A Comprehensive Report: GAAP Implementation and Financial Analysis

This report provides an analysis of the Generally Accepted Accounting Principles (GAAP) implementation by Woolworths Limited. It begins by identifying the company's income sources from its Statement of Profit and Loss, specifically focusing on revenue recognition for goods and services. The report then defines financial reporting and GAAP, emphasizing their importance for stakeholders and ensuring the reliability and comparability of financial data. It illustrates GAAP implementation through Woolworths' accounting for property, plant, and equipment, highlighting depreciation methods and asset disposal treatments. The report also examines instances where Woolworths did not fully adhere to GAAP, specifically in the discontinuance of its Home Improvement business, and discusses the implications of these non-compliances, including potential impacts on investor confidence. The analysis incorporates references to relevant accounting literature and the company's official annual report to support its findings.

ANSWER
1. Identification of Income of Company and its Recognition and Measurement
The company selected is the Woolworths Limited. The income of the company is
identified from the Statement of Profit and Loss account for the year end along with the
notes to the financial statements of the company. In the annual report of the company for
the year ending 25th of June 2017, the total income of the company as mentioned in the
statement of Profit and Loss account is $55475 million and the note number 2.1.1 of the
financial statements have provided the breakup of the total income figure into six
different segments as Australian Food, New Zealand Food, Endeavour Drinks, Big W,
Hotels and Unallocated (Bradshaw and Sloan, 2012).
Revenue in case of goods is recognized when the significant risks and rewards of
ownership have been transferred to the customer and in case of services based on
completion stages. It is measured at consideration received or receivable depending upon
fulfillment of recognition requirements.
2. GAAP is Crucial for Financial Reporting and Business Practices
Financial reporting is defined as the communication of the financial information of the
company to the investors and the stakeholders of the company. Financial report generally
includes two types of statements – balance sheet and statement of profit and loss account.
The former provides the financial position of the company and the latter provides the
financial performance of the company. Along with the above statement the next
statement is the disclosures which every organization whether private or governmental is
required to made (Bradshaw and Miller, 2016).
GAAP is defined as the Generally Accepted Accounting Principles. These are defined as
the set of rules, methods, concepts, objectives and the standards that has been developed
over time and are required for the preparation of the financial statements of the company.
The GAAP includes the accounting standards as established by Financial Accounting
Standards Board and Governmental accounting standards board.

The adoption of the GAAP ensures that the financial data so delivered by the
organization to their users shall be relevant and reliable and shall in no case represent the
manipulative data or figures. Secondly, the adoption of GAAP facilitates the comparison
of the financial statements of the company in very easy manner. The financial results of
the organization can be compared over the time and also with other organization
prevailing in the same industry or sometimes in different industries (Street, D.L and
Gray, 2014). Thirdly, it facilitates the clear financial rules and ensures the provisioning of
unbiased and true and correct information of the organization whether profit making or
not for profit making.
3. Illustrating the Implementation of GAAP
Every company implements the GAAP. The principle of the GAAP includes four areas –
recognition, measurement, presentation and disclosure. All the standards on accounting
has been prepared and presented on these four major principles. In the given case
the .company – Woolworths Limited has implemented the GAAP.
The example that has been chosen is the recognition and measurement of the property
plant and equipment. As per the significant accounting policies of the company number
3.3 of the annual report of the company, the carrying value of the property plant and
equipment has been measured at cost less accumulated depreciation, accumulated
amortization and the accumulated impairment losses.
The assets have been depreciated on the basis of the straight line method as envisaged by
the Corporations Act 2001. The amount has been depreciated over the estimated useful
lives of the assets. In case where the items of property plant and equipment have been
depreciated different useful life then those items have been separately mentioned in the
annual report. Thereafter, the accounting treatment of the profit or loss that has occurred
on sale of asset has been explained as the net gain or loss will be transferred to the
statement of the profit and loss.
As the GAAP principles includes the measurement and recognition of items of the
financial statements and that too in accordance with the traditional method of accounting

that has been followed over the past years and hence in the same manner it shows that the
company is in compliance with GAAP (Leuz, 2013).
4. GAAP Not chosen by Company and Its Impact
GAAP are the set of rules, methods and principles that provides how the accounting
treatment of anything is done. But there always remains the room in which the
manipulative practice erupts (Cuijpers and Buijink, 2015.)
In the case of the given company – Woolworths Limited, the major area where the GAAP
has not been exercised is the discontinuance of the Home Improvement business of the
company. In the case of the Home Improvement business, the segment has been sold and
discontinued and many other related components and events have happened due to which
the accounting of the company has been reflected as complex and the same has been
reported by the auditors of the company as the key audit matters by which the investors
of the company shall be apprised and duly informed (Daske, 2016). The accounting for
the interrelated components so made by the company in the financial statements have
reflected that the company have adopted the significant judgments and the required
estimates in arriving at the carrying value of the assets and the liabilities that are
remaining and has been held at the date of the balance sheet which is 25th of June 2017.
The auditors have very categorically mentioned that judgments and estimates have been
considered form carrying value of:
- The assets and liabilities of home consortium transaction under which the sale has
taken place ,
- The assets and liabilities that the company has retained after discontinuing the
business and
- Accounting treatment of the put and call option of Hydrox Holdings and Lowe’s
respectively (Company Official Website, 2017).
The above non compliance with the GAAP has exhibited that the company has followed
some manipulative practices through which the discontinuance of business have been
materialized. It is because although many of the interrelated components have been
occurring during the same period but the company has not adopted the GAAP through
which the auditors would have been able to measure and recognize the value of the assets

and liabilities so recognized and derecognized. The impact is that the investors will lost
their confidence in financial results of the company as the clear picture has not been
provided.
REFERENCES
Bradshaw, M.T. and Sloan, R.G.,(2012), “GAAP versus the street: An empirical
assessment of two alternative definitions of earnings”. Journal of Accounting
Research, 40(1), pp.41-66.
Bradshaw, M.T. and Miller, G.S., (2016), “Will harmonizing accounting standards really
harmonize accounting? Evidence from non-US firms adopting US GAAP” Journal of
Accounting, Auditing & Finance, 23(2), pp.233-264.
Cuijpers, R. and Buijink, W., (2015), “Voluntary adoption of non-local GAAP in the
European Union: A study of determinants and consequences” European accounting
review, 14(3), pp.487-524.
Daske, H., (2016), “Economic Benefits of Adopting IFRS or US‐GAAP–Have the
Expected Cost of Equity Capital Really Decreased?” Journal of Business Finance &
Accounting, 33(3‐4), pp.329-373.
Leuz, C., (2013), “IAS versus US GAAP: information asymmetry–based evidence from
Germany's new market” Journal of accounting research, 41(3), pp.445-472.
Street, D.L. and Gray, S.J., (2014), “How wide is the gap between IASC and US GAAP?
Impact of the IASC comparability project and recent international
developments”. Journal of International Accounting, Auditing and Taxation, 8(1),
pp.133-164.
Company Official Website, (2017), “Annual report 2017”, available on
https://www.woolworthsgroup.com.au accessed on 21/01/2018.