The present report is developed for carrying out an analysis of the annual report of ANO Advance Nanotek Ltd as per the conceptual framework of accounting. The company is recognized as a specialist developer and manufacturer of advanced materials and is listed on the ASX. The company needs to comply with characteristics of accounting conceptual framework (CF) as stated by the IASB. IASB has developed the conceptual accounting framework that needs to be followed by ASX listed entities for developing and disclosing quality financial information to the end users. In this context, this report has presented a discussion in relation to whether the company has complied with the measurement requirements and fundamental and enhancing qualitative characteristics of CF. It also discusses whether the financial reports developed by the company are able to assist the decision-making process of investors and have met the general purpose of financial reporting or not.
Part 1: Compliance of Company with the Measurement Requirements of the Conceptual Framework (CF)
The CF of accounting has stated that selection of a measurement basis by an entity depends on the benefit of the information provided to users by the selection of that measurement approach. The measurement basis selected by an entity can be either historical or current value depends on the nature of an asset or liability. The selection of more than one measurement basis is required for an asset or liability to faithfully present the entity’s financial position to the end-users. ANO Advance Nanotek Ltd has adopted the use of fair value of measurement basis for reporting the value of all its financial instruments. The financial assets after initially being recognized are subsequently measured at their current value (IFRS Conceptual Framework Project Summary, 2018). Financial liabilities are classified at fair value through profit or loss depending on the purpose for which the liability was acquired. Revenue is also measured at the fair value of the consideration received or to be received. The company has adopted AASB 9 accounting standard for identifying and measuring the financial assets at fair value. The accounting standards AASB 15 Revenue from Contracts with Customers has been adopted for providing guidance on the recognition of revenue from customers (Annual Report, 2018).
Part 2: Compliance with Fundamental Qualitative Characteristics
The two major fundamental qualitative characteristics of CF are relevance and faithful presentation of information. The value of financial items disclosed should have both predictive and confirmatory value. The predictive value means that the information disclosed must be able to support the future decisions of end-users while confirmatory value states that it should be able to confirm the past valuations. The annual report of the company has disclosed both predictive and confirmatory value of its key financial items. For example, revenue and other income value are able to predict both future and provided an evaluation of the past financial information (Annual Report, 2018). As such, it can be stated that the company provides relevant financial information which can be confirmed by the image depicted below:
Faithful presentation is another major fundamental characteristic of that need to be followed by businesses at the time of financial report preparation. This means that the information disclosed must be materially correct to support accurate decision-making process of end-users. The financial information must be materially correct and error-free (Macve, 2015). The financial report of the company has disclosed auditor’s independence declaration for ensuring that the financially information disclosed is accurate in all aspects to support the final decisions of end-users. The same can be verified by the below image:
Part 3: Enhancing Qualitative Characteristics of Financial Information
The CF in addition to fundamental has stated that a financial report needs to be comparable, verifiable, timely and understandable to meet the enhancing qualitative characteristics criteria. As per the comparability principle, the financial report must be developed in a manner so that it is able to provide comparable financial results that enable the users to compare the financial outcomes of a current year in respect of the previous year (Annual Report, 2018). For example, the financial report of ANO Advance Nanotek Ltd has provided comparable financial information as the value of key financial items of the current year can be compared with the previous year as depicted below:
The comparability principle also states that the business entities should adopt consistent accounting policies from one accounting period to another so that financial information can be compared easily. The analysis of the annual report has depicted that it n is prepared using the same accounting policies on a constant basis for facilitating easy comparison of the financial results. The same has been depicted below:
The next enhancing qualitative characteristic is verifiability as per which the financial information disclosed can be directly or indirectly verified. The financial information disclosed by the company ANO Advance Nanotek Ltd is directly verifiable as the value of key financial items are disclosed in numerical format whereas indirectly it can be verified by the application of relevant accounting policies that have been used in the calculation of the financial value of financial instruments. This helps in directly verifying the financial information provided by the company to the end-users. The accounting policies and method adopted are explained in detail in the notes to financial statements section of the annual report (Annual Report, 2018).
Timeliness characteristic of the conceptual accounting framework has necessitated the importance for business entities to develop and publish the latest financial information to facilitate accurate decision-making for end-users. In this context, the financial information is disclosed in a timely manner to ensure that end-users for financial reports are able to take accurate and reliable decisions based on the current financial performance of a firm. ANO Advance Nanotek Ltd in this context develops and publishes its financial reports on an annual basis by development of its annual reports. The understandability characteristic of the financial information has stated that it should be presented in an easy format so that it can be understood by the end-users quickly (IFRS, 2018). As such, the financial report of the company has provided explanation to each of the financial transaction carried out in the notes section to guide the end-users to facilitate its easy understanding as depicted below:
Part 4: Use of Financial reports by the End-users to make Final Decisions
The financial users are investors, lenders and other creditors are able to use the report effectively for making final decisions. This is because the financial report is developed as per the principles of conceptual framework and thus has provided reliable and detailed information to support the decision-making process of the users. The compliance with all the qualitative characteristics of the conceptual framework ensures the development of high quality financial report (PKF International Ltd, 2017).
Part 5: Accounting Knowledge Required by Users for Company Analysis
The end-users of the financial reports developed by the company are mainly the external stakeholders that include investors, government, customers, suppliers and government. However, it is necessary that they all should possess a basic knowledge of accounting for analyzing the financial reports accurately but some of them require high level of accounting knowledge. This is because they have to take investment decisions that determine their potential worth by predicting the future growth potential of the company. In this context, it is required that end-users such as investors, creditors, lenders and other financial reports need to have a detailed understanding of accounting in order to analyze the financial report in an accurate manner to take correct decisions (Bazley, Hancock, and Robinson, 2014).
Part 6: General Objectives of Financial Reporting
The general objective of financial reporting is to provide financial information about the reporting entity that is useful for both existing and potential users. As such, it can be said that the annual report of the company has met the general objective of financial reporting by providing detailed information regarding the economic resources of the entity. It has also help in assessing the effectiveness of the management of the company in carrying out their roles and responsibilities (Schroeder, Clark and Cathey, 2016).
Conclusion
The overall report has stated that the conceptual framework of accounting compliance is necessary for business entities to ensure the disclosure of high quality financial information. The company ANO Advance Nanotek Ltd has effectively followed all the principles of the conceptual framework and thus it can be stated that it has met the general objective of financial reporting.
References
Annual Report 2018. Advance Nanotek Ltd. [Online]. Available at: https://www.asx.com.au/asxpdf/20180803/pdf/43x23v8nwlgx67.pdf [Accessed on: 13 December, 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting. Cengage Learning Australia.
IFRS Conceptual Framework Project Summary. 2018. Conceptual Framework for Financial Reporting. [Online]. Available at: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed on: 12 December 2018].
IFRS. 2018. Conceptual Framework for Financial Reporting. [Online]. Available at: https://www.ctcp.gov.co/_files/documents/1522788753-5849.pdf [Accessed on: 12 December 2018].
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, or Threat. Routledge.
PKF International Ltd. 2017. Wiley IFRS 2017: Interpretation and Application of IFRS Standards. John Wiley & Sons.
Schroeder, R.G., Clark, M. and Cathey, J.M. 2016. Financial Accounting Theory and Analysis: Text and Cases. Wiley.
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