Analysis of XERO Limited's Financial Reporting and GPFR Framework

This report critically analyzes XERO Limited's financial reporting practices in relation to the General Purpose Financial Reporting (GPFR) framework. It begins with an introduction to the objectives of GPFR, emphasizing the importance of providing adequate and useful information to stakeholders such as investors, creditors, and lenders. The report then assesses whether XERO Limited's financial statements provide sufficient information regarding timing, amount, and company resources to facilitate sound decision-making. The analysis further explores the recognition criteria for various elements of financial statements, including assets, liabilities, equity, revenue, and expenses, examining how XERO Limited applies these criteria. The report also evaluates the company's compliance with fundamental qualitative characteristics such as faithful representation, materiality, and relevance, along with enhancing qualitative characteristics like timeliness, comparability, and understandability. The conclusion summarizes the company's adherence to the GPFR framework, highlighting its compliance with recognition criteria and qualitative characteristics. The report references various sources to support its findings and analysis.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary issues in accounting
Name of the student
Name of the university
Subject code
Subject title
Assignment title
Trimester number
Student ID
Author note

1CONTEMPORARY ISSUES IN ACCOUNTING
Abstract
The report will focus on general purpose financial reporting requirements and whether XERO
Limited is following the framework while preparing the financial statements or not. The main
objective of the framework is to present the data is such manner that it can be used by the
users for making various decisions. Further, the data shall be presented in true and fair view
manner and the material items shall be properly disclosed.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Abstract......................................................................................................................................2
Introduction................................................................................................................................4
1. Objectives of GPFR............................................................................................................4
2. Adequate information to the target audience.........................................................................4
2.1 Useful information for making decisions.........................................................................4
2.2 Timing and amount..........................................................................................................5
2.3 Resources from the company...........................................................................................6
3. Recognition criteria for the elements of financial statements.............................................7
3.1 Recognition for assets......................................................................................................7
3.2 Recognition of the liabilities............................................................................................9
3.3 Equity recognition............................................................................................................9
3.4 Revenue..........................................................................................................................10
3.5 Expenses.........................................................................................................................10
Fundamental qualitative characteristics...................................................................................11
4.1 Faithful representation...................................................................................................11
4.2 Materiality......................................................................................................................11
4.3 Relevance.......................................................................................................................11
5. Qualitative characteristics enhancement..............................................................................12
5.1 Timeliness......................................................................................................................12
5.2 Comparability.................................................................................................................12

3CONTEMPORARY ISSUES IN ACCOUNTING
5.3 Understandability...........................................................................................................13
Conclusion................................................................................................................................14
References................................................................................................................................15

4CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
The complied framework for preparing and presenting the financial statement as per
the general purpose financial reporting (GPFR) are applicable to preparation of annual report
from the period starting after or on 1st July 2014. The compilation issued by AASB is not a
separate framework rather it is the amendment issued by other pronouncements (A Review of
the IASB’s Conceptual Framework for Financial Reporting 2018).
1. Objectives of GPFR
The users like lender, creditor and investors require information regarding the
resources of the company for assessing the future prospects as well as efficiency of the
management with regard to discharge of their duties and responsibilities to utilise the existing
resources of the company (Cajaiba-Santana 2014). IFRS framework states that the GPFR
cannot provide all the required information by the users for making economic decisions and
therefore, they need associated information from various other sources along with the GPFR.
From the annual report of XERO Limited of is observed that the company complies with the
GAAP (generally accepted accounting practices) while preparing their financial statement. It
is also complied with the IFRS (International financial reporting standards) and various other
authorised notices and accounting standards applicable to the company.
2. Adequate information to the target audience
2.1 Useful information for making decisions
The main users of the GPFR are the potential and present investors, creditors and
lenders who use the information for making decisions regarding buying the stock of the
company or investing in the company, lending fund to the company and allowing credit

5CONTEMPORARY ISSUES IN ACCOUNTING
period on dues. It is observed from the annual report of XERO Limited that the company
presents all its financial information through various financial statements like income
statement, Statement of comprehensive income, statement of changes in equity, statement of
financial position and statement of cash flows. It provides the users adequate information for
making sound decisions (Cheng et al. 2014).
2.2 Timing and amount
As per the requirement of the conceptual framework the presented information in the
financial statement shall be stated with proper amount and it shall be presented for specific
period of time. The timing and amount of the information enables the users to compare the
performance of the company with its peers and with previous year’s performance of the

6CONTEMPORARY ISSUES IN ACCOUNTING
company (De Villiers, Rinaldi and Unerman 2014). It is recognized that the company
provides information for one year period ended on 31st March 2017. Moreover the
information is presented in $ 000’s. Therefore, the users can use the information from the
annual report of the company for the purpose of comparison.
2.3 Resources from the company
Apart from above 2 requirements another crucial requirement of GPFR is that the
company must present the information about the resources in the financial statement as per
the AASB requirement. It is recognized that XERO Limited has stated all the required
information in the financial statement and through notes to disclosures (Garrett and Prawitt
2014).

7CONTEMPORARY ISSUES IN ACCOUNTING
Therefore, all the requirements of conceptual framework with regard to presenting the
information for the users in useful manner is complied with by XERO Limited.
3. Recognition criteria for the elements of financial statements
Recognition involves description of the elements in words as well as by amount and
including those amounts in the income statement or balance sheet of the company. If the
items satisfy the recognition criteria then only it shall be recognized under the income
statement or balance sheet. However, if the items do not fulfil the recognition criteria it is not
disclosed through the disclosure or through notes to the explanatory material (Kogan, Sudit
and Vasarhelyi 2018).
3.1 Recognition for assets
XERO Limited recognizes the assets in the balance sheet if the value or the cost of
asset can be reliably measured and the probability is there that the future benefits associated

8CONTEMPORARY ISSUES IN ACCOUNTING
with the assets will flow from or to the company. Looking at the balance sheet of the
company it is further identified that it segregates its assets as current assets and non-current
assets. Further, the useful lives and residual values of the assets are evaluated and adjusted at
each balance sheet date, if appropriate (Morioka and De Carvalho 2016). Property plant and
the equipments are recorded at the historical cost reduced by the amount of depreciation
which is provided on straight-line method. Further, the intangible assets after acquiring are
measured at cost initially and the amortisation is recognized under the income statement on
straight line basis.

9CONTEMPORARY ISSUES IN ACCOUNTING
3.2 Recognition of the liabilities
XERO Limited recognizes the liabilities in the balance sheet if the value or the cost of
liabilities can be reliably measured and the probability is there that the outflow of economic
resources will be taken place to fulfil the present obligation. Trade and other payables are
initially measured at fair values and eventually at the amortised cost through using effective
interest technique.
Provisions are recognised under the liabilities if it can be measured reliable and it has
the present constructive or legal obligation owing to the past event and possibility is there
that the outflow of economic resources will be taken place for setting off the obligation.
3.3 Equity recognition
The equity shares of the company includes various kinds of ordinary shares like
employee restricted share plan, exercising of the employee options, director’s fees, RSU

10CONTEMPORARY ISSUES IN ACCOUNTING
schemes and director exercising option. All the shares of the company have no par value and
all are fully paid (Simnett and Huggins 2015).
3.4 Revenue
Revenues or incomes under the income statement are recognized while increase in the
future economic benefits associated with the decrease in the obligation or increase in the asset
has been generated and can be reliably measured. Therefore, the income recognition is
simultaneously takes place with the decrease of obligations or increase of assets. XERO
Limited recognizes the income when the services are provided to subscribers. The unbilled
incomes are recognized under the statement of the financial position as the accrued income
and are included under the trade and other receivables.
3.5 Expenses
Expenses are recognized under the income statement based on the direct association
among costs incurred and earning from the particular item. The procedure is known as
matching the revenues with the costs and it involves combined or simultaneous expenses and
revenue recognition that jointly and directly results from same events or different
transactions. Some expenses of XER Limited are allocated based on functions. For example,

11CONTEMPORARY ISSUES IN ACCOUNTING
the recruitment costs are allocated based on the employees hired numbers. The allocation
however requires the internal information, facilities, amortisation, depreciation and
judgements from management.
Fundamental qualitative characteristics
4.1 Faithful representation
Present all the information in the financial statement is of no value if is not presented
in true and fair manner. Looking into the financial statement of XERO Limited it is
recognized that the annual report of the company states its financial position in true and fair
manner.
4.2 Materiality
Information is considered as material if its omission or misstatement have big impact
on the financial position of the company and can change the decision of the group who use
the financial statement. From the annual report XERO Limited it is observed that the the
material items are disclosed through notes appropriately. Moreover, as per the opinion of the
auditor, no material misstatements were found in the annual report of the company (Xero
Accounting Software 2018).
4.3 Relevance
The information presented in the financial report of the company shall be relevant for
the purposes required by the users. It can be observed from the financial report of the