Contemporary Issues in Accounting: Woolworths & Conceptual Framework

This report provides an analysis of Woolworths Limited's adherence to the conceptual framework for financial reporting. It examines the company's compliance with the objectives of the conceptual framework as set by the Australian Accounting Standards Board (AASB), including providing useful financial information to investors and creditors, enabling the assessment of future cash flows, and providing information about the company's assets and resources. The report also assesses Woolworths' adherence to recognition criteria for assets, liabilities, equities, revenues, and expenses, noting the use of fair value accounting in accordance with International Financial Reporting Standards (IFRS). Finally, the report evaluates Woolworths' satisfaction of the qualitative enhancing characteristics of the conceptual framework, such as relevance, faithful representation, comparability, verifiability, timeliness, and understandability, concluding that Woolworths Limited generally follows the principles and standards of the conceptual framework in its financial reporting practices.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of the Student
Name of the University
Author’s Note

1CONTEMPORARY ISSUES IN ACCOUNTING
Abstract
The report aims to analyze various aspects of conceptual framework in Woolworths Limited. The
first part of the report shows the adherence of the major objectives of conceptual framework by
Woolworths. The next part shows the basis of major recognition criteria by the company. In the
last part of the report, the compliance of Woolworths shows with the major enhancing
characteristics of conceptual framework.

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Table of Contents
Introduction......................................................................................................................................3
Adherence with the Conceptual Framework Objectives.................................................................3
Adherence with Recognition Criteria..............................................................................................9
Adherence with the Qualitative Enhancing Characteristics of Conceptual Framework...............11
Conclusion.....................................................................................................................................12
References......................................................................................................................................14

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Introduction
In today’s world, business organizations consider Conceptual Framework for Financial
Reporting as an important factor. The reason is that conceptual framework helps in the dealing of
various organizational fundamental accounting issues like financial statement objectives, various
characteristics of financial statements, different characteristics of financial information, different
bases of financial statements development and many others (Horngren et al., 2012). For all these
reasons, it is necessary for the business organizations to prepare their financial statements while
considering all the above-mentioned aspects. This particular study aims to analyze and evaluate
the aspect of the compliance with various rules and regulations of conceptual framework for
financial reporting (Barth, 2013). In order to carry on with this report, Woolworths Limited is
taken into consideration. Woolworths is an Australian retail company founded in the year of
1924 and has it’s headquarter at Bella Vista, New South Wales, Australia
(woolworthsgroup.com.au, 2017). Woolworths Limited is enlisted in the top hundred companies
in Australian Stock Exchange (ASX). The code name of Woolworths in ASX is WOW
(asx.com.au, 2017). The aim of this report is to analyze the fact that whether the financial
statements of Woolworths are developed based on the principles and standards of conceptual
framework.
Adherence with the Conceptual Framework Objectives
According to the above discussion, conceptual framework has its importance for the
Australia companies in the development of various financial statements. In case of most of the
Australian companies, it can be observed that they use to comply with the standards and
principles of Australian Accounting Standard Board (AASB) as it’s is largely helpful in the

4CONTEMPORARY ISSUES IN ACCOUNTING
development of the financial statements of both private and public companies (aasb.gov.au,
2017). From the observation of 2017 annual report of Woolworths Limited, it can be seen that
Woolworths follows the regulations, standards and principle of AASB at the time of developing
their financial statements. In case of AASB, it can be seen that there are four major objectives of
AASB that Woolworths is required to be met at the time of developing the financial statements.
According to the first objective, it is the responsibility of the companies to provide their investors
and creditors with true and useful financial information in order to provide assistance in making
different investment and credit decisions (aasb.gov.au, 2017). Thus, as per 2017 annual report of
Woolworths, it is evident that the financial statements of Woolworths is a genuine source of
financial information for their various stakeholders as the users of financial statements can get
valuable financial information from different financial statements like profit and loss statement,
balance sheet, change in equity statement, cash flow statement and many others .

5CONTEMPORARY ISSUES IN ACCOUNTING

6CONTEMPORARY ISSUES IN ACCOUNTING
According to the second objective of conceptual framework, companies are required to
provide their stakeholders with necessary financial information for the assessment of future cash
flows (aasb.gov.au, 2017). On a more precise note, investors and creditors are required to get
valuable information from the company so that they can make assessment of the time and
uncertainty of the future cash flows. In this regard, it needs to be mentioned that Woolworths
develop their cash flows in such a manner so that the users can get all the necessary information
regarding future cash flows (aasb.gov.au, 2017).

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8CONTEMPORARY ISSUES IN ACCOUNTING
As per the third objective of conceptual framework, companies are responsible for providing the
investors and creditors with useful information regarding different kinds of assets and resources
of the companies. Resources refer to assets, equities and others. 2017 annual report of
Woolworths has all the required information about different kinds of resources of the company
(woolworthsgroup.com.au, 2017).

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Thus, from the above discussion, it can be observed that all the three objectives of AASB
conceptual framework is well met by Woolworths Limited at the time of preparing financial
statements.
Adherence with Recognition Criteria
AASB conceptual framework for financial reporting states the fact that there is a
requirement of some basic recognition criteria for the organizations in order to recognize
organizational assets, liabilities, equities, revenues and expenses. First of all, it is essential for the
companies to satisfy the definition based on conceptual framework. After that, their future
economic benefits must flow to or from the organization. Lastly, companies are required to
reliably measure the cost value of them. Woolworths has been using the standards and principles
of AASB for recognizing various financial aspects (woolworthsgroup.com.au, 2017).
From the above, it can be seen that Woolworths make the recognition of their
organizational assets on the basis of fair value. This aspect implies that Woolworths use to record
the amount of various assets in financial statements according to their market price. The same
concept is also applicable for the liabilities of Woolworths as they are also recognized in the
financial statements on the basis of their fair value. In both of these case, the recognition criteria
is done according to the principles of International Financial Regulatory System (IFRS)
(woolworthsgroup.com.au, 2017).

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The above excerpt shows that Woolworths recognize the equity shares of their companies
based on the regulation of fair value accounting. After that, they are shown under ‘fair value
through other comprehensive income’ (woolworthsgroup.com.au, 2017).
The above excerpt shows that revenues of Woolworths are also recognized under fair
value method. Revenues are recognized at the time of the transfer of risk and rewards related to
their ownership. Thus, it becomes easy to measure them (woolworthsgroup.com.au, 2017).
In case of the organizational expenses, Woolworths recognize them at the time of their
occurrence in the profit and loss account of the company. Hence, from the above discussion, it
can be seen that Woolworths has well fulfilled the recognition criteria of their major financial
aspects as per the standards of AASB and IFRS (woolworthsgroup.com.au, 2017).

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Adherence with the Qualitative Enhancing Characteristics of Conceptual Framework
Conceptual framework for financial reporting demands the satisfaction of the
fundamental enhancing qualitative characteristic of conceptual framework of AASB. There is not
any exception of this fact in case of Woolworths Limited. The following discussion shows that
whether Woolworths satisfies the major characteristics of conceptual framework or not.
Relevance is considered as the first characteristic. It is necessary for the financial
information to be relevant in order to be crucial in various decision-making processes of the
investors and creditors as they are helpful in the evaluation of the effects of past, present and
future transactions on organizational cash flows. 2017 annual report of Woolworths shows the
valuation of their assets and liabilities based on fair value (woolworthsgroup.com.au, 2017). It
implies that the values of assets and liabilities are relevant in the current market. Faithful
Representation is another characteristic of conceptual framework. In this aspect, three major
criteria are required to be met; they are completeness, neutral and error free. The annual report of
Woolworths shows the compliance of the company with the regulations and standards of AASB,
IFRS and Corporation Act 2001 (fasb.org, 2017). With the help of these accounting standards,
Woolworths has become able to faithfully represent all of their financial information.
Comparability is considered as the next major characteristic of conceptual framework. In the
presence of this character, the users of financial statements are able to identify and underpants
the major differences as well as similarities in financial information. The showing of financial
information of Woolworths based on the financial years 2017 and 2016 is proof that there is
comparability in the financial information of the company as the users are able to make
comparison of the financial information of the company (ey.com, 2017).