it can be the calendar year or the financial year. E.g. SCA
Property Group follows the accounting period i.e. 1st July and ends on 30th June every year
(Cedergren, Chen & Chen, 2015).

Conceptual framework, and the Issue of Measurement
International Accounting Standard Board (IASB) has created a conceptual framework that
assist in preparing accounting policies and the International Financial Reporting Standards
(IFRS) to use a standardised approach in forming accounting policies. It is really very helpful
for the users in understanding and interpretation accounting standards and policies. It also
helps in easy comparative analysis (Kober, Lee & Ng, 2012).
In Australia, the conceptual framework is frames as per the Australian Accounting Standard
Board (AASB). There is a regular update in the framework to comply with all necessary
changes made in the framework created on an international level by IASB. This framework
assists users to consider the measurement and recognition on a basis along with the definition
of assets, income, expenses and liabilities. This framework is considered as very efficient.
There are different methods provided by conceptual framework that have been used in
measurement of expense, liabilities, income and assets used by the corporations. Such
methods are current cost methods, historical cost method, fair value method, present value
method and realisable value method (Auditing and Assurance Standards Board,
2015b).Historical cost method is the one that is used a lot by the organizations because it is
based upon accounting cost concept. There is different type of arguments regarding costing
methods as which method gives more clear results. This is one of the best tools and it is used
by SCA Property Group. It does not use this for the measurement of derivative financial
instrument and property investment, this technique is used in preparation of financial
statements (Needles & Powers, 2012).
Historical cost method is used in reporting of revenues, liabilities, incomes and
expenses whereas fair valuation method is used in valuation of the assets. The investment in
properties is also calculated at fair value and any changes in fair value accounting have been
go through profit and loss statement. In case of investment, the initial investment measure on
the cost as at the time of reporting, it is done as per the fair value approach (Mishra &
Hussain, 2014). It is done so that there can be a clear picture about the existing market
conditions. The profits and losses due to the change in fair value reflect in profit and loss
account (Fukui, 2011). Performance rights are also measured as per the fair value method of
accounting. In this way, several methods are used after computing the fair value. Discounted

current value method has been used in an active marker to know the change in price. There
are two measurement techniques used by SCA Property Group are fair value method and
historical cost method. There are many other companies listed in Australian stock exchange
that uses the same methods for their business. There is some critique on historical value
method as according to them it shows unreal value in financial statements and it is not good
for the present structure. This method is also said lacking down as it does not account
anticipated profits but considers anticipated losses (Stevenson, 2012). However, these all the
standards needs to be followed by every company while preparation and presentation of
financial statements. This allows in bringing uniformity for all organizations. Nonetheless,
impairment testing implemented as per the IAS 136 helps company to prepare and presenting
financial statements of SCA Property Group and reveals the true and fair view of the
recorded items in the books of account of company.
Fair value is known to be an accurate business value as it is based on the current position and
this method also results in making big changes in financial condition of the business as there
is an integration of high-end assumptions. So, as discussed there are advantages as well as
disadvantages of both the methods and the main concern is related to mixing them into a
single element. It is recommended to the organizations to use best measurement approaches
that can provide a full-fledged disclosure about all elements (Pavliková & Kralik, 2014).
Fundamental Qualitative Characteristics - Understanding of Relevance and
Representational Faithfulness
Like quantitative aspects, qualitative aspects are equally important for a business in
preparation of financial statements (Nauta, 2015). It is necessary to consider qualitative
factors to present quantitative results. There are two types of financial statements general
purpose financial statements and special purpose financial statements and both uses
qualitative characteristics. Such qualitative characteristics are using to assess the timeliness,
verifiability, understandability and comparability of the valuable information provided by the
organizations. This shows that if company wants to sustain its business in long run then it
will have to set up proper harmonization in the domestic and international financial reporting
frameworks. The impairment test implemented by the company as per the IAS 136 helps in

evaluating the true and fair view of the recorded items in the books of account. The two
elements of qualitative characteristics are-
 Relevance- It is necessary to provide total relevant information in the financial reports
because it impacts the decisions of investors and stakeholders. Information should be material
enough that can be easily relatable to the nature of information or the size (Auditing and
Assurance Standards Board, 2015b).
 Faithful representation- The presentation of substance of information is more important than
the legal form of information. It is important to present faithful information that possess the
characteristics like complete, neutral and non- erroneous (Ašenbrenerová, 2016).
All these characteristics can be shown in the annual report of SCA Property Group. There is a
detailed information provided in the report that shows all the practices used by the
organization for maintaining relevance and faithfulness of the presentation.
E.g. Total Shareholder Return (TSR) comparator is a method adopted to measure the long-
term incentive entitled till financial year 2018 and it is supposed to uses by the organization
in financial year 2019 to maintain the flexibility in comparing the information. Remuneration
framework is also reviewed by the company for maintaining the relevancy of the information
in the commercial atmosphere where it operates. It uses home currency in preparation of
financial statements and this information is clearly provided by the company. It has faithfully
showed the method of rounding off the figure to nearest thousands focusing on materiality. It
allows the easy comparison of the presentation of the company’s financials. It is necessary
for the company to disclose all the relevant and important financial aspect and provide the
same in notes of accounts for removing confusion (Auditing and Assurance Standards Board,
2015b)..
Conclusion
Following accounting concept is very important for all the listed companies around the world
as it is suggested by the accounting framework to prepare financial statements in a manner
that are relevant to the users and presented in a faithful way. It is not allowed to use
qualitative characteristics without taking conformity with the underlying accounting concepts
is being accepted. It is important to use by the companies to adopt and maintain these
practices for showing an easy and smooth comparability. There are two methods of
measurement in financial statement- historical value method and fair value method. After the

analysis, it has been concluded that both the methods have their own importance and they can
be used as per the suitability by the entities. Both methods can also be used, organizations can
firstly use historical method and then afterwards fair value method. Now in the end, it could
be inferred that Estia Health operates has set up legal compliance department to maintain the
strong corporate governance which help it to strengthen its reporting frameworks.
Nonetheless, the financial statements prepared company have only recorded the transactions
that are able to be recorded in the monetary terms. Other non-quantitative aspects being hard
work, honesty, skill level, and workforce program which cannot be quantified in monetary
terms are completely ignored

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