MAA310 Accounting & Society: Kimy Limited Financial Reporting

This report examines the financial reporting practices of Kimy Limited, an Australian company providing services to the Victorian government. It discusses whether Kimy Limited should lodge its annual report based on general-purpose financial statements (GPFS) rather than special-purpose financial statements. The report analyzes the definitions of reporting entities according to SAC1 and the Revised Conceptual Framework (RCF). It compares Tier 1 and Tier 2 reporting frameworks, including reduced disclosure requirements (RDR) and specified disclosure requirements (SDR). The report also explores the application of agency theory and stakeholder theory in the context of Kimy Limited's financial reporting. Finally, it identifies the challenges Kimy Limited may face when transitioning to GPFS Tier 1 following the adoption of the RCF, such as heavy transition costs, increased reporting complexity, and regulatory burdens.

EXECUTIVE SUMMARY
The company Kimy limited prepares special purpose financial statement as
having decided it is not a reporting entity but the company kimy limited provide
services to the Victorian government and operate the Victorian public transport
ticketing system. As there was problem in implementing the whole ticketing
system which attracted huge media attention and also interest to public.
Accordingly Kimy should lodge its annual report on the basis of
INTRODUCTION
The company Kimy limited is a large Australian tax based company which is not
listed in the Australian stock exchange .It is a family owned company managed

by ten major shareholders out of which five members are also the board
member. Its main business is to provide services to the Victorian Government.
Answer 1:

As per SAC1 reporting entity definition, it means the reporting entities are all
entities in which there is a reasonable assurance of the existing users to the
financial statements who will rely on the general financial report of the company
for information which will be beneficial for them for taking an appropriate
decision regarding the scarce resources available to them.On the basis of the
financial report of the entity the users arrived at the final decision whether to
park their surplus fund in that particular company or not. As per SAC1 it
determines who should generally prepare the financial statements –all other
company can opt or choose to prepare the special purpose financial statements.
(KPMG, 2019)
As per RCF reporting entity definition means an entity greater than one or a
single entity but not necessarily a legal entity required, or choosesto prepare the
financial statements of the company. As per RCF it determines the boundary for
the activities needed to be included in the general purpose financial statements.
(KPMG, 2019)
Answer 2:
In the year 2010, the Australian Accounting standard Board issued various
standards which establish a different reporting framework and consist of two tier
of reporting
 Tier 1:Australian Accounting Standard Board
 Tier 2: Australian Accounting Standard Board-Reduced Disclosure
Requirements.
As compared to Tier 1, Tier 2 reduces the requirement of disclosure in the
general purpose financial reporting framework and also the costs associated with
the preparation of the financial statements whether for profit or non profit
organisation or private or public sector.(Australian Accounting Standard Board,
2019)
Tier 1 reporting is applicable for the public entities which include some specific
entities too and Tier 2 is non public entities and for non profit private sector
entities the choice of applying tier1 or tier 2 reporting framework rest with the
management of the company.(Deloitte Touche Tohmatsu, 2015)
Answer3:
GPFS reduced disclosure requirement (RDR) existing Tier 2 which reduces the
disclosure forthe entire specific accounting standard. The costs of preparing and

auditing the financial statement is also very low whether for profit or non profit
or private or public entities.
Proposed GPFS ‐ Specified Disclosure Requirements (SDR) existing Tier 2, all
disclosure are required to be disclosed in the financial statements of the
company .All disclosure for the specific standard should be clearly disclosed like
 AASB 101: Presentation of Financial Statements
 AASB 107: Statement of Cash Flows
 AASB 108: Accounting policies, changes in Accounting Estimates and
Errors
 AASB 1054: Australian Additional Disclosures
 AASB 1048: Interpretation of Standards
 Impairment of assets
 Revenue
 Income taxes
As the specified Disclosure requirement contains maximum disclosure about the
company and its future functions and plan as compared to GPFS reduced
disclosure requirement which contains only a minimal disclosure regarding the
entity .These differences in disclosure influence the decision of the shareholder
regarding the investment in making decision. Aslimy limited is a family oriented
company who is currently preparing special purpose financial statements and is
not required to lodge general purpose financial statement for the same, which
reduced the disclosure requirement and makes it difficult for the shareholder to
take decision for their investment decision?
Answer 4:
General purpose financial statement under Tier 1 applies to public related and
profit entities and entities who are voluntarily reporting the compliance with
International Financial Reporting Standard. The Tier 1 GPFS apply the IASB
Revised Conceptual Framework which includes the new definition of the
reporting entity. There is also requirement of legislation and when there is
accountability to the public whether public, state, federal or local government.
Than in such instances Tier 1 GPFS Is applicable.( KPMG, 2018)
As Kimy Limited a large Australian public company which is not listed on the
Australian Securities Exchange and is a family owned company with only ten as a
major shareholder out of which five are board member .It provides a software
services to the Victorian government .It looks after the Victorian public transport
ticketing system. Kimy limited also a data base of other customer. As due to
delay and problem with the development and implementation of the ticketing
system which attracted media attention too and has got a public interest so the
company Kimy limited will be required GPFS Tier 1 under Revised Conceptual
Framework.

Answer5:
The lens offered by agency theory revolves around the main principal and agent
relationship .Agency theory is more concerned about resolving the relationship of
an agent and the principal. The main issue which can arise between the agent
and the principal is the conflict of interest. This is the main issue which can be
witnessed in the public sector rather than the private firm. The relation is
generally based on the company shareholders as owners of the firm and the
agents of the company as the executives. In broad terms we can say that there
is a relationship between two parties in which one is the agent and the other is
the principal and both generally represents each other in day to day
transactions. The principal generally hired the agent to perform the services of
on their behalf. The principal delegates his decision making power to the
agent .As according to the agency theory the agent is using the resources of the
principal on a daily input basis and any loss arise to the agent will be borne by
the principal. Sometimes the decision is made the agent which is not financially
sound for the other .This lead to differences of opinion on both side and even
difference in priorities and problem can arise between the two. According to the
agency theory the central issue which is faced is that the company may want to
expand the business to a certain level which may lead to sacrifice of the short
term profitability of the business and the higher earnings in the future. However
the shareholder may want the return on short term basis and can oppose the
management decision. Difference in the risk tolerance level also affects the
decision power between the two. According Agency theory explains the best
way how to manage and organise the relation when one party determines the
work while other party performs the work. It explains how to resolve the dispute
between the two as in case of the company Kimy limited. The best way to
achieve the balance is to award the agent with an award or compensation from
the principal side for his performance. Agency theory lens raises a very much
fundamental problem in the organisation i.e. a self interest issue. This theory is
based on the working out the best way for the principal and agent so that they
can work together with better understanding of the same.
According to the agency lens theory GPFS Tier1 would provide a better quality of
information for the decision making purpose for kimy;s shareholder of the entity
than general purpose financial statement Tier 2 (SDR)_.As the GPFS Tier 1
provides detailed information regarding the company operations and all
disclosure regarding accounting standard is to be done in order to provide to the
shareholders of the company .The users of the financial statements can take
decision on the basis of such financial statement and can park there surplus fund
to the entity on the basis of evaluation and analyses.(Vimrová, 2018)

Answer 6:
Stakeholder theory of lens that creating values inside and outside the
organisation is very much important in order to and proper in the long run for the
entity and it is also a part of doing the business. The main focus of the
stakeholder theory revolves around two questions, what is the purpose of the
firm? And what responsibility does the management of the entity have towards
the stakeholder. Stakeholder theory sets out the relationship that management
of the entity needs to create with the stakeholder of the company. Franchisees of
the entity should be treated very fairly if the company wants to prosper in the
long run .It is very necessary for the management of the company to value them
and guide them on a reasonable interval so that they not feel alone .Employees
of the company should be well paid and given bonus and increment on a timely
basis. The employees should be award for their continuous support to the entity.
Customer should be given a better quality product every time they shop form the
store or online. They should get value for their money.(Study.com, 2019) The
main purpose of stakeholder theory lens is to create as much value as possible
for the stakeholders of the company. In order to sustain over the long term it is
very important for every entity to provide good value and keep the interest of
the stakeholder whether it is the customer of the company or the employee or
the supplier of the firm.
According to the theory explained above GPFS Tier 1 would provide better
quality information for decision making for the Victorian Government than the
current Special purpose financial statement. As the detailed analysis of the
reporting also help the company and the outsiders to have a proper information
and functionality of the company. As Kimy is a large firm based in Australia not
listed in the stock exchange and comprises of major ten shareholders and has
got a huge contract from the Victorian government and also has a public interest
in it. The company Kimy limited should a follow a detailed reporting pattern
which gives a detailed analysis of the company and the future prospects and the
growth information about the company.
Answer 7:
The challenges that the company Kimy limited can face when it is required to
prepare the financial statement of the company as per the GPFS Tier1 following
the adoption of the RCF are here in below:
1) Heavy transition costs are involved from the conversion of special purpose
financial reporting to the general purpose financial reporting. The costs
include employment of new staff and imparting training to staff and
conducting seminar and workshop in order to make all the employee of
the company aware about the new reporting requirement.

2) This will require an additional reporting and complexity to the work load.
Consolidation and accounting for equity will be very much burdensome
and challenging for the staff to prepare and report the same.
3) The requirement to regulate and manage as per the new reporting GPFS
Tier 1 is very much burden and cumbersome. This increased the
regulatory burden for the employee of the company to manage and follow.
( KPMG, 2018)
The above challenges Kimy limited could meet by imparting training to staff
so that they are trained enough to follow and implement the rules and
guidelines.

References:
KPMG, 2018. Conceptual Framework for Financial Reporting. [Online]
Available at: https://assets.kpmg/content/dam/kpmg/au/pdf/2018/iasb-conceptual-framework-
application-in-australia-webinar-slides.pdf
[Accessed 25 March 2019].
Australian Accounting Standard Board, 2019. Reduced Disclosure Requirements. [Online]
Available at: https://www.aasb.gov.au/Work-In-Progress/Reduced-Disclosure-Requirements.aspx
[Accessed 25 March 2019].
Deloitte Touche Tohmatsu, 2015. Reporting obligations. [Online]
Available at: https://www2.deloitte.com/content/dam/Deloitte/au/Documents/audit/deloitte-au-
audit-gpfs-first-step-model-fs-june-2015-section-d-120515.pdf
[Accessed 25 MArch 2019].
KPMG, 2019. Applying the IASB’s Conceptual Framework in Australia. [Online]
Available at: https://home.kpmg/au/en/home/insights/2018/05/18ru-001-applying-iasb-conceptual-
framework-australia.html
[Accessed 25 March 2019].
Study.com, 2019. What is Stakeholder Theory? - Definition & Ethics. [Online]
Available at: https://study.com/academy/lesson/what-is-stakeholder-theory-definition-ethics-
quiz.html
[Accessed 27 MArch 2019].
Vimrová, H., 2018. Management Control Systems Through the Lens of the Agency Theory. [Online]
Available at: https://link.springer.com/chapter/10.1007/978-3-319-49559-0_48
[Accessed 25 March 2019].