Analyzing JB Hi-Fi's Adherence to Accounting Theory & Framework

This report critically analyzes JB Hi-Fi's adherence to the AASB conceptual framework and relevant accounting theories. It examines the company's financial reporting practices, focusing on compliance with accounting standards, qualitative characteristics, and measurement requirements. The report identifies the decline in JB Hi-Fi's share price as a key issue and explores the application of agency and stakeholder theories in the company's operations. Ultimately, the report concludes that while JB Hi-Fi generally adheres to accounting standards, it should consider external factors more carefully in future acquisitions. Desklib offers a wealth of similar solved assignments and past papers for students seeking additional resources.

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting Theory and Contemporary Issues
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Executive Summary:
All ASX listed organisations are obliged to adhere to the conceptual framework requirements for
developing and presenting financial statements. However, they need to abide by the
measurement needs of the conceptual framework. The current report evaluates the different
aspects of the compliance of JB Hi-Fi with conceptual framework needs. Moreover, the report
has considered the analysis of an issue associated with an organisation. Along with this, the
report has analysed the adherence of the organisation with the qualitative features of conceptual
framework. Finally, it covers various accounting theories with reference to the concerned
organisation.

2ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Introduction:....................................................................................................................................3
Critical analysis/discussion:.............................................................................................................4
Accounting issues/problems:.......................................................................................................4
Detailed accounting requirements:..............................................................................................5
Accounting theories and their themes in relation to the identified problems:.............................7
Recommendations:..........................................................................................................................8
Conclusion:......................................................................................................................................8
References:....................................................................................................................................10

3ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Introduction:
The primary intention of the report is to analyse a particular accounting issue in one of
the leading ASX organisations and thus, JB Hi-Fi is taken into consideration. The report shows
analysis of a news article regarding the chosen organisation revealing depicting the fall in its
share price.
JB Hi-Fi is a retailer of consumer products specialising in Ultra HD Blu-rays, DVDs,
CDS, hardware, electronics, video games, mobile phones, electrical home appliances and variety
of Telstra services. In August 2018, it has been the seventh biggest consumer electronics and
home appliance retailer in the world (Annualreports.com 2018).
In this regard, one significant issue for the organisation is the adherence of JB Hi-Fi to
the principles of the AASB conceptual framework for preparing and presenting the accounting
statements accurately. There might be rise in financial errors and frauds, if the organisations do
not comply with the AASB and conceptual framework requirements (Aasb.gov.au 2018).
In the current years, a significant accounting issue is the compliance with the needed
accounting principles and standards for financial reporting. This aspect formulates opportunities
for financial frauds and even the closure of the organisations. For avoiding the same, it is
necessary for JB Hi-Fi to adhere to the pertinent accounting standards. In addition, it needs to
abide by the necessary elements of the conceptual framework in AASB.

4ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Critical analysis/discussion:
Accounting issues/problems:
The above extract clearly states that the share price of JB Hi-Fi has fallen significantly by
8.9% in the past five months to a low of $23.28. The stock price has fallen by 21% on 2 nd
February 2018 from its high of $29.47. In 2016, JB Hi-Fi has made the acquisition of the Good
Guys in September 2016 for $870 million along with forecasting $20 million in synergies over
two years. Although the organisation has been comfortable with the synergy target, the

5ACCOUNTING THEORY AND CONTEMPORARY ISSUES
competitive market conditions have resulted in tough integration (Australian Financial Review
2018).
Detailed accounting requirements:
After detailed evaluation of the annual report of JB Hi-Fi in 2018, it is noteworthy to
mention that the general purpose financial statements of the organisation are prepared in such a
manner that they comply with AASB and Corporations Act 2001. In addition, it has adhered to
the requirements of IASB and IFRS, which states that the organisation has conformed to the
necessary accounting standards and guidelines.
On the other hand, there are five elements of the conceptual framework, which include
income, expenses, assets, liabilities and equity. For measurement needs, the conceptual
framework of AASB has placed various obligations on the ASX listed organisations. The
conceptual framework states that the organisations need to adopt a combination of measurements
for measuring different elements of the financial statements like historical cost, fair value and
others (Beattie 2014).
From the above extract, it could be observed that JB Hi-Fi has used historical cost as well
as fair value for gauging assets and liabilities.

6ACCOUNTING THEORY AND CONTEMPORARY ISSUES
From the above extracts of the latest annual report of JB Hi-Fi, the organisation has
utilised historical cost and fair value methods for gauging various conceptual framework
elements like income, liabilities, assets and others. Therefore, it could be stated that JB Hi-Fi has
conformed to the needs of the conceptual framework and AASB.
Moreover, the conceptual framework of AASB requires JB Hi-Fi to adhere to the
qualitative characteristics of the conceptual framework and these are evaluated as follows:
Fundamental qualitative characteristics:

7ACCOUNTING THEORY AND CONTEMPORARY ISSUES
JB Hi-Fi provides pertinent financial information to its financial statement users for
making decisions including predictive and confirmatory values. In addition, it provides both
qualitative and quantitative descriptions of the various line items in the financial statements for
ensuring the completeness of information. This has ensured relevance and faithful representation
in its annual reports.
Enhancing qualitative characteristics:
JB Hi-Fi has represented financial information in a way that the users could contrast the
same with another organisation or with varying timeline of the same organisation. In addition,
the users could verify the accounting method in the financial statements by using independent
observation and accounting knowledge (Collier 2015). Moreover, the organisation discloses its
financial information within specified timeframe for making decisions. Finally, with the help of
financial footnotes, the users could easily understand the various aspects in the financial
statements. This has helped in ensuring comparability, verifiability, timeliness and
understandabiity aspects of the conceptual framework of AASB.
Accounting theories and their themes in relation to the identified problems:
Agency theory:
As per this theory, an organisation is considered as an agency and it represents an
association for a complicated group of contracts and due to this, agency cost arises owing to
various aspects and contracts (Henderson et al. 2015). According to this theory, JB Hi-Fi is the
principal and the management of the organisation could be identified as its agent. This theory
states that the agents undertake decision for the principals. For Orica Limited, the management
undertakes the needed decisions and it carries out the tasks on behalf of the organisation.

8ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Stakeholder theory:
This theory states that all stakeholders possess intrinsic moral worth and they have
legitimate interest in the overall business activities. Therefore, the business organisations need to
take into account the interests of the stakeholders in the form of intrinsic value (Hoque 2018). JB
Hi-Fi has used the stakeholder theory concept in its business operations by addressing the
stakeholder requirements. For instance, the significant stakeholders of the organisation include
potential stakeholders and current investors and they are willing to invest in the organisation for
obtaining better returns. Hence, JB Hi-Fi has addressed the interest of its stakeholders by
providing them with the necessary financial information so that they could undertake useful
decisions (Smith 2017).
Recommendations:
It has already been evaluated that JB Hi-Fi has adhered to all the necessary Australian
accounting standards and conceptual framework requirements mentioned in AASB. However,
the declining share price has been identified as a significant issue for the organisation in 2018.
Therefore, it is advised to consider the external factors before acquisition of any organisation for
accurate estimation of future stock price along with abiding by the rules of AASB.
Conclusion:
In accordance with the above discussion, JB Hi-Fi has adhered to the accounting
standards and regulations of the conceptual framework along with adhering to the qualitative
characteristics of the AASB conceptual framework. However, the financial performance of the

9ACCOUNTING THEORY AND CONTEMPORARY ISSUES
organisation in the existing year is not satisfactory due to decline in share price. Finally, it has
applied stakeholder theory and agency theory for conducting its business operations.

10ACCOUNTING THEORY AND CONTEMPORARY ISSUES
References:
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 14 Dec.
2018].
Annualreports.com., 2018. JB Hi-Fi Limited - AnnualReports.com. [online] Available at:
http://www.annualreports.com/Company/JB-Hi-Fi-Limited [Accessed 19 Dec. 2018].
Australian Financial Review., 2018. JB Hi-Fi blames profit downgrade on weather, shares dive.
[online] Available at: https://www.afr.com/business/retail/jb-hifi-blames-profit-downgrade-on-
weather-shares-dive-20180502-h0ziwl [Accessed 19 Dec. 2018].
Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues,
theory, methodology, methods and a research framework. The British Accounting Review, 46(2),
pp.111-134.
Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.
Smith, M., 2017. Research methods in accounting. Sage.