A Critical Analysis Of Orora Limited’s Compliance With Australian Accounting Standards In Regards To General Purpose Financial Reporting

Overview of Orora Limited

This assignment is based on the consideration of the accounting theory concepts and critical analysis on the application of the General purpose financial reporting made by the corporations. This is intended to evaluate the effectiveness of the corporation to meet its obligations of conceptual framework of accounting (Arnott, et al., 2017).

In order to serve this purpose one of the ASX Top 100 listed company naming Orora limited has been selected. As per the latest media releases Orora has recently acquired the Pollock a 100 year old packaging company for USD$8.5 million that has increased its geographic presence in North America. Similar acquisition was made by it of the Bronco packaging corporation, a twenty year old company for a total consideration up to USD $24 million to ensure its continuous future growth in the industry providing packaging solution (Alexander, 2016).

Orora Limited is engaged in the manufacture and supply of packaging products services to the fast moving consumer goods having its industrial presence in the countries like Australia, United states and New Zealand, seven countries in total with its 54000 shareholders base and the working force of 6700 (Boccia & Leonardi, 2016). Furthermore it is engaged in the purchase, sell, warehousing and delivery of the Packaging and related materials.

Presently the Orora is facing the crisis resulting from the fluctuation in the unpredictable financial market leading to the cost and the funds to be made available to meet its requirement relating to the business apart from the fluctuations in the commodity prices, foreign exchange rates and rate of interest (Choy, 2018).

The Australian Accounting standard board made an issue of the framework for the preparation and presentation of the Financial statements on 15^th July, 2004 detailing the purpose and scope of the framework, the assumptions underlying in the preparation and presentation of the financial statement, the various elements to be presented in the financial statements, recognition of the elements to be presented in the financial statement, Capital adequacy maintenance concept, measurement of these elements to be presented in the financial statement, qualitative characteristics of the financial statement etc.

Further this is to be kept in mind that this framework only acts as a basis for the Drafting of the Accounting standards in future as well as the correct interpretation of the existing accounting standard, which is to be applied for any business entity industrial or commercial in nature (Trieu, 2017). Hence in this case this framework is also applied to Orora Limited.

General Purpose Financial Reporting Framework

Critical Analysis / Discussion 

Before making an analysis it is required to be made what are the specific requirements set by the general purpose financial reporting framework keeping which in mind it is to evaluate the extent to which it has been complied by the Orora limited The areas for which the need of such framework was felt were as follows

1. Principles of measurement  of the financial elements
2. Elements of Financial statements(Dichev, 2017)
3. Concept of capital and Capital maintenance
4. Objectives of Financial statements
5. Components of Financial statements
6. Qualitative characteristics of Financial Statements
7. Criteria for the recognition of the elements of the financial statements
8. Assumptions underlying financial statements

The major purposes for which this accounting framework works are as follows

1. Providing assistance to accounting standard board in the development and review of the Accounting standards.
2. Providing users the necessary assistance in the Interpretation of the financial statements(Kuhn & Morris, 2016).
3. Serving as a guide in the preparation of the financial statements in compliance with the Accounting standard and further guidance on such issues on which no accounting standard has not been framed yet.
4. Assisting the Auditors in formulating an opinion as to whether the financial statements have been prepared in accordance with the financial statements.

This framework is required to be applied in the preparation of the General purpose financial statement prepared by the any commercial, business or industrial entity which is meant for the external users in general and in the case when there is any conflict arises between the framework and the accounting standard then it is the accounting standard that shall prevail (Goldmann, 2016).

This framework prescribes that the complete set of the financial statement consists of the Balance sheet, income statement, cash flow statement along with the explanatory statements and explanatory notes if any.

This accounting standard further prescribes that there are basically three fundamental accounting assumptions based on which the entity should prepare its financial statement which are going concern, accrual and consistency (Choy, 2018).

This financial reporting framework prescribes the following five qualitative characteristics so as to be a useful source of financial information.

1. Ability to present a true and fair view.
2. Reliable
3. Comparable
4. Understandability
5. Relevance

As per the framework there are basically five major elements of the financial statement which are Assets, liabilities, equity, expenses and losses and income or gains (Lessambo, 2018).

This framework also prescribes the process to determine the monetary value of the various elements of the financial statements. The various measures prescribed by it are present value, historical cost, current cost and realizable value (Marques, 2018).Finally it prescribes the need to maintain the adequate amount of the capital to continue the business which is nothing but the net assets of the business as the fall in the net assets level shall result in the fall in the operation. 

In the following section based on the Annual report of the Orora limited for the financial year ending 30^th June, 201, we are going to evaluate the extent to which Orora limited has adhered to the Australian Accounting standard, true and fair view presentation requirement, Framework of financial reporting and the other laws and regulations while making the preparation and presentation of its financial statements (Linden & Freeman, 2017).

1. It is the Notes to the financial statement of the Orora limited for the financial year ending, 2018 that makes the following declaration.
2. The financial statement has been prepared in adherence to the requirements of the Australian Accounting standards, corporation Act, 2001 together with compliance of the International financial reporting standards as prescribed by the International accounting standard board(Heminway, 2017).
3. It has made the clear disclosure for the valuation of the elements of the financial statement on the historical cot basis except those of the financial instruments measured at the fair value.
4. It has followed the principle of consistency while the presentation of the comparative financial information.
5. Further making the clear declaration that of the adoption of all of the relevant Accounting standards along with its interpretation as made by the AASB, that were considered necessary for its operation and which were made effective from the reporting period beginning as on 1^stJuly, 2017, these include disclosure initiative: Amendments to Australian Accounting standard -107 and recognition of the deferred tax assets for unrealized losses (Jefferson, 2017).
6. Again it clearly said that it did not adopt such Accounting standards that were issued

And subsequently amended by it too, but were not made effective by the AASB with the only exception of the adoption of AASB 9 the financial instruments issued and subsequently amended that was adopted since 1^st July, 2015.

1. It clearly states the revenue recognition criteria in its financial statement which states that the revenue is recognized at its fair value. Again it made a clear distinction between the criteria for the revenue recognition in case of the sale of goods in which it the time when the risks and rewards of ownership are transferred to the customer, whereas in case of the service it is at the time when the services are rendered(Meroño-Cerdán, et al., 2017).
2. Further it made a distinctive declaration of the management of the Capital structure and related finances that keeping in view the principle of going concern the capital structure and dividend policy of the group are reviewed twice a year.
3. In order to ensure the policy of the adequate capital maintenance, the group is bound to adopt the following policy like, making adjustment in the amount to be paid as dividend to the ordinary shareholders, a policy of the dividend reinvestment planning, returning or raising further capital or raising of the repayment of its debt to meet its working capital requirement(Oberoi, 2018).
4. Its financial statements for the year ending 30^thJune, 2018 has been prepared keeping in mind the qualitative characteristics of the financial statements as prescribed by the Australian Accounting standard board.
5. The major elements of the financial statements as required to be prescribed by the Australian Accounting standard board has been incorporated in the financial statement of the Orora limited.
6. It has made the clear disclosure of the various accounting policies followed by it while presenting the various assets and liabilities of the Group adhering to the requirements of the financial reporting framework.
7. It made the clear disclosure for the measurement of the Property, plant and equipment along with the method of depreciation adopted by it in its financial statement(Visinescu, et al., 2017).
8. Similarly the adoption of the newly effective Australian accounting standard -AASB-15 that specifies the revenue recognition from contract with customers replacing the old AASB118, 111 has been clearly made in the financial statement.

Evaluation of Orora Limited’s Compliance with Accounting Standards

From the above details as stated in the notes to the financial statement of the Orora limited it is quite clear that it puts its best effort to comply with the requirements as laid down by the General purpose financial reporting framework.

A Brief Comparison of the Orora limited with other corporation listed with the ASX 

The following facts provide a brief understanding of the way Orora performed in the industry along with the other corporations listed with the Australian Stock exchange, which was presented from the Annual report for the financial year ending 2018.

1. The sales revenue showed an increase of 5.2% with the earnings before interest and tax by 7%.
2. The net profit after tax grew by 12% and that the earning per share increased by 17.4%.
3. During this period the net debt decreased by$6.5 million due to the investment in new capital along with the dividend.
4. Similarly the working capital turnover increased by 9.1%, that was only 8.1% in the previous year(Alexander, 2016).
5. Similarly the group noticed a very slight increase in terms of increase in corporate cost of $29.9 million that was just $28.8 million last year.
6. Return on its average capital employed grew by 14% that was 13.6% last year.
7. At the same time net cash flow from operation showed a decrease that reached to $329 million, but was $351.2 million last year.
8. Similarly its leverage ratio came down to 1.5 times that was 1.6 times last year.

Conclusion 

From the above discussion and critical analysis it is quite evident that the compliance of the General purpose financial statement adhering to  the financial reporting framework is a major actor in the preparation and presentation of the financial statement which are the major source of in formation for the external users to evaluate its performance.

In this context it is well observed that the Orora limited has provided sufficient adequate evidence of such compliance. Hence its financial statement shall be considered much more reliable by its users. Hence after analysis made based on the Annual report of the Orora limited for the financial year ending 30^th June, 2018 whatever performance summary that has been presented above justifies the proposed investment to be made by a prospective investor making a plan to make an investment in the Orora limited.

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