The accounting norms are to be complied by all listed entities for performing their financial reporting initiatives. With the help of such compliance, certain accounting as well as financial reporting related issues could be avoided. The identical situation could be observed in case of ASX listed entities, as it is necessary for them to conform to the required guidelines of the conceptual framework. The conceptual framework for financial reporting could be observed in Australia, which is provided by IFRS and the standards are to be complied with the business organisations. The report is prepared with the intent of analysing the extent of conformance to the different accounting sections of the conceptual framework by AP Eagers Limited.
The organisation is one of the oldest listed automotive retail groups in Australia (AP Eagers 2018). The core business of the entity comprises of the operations and ownerships of motor vehicle dealerships. It provides facilities including the sale of used and new vehicles, parts, services along with facilitating allied consumer finance.
All ASX listed entities are required to take into account the measurement requirements in their process of financial reporting for complying with the conceptual framework and AP Eagers Limited is not an exception to this case as well. According to this framework, the entities require reporting their liabilities and assets via two bases of measurement and they constitute of historical cost and fair value (Beattie 2014). Moreover, in this framework, assets are to be treated as resources for the organisations and they develop due to the future economic benefits and past events. Conversely, liabilities are the present obligations for the entities arising out of past events leading to resource outflows (Aasb.gov.au 2018). Equity could be deemed as residual interest after total liabilities are subtracted from total assets.
In a similar manner, it is necessary for the entities to take into account the realisations of the various financial statement elements. For this, two particular conditions are to be considered at the time of realising the financial statement elements. Firstly, categorisation needs to be made, if it is probable that future benefits associated with the items would stream from the listed entities. Lastly, recognition is needed for these items; in case, they have specific cost values for reliable measurement (Chen, Feldmann and Tang 2015).
After analysis of the annual report of AP Eagers Limited in 2017, the entity has used fair value and historical asset for measuring its assets and liabilities.
The above extracts make it evident that AP Eagers Limited has utilised historical cost and fair value for measuring assets and liabilities based on business requirements. In accordance with the historical cost method, the company has measured its assets and liabilities in a way providing monetary information about all the line items in its various financial statements. However, in fair value accounting, AP Eagers Limited has measured liabilities and assets based on the current value by giving necessary information at the measurement date.
However, the organisation is required taking into account other factors for choosing the bases of measurement. Out of such factors, one of them is relevance that could be identified from the annual report of the entity, as it has published financial information for both 2016 and 2017. Along with this, adequate conformance has been assured with IFRS, AASB and Corporations Act 2001 ensuring faithful representation of the published financial information.
Two fundamental characteristics are evident in the conceptual framework and they are demonstrated briefly as follows:
If faithfulness is ensured in financial information, it becomes easy for the users to make effective decisions. In order to assure faithful representation, it is necessary that the financial information should be complete, free from errors and neutral (Cheng et al. 2014). From the 2017 annual report of AP Eagers Limited, it is evaluated that the organisation has complied effectively with Corporations Act 2001, AASB and IFRS. Since compliance is made effectively with these aspects, the financial information of AP Eagers Limited could be said to have faithful representation.
When relevancy is present in financial information, the users would be affected positively for undertaking decisions. Hence, it is essential to ensure the presence of predictive as confirmatory values in the financial statements of the organisation (Henderson et al. 2015). When there is presence of predictive values, the users would find it easy in projecting future results. By using the latest annual report, the users could project future results by assessing financial position of AP Eagers Limited in 2016 and 2017 (Apeagers.com.au 2018).
In addition, confirmatory value is evident in financial information at the time the users possess the ability of providing feedback about the previous accounting events. From the annual report of AP Eagers Limited in 2017, the users could gather financial information for the past year 2016 as well.
In accordance with the conceptual framework, four enhancing qualitative characteristics are evident in financial information, which are stated as follows:
In the presence of this specific characteristic, the users could find it easy to identify and understand the common features and differences associated with the different financial items of the listed entities. It has been identified from the annual report of AP Eagers Limited in 2017, all financial information related to the mentioned year and that of the previous information is published in tabular formats. With the help of these formats, the users could compare the financial information of the organisation with its rivals and different timeframes.
If there is evidence of this specific characteristic, the users of financial information could utilise independent observations and knowledge for reaching a conclusion (Lang and Stice-Lawrence 2015). There could be direct or indirect verification. In accordance with the 2017 annual report of AP Eagers Limited, considerable disclosures are made as financial notes. This has helped the users to utilise direct or indirect knowledge so that the accounting information of the entity could be verified.
Timeliness ensures that the necessary financial information is delivered at the time of making valuable decisions. The past information is less effective in the decision-making process. It has been identified from the annual report of AP Eagers Limited in 2017; it has disclosed essential financial information for 2016 and 2017.
By using this characteristic, the organisations find it easy to categorise and depict financial information in a clear and concise way so that the users could understand in a better manner (Spiceland et al. 2018). It could be observed from the annual report of the organisation that it has published its financial information in an understandable and simple format supported by relevant justifications of the various accounting treatments to be published as financial footnotes. Such aspects have helped in increasing the overall user understandability.
Before the financial statements are used for decision-making purpose, all organisations should comply with the conceptual framework objectives. The initial objective requires listed entities to disclose essential information about their financial position as well as economic resources that could be observed in balance sheets.
The above extract mainly denotes such information disclosure from AP Eagers Limited in the 2017 annual report in the form of balance sheet statement.
The second objective of the framework requires the ASX listed firms in publishing information about the changes in economic resources and financial performance.
It is inherent that AP Eagers Limited has published financial information related to financial performance in the form of statement of change in equity and income statement.
The third objective of the framework is to publish vital information relation to the cash flows of the business entities in annual reports.
It is clear from the above table that AP Eagers Limited has disclosed necessary information pertaining to its cash flows. This has been ensured by representing the financial information in the form of different financial statements. Hence, it is evident that the users of the financial statements of the organisation could utilise information so that they could undertake effective decisions.
As per the conceptual framework, the users are required to possess primary accounting knowledge for understanding the financial statements of the companies. The annual report of AP Eagers Limited contains all the necessary financial information in simple formats by complying with the primary principles. Along with this, the firm has provided relevant justifications about the crucial items of the financial statements as notes to financial statements. Since the aspects are inherent in the annual report of AP Eagers Limited, it is sufficient for analysing the financial standing of the organisation (Simnett and Huggins 2015).
As per Zhang and Andrew (2014), this type of financial reporting takes into account the financial statements in a specific accounting year so that the investors and creditors could be assisted for making effective decisions. The main financial statements constitute of balance sheet statement, income statement, statement of change in equity and cash flow statement. It has been assessed that the organisation has published the statements in annual report by adhering to the relevant accounting regulations and thus, effective compliance has been ensured in terms of general purpose financial reporting (Aasb.gov.au 2018).
Conclusion and recommendations:
It is apparent that AP Eagers Limited has made necessary compliance with the measurement requirements, as laid out in the conceptual framework. In addition, it has been evaluated that the firm has made adequate compliance with the qualitative features of the conceptual framework in the process of financial reporting. Lastly, the financial information is disclosed through revelation of various financial statements, which have helped the users in utilising the same for decision-making.
For improving the financial reporting practice, AP Eagers Limited needs to appoint internal auditors for checking over the documentation at various regular intervals in order to ensure that the sale of products and services without bills could be checked at the point of sale. In addition, revenue recognition principle needs to be maintained as well. Finally, it needs to make adequate disclosures regarding the impairment of goodwill in its annual report.
References:
Aasb.gov.au., 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/SAC2_8-90_2001V.pdf [Accessed 11 Dec. 2018].
Aasb.gov.au., 2018. Conceptual framework . [online] Available at: https://www.aasb.gov.au/Pronouncements/Conceptual-framework.aspx [Accessed 11 Dec. 2018].
AP Eagers., 2018. A.P. Eagers Limited | Automotive Group | Australia. [online] Available at: https://www.apeagers.com.au/ [Accessed 11 Dec. 2018].
Apeagers.com.au., 2018. [online] Available at: https://www.apeagers.com.au/wp-content/uploads/2018/04/1790804.pdf [Accessed 11 Dec. 2018].
Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), pp.111-134.
Chen, L., Feldmann, A. and Tang, O., 2015. The relationship between disclosures of corporate social performance and financial performance: Evidences from GRI reports in manufacturing industry. International Journal of Production Economics, 170, pp.445-456.
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Lang, M. and Stice-Lawrence, L., 2015. Textual analysis and international financial reporting: Large sample evidence. Journal of Accounting and Economics, 60(2-3), pp.110-135.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.
Spiceland, D., Thomas, W., Nelson, M., Tan, P.H.N., Low, B. and Low, K.Y., 2018. Intermediate accounting, Routledge.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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