ACCG224: Financial Accounting and Reporting - Impairment Analysis

This report analyzes the application of professional judgment in financial accounting, focusing on impairment testing within Qantas Ltd. It examines the significance of professional judgment in ensuring the quality of financial reports and its implications on decision-making by stakeholders. The report delves into the impairment testing procedures, including trade receivables, land, building, and intangible assets, and considers the estimation for impairment write-downs. It also explores the requirements of the Australian Securities and Investments Commission (ASIC) regarding cash flow assumptions, fair value determination, and the identification of Cash Generating Units (CGUs). Furthermore, the report discusses the principles of the general-purpose financial reporting framework and evaluates the application of these principles by Qantas Ltd, highlighting the importance of detailed disclosures in cases of asset impairments. The conclusion emphasizes the crucial role of professional judgment in maintaining the integrity of financial reports and suggests areas for improved disclosure in impairment testing.

ACCOUNTING AND FINANCIAL
REPORTING

Introduction
• The main purpose of the
presentation is to analyse the
business of Qantas Ltd and the
reporting framework which is
followed.
• The assessment would be
focused on evaluating various
aspects for testing of
impairment charges of Qantas
Ltd

Significance and Implications of
Professional Judgement
• The quality of the financial reports which is prepared by a
business is heavily dependent on the accounting expertise
and knowledge which are components of professional
judgement.
• Professional judgement of an accountant can ensure that
proper ethical standard is maintained and thereby ensure
that the quality of the financial reports are maintained.

Significance and Implications of
Professional Judgement (Continued)
Implications
• If professional judgement of the accountant is
inappropriate then a true estimate of financial health of
the company cannot be ascertained.
• An extension of the first implication is that if the users if
the financial statements are misguided then they would
take wrong decisions and therefore likely reduce their
overall returns from investments.

Impairment Testing in Qantas
Ltd
• The impaired assets of the
business include trade
receivables, land and building
and some of the intangible
assets of the company.
• In order to appropriately show
the impairment on the assets of
Qantas ltd, a number of
estimation for impairment write
downs are considered

Impairment Testing in Qantas
Ltd (Continued)
• The table which is shown above
represents the impairments on
trade receivables and plant and
machinery of the business. The
accumulated impairment and
depreciation amount on plant
and machinery is shown to be $
14,683 million. The impairment
losses on trade receivables is
shown to be $ 2 million.

ASIC Requirements
• As per the ASIC media release, the numerous factors
which are associated with the assumptions of cash flow
comprise mainly of funding cost, previous cash flows and
market and economic conditions.
• As per the ASIC, discounted cash flows need not be used
for ascertaining fair value minus disposal cost due to the
lack of reliability as the same is based on assumptions and
forecast. A discount rate of 10% is considered by the
management of Qantas ltd in order to get reliable
forecasts and assumptions

ASIC Requirements
(Continued)
• In addition to this, it is also to be noted that ASIC restricts the
organisations in identifying CGUs at excessively high levels in cases
where the values of the assets are dependent.
• It is also the requirement as per ASIC to allocate corporate assets
and its costs to Cash generating units where reasonableness can be
identified. These judgements and assumptions are not appropriately
shown in the annual report of the business for the year 2018.
• As per ASIC, entities are required to use fair value in an effective
manner to conduct exploration testing.

Principles of General Purpose
Reporting
• The principles of general purpose financial reporting
framework require entities to report about their financial
positions in an appropriate manner. The second crucial
objective is to appropriately is to reveal the financial
performance of the business and the final objective is to
provide information relating to cash flow to the users of
financial statement.
• The financial reports which is shown for Qantas ltd is
fairly represented with appropriate disclosures. However,
the management of Qantas ltd need to apply professional
judgement in the business in case of impairment testing.

Conclusion
• The presentation effectively shows that professional
judgement is an very important aspect for maintaining the
quality of the financial reports of the business.
• The company which is considered is Qantas ltd which has
shown appropriate disclosures in the annual reports of the
business however, a more detailed disclosure needs to be
provided in case of impairments of assets.

Bibliography
• Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. Accounting standards, goodwill impairment
and earnings management in Malaysia. International Journal of Economics and Finance, 6(12),
p.201.
• Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset impairment: a test for IFRS
compliance across Europe. Centre for Financial Analysis and Reporting Research (CeFARR).
• André, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36 Impairment
of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’ forecasts. Applied
Economics, 50(7), pp.707-725.
• Asic.gov.au., 2019. 18-159MR Major changes affecting reported net assets and profit, and other
focuses for 30 June 2018 reporting | ASIC - Australian Securities and Investments Commission.
[online] Available at: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-
releases/18-159mr-major-changes-affecting-reported-net-assets-and-profit-and-other-focuses-for-
30-june-2018-reporting [Accessed 28 Apr. 2019].

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