The main aim of this report is to analyse and evaluate different standards and principles of accounting conceptual framework by relating with an Australian Securities Exchange (ASX) listed companies. It needs to be mentioned that the business entities of Australia are needed to comply with the standards and principles of conceptual framework for the purpose of their financial reporting. In Australia, the presence of accounting conceptual framework can be seen developed by Australian Accounting Standard Board (AAS) with the cooperation of International Accounting Standard Board (IASB) (aasb.gov.au 2018). The compliance with all the standard and principles of this accounting conceptual framework helps in bringing transparency and accuracy in the financial reporting. For this report, Origin Energy is taken into consideration. Origin Energy is an Australian energy company with headquarter in Sydney and the company is listed in ASX in the code of ‘ORG’ (originenergy.com.au 2018).
The overall aim of the conceptual frameworkof AASB is to make the ASX listed companies comply with the required standards and principles of financial reporting. For the achievement of this aim, the AASB conceptual framework has three objectives and they are as follows:
The first objective is to deliver all the required financial information related to the financial resources of the business entities to the users so that they can determine the financial position of the business entities (aasb.gov.au 2018).
The second objective of AASB conceptual framework is to deliver all the required information about major financial aspects of the businesses like sales, cost of goods sold, profit and others to the users so that they become able to determine the financial performance of the entities (aasb.gov.au 2018).
The third objective of AASB conceptual framework is to deliver all the necessary information about the elements like change in profit and others to the users so that it becomes possible for them to determine the change in financial performance of the business entities (aasb.gov.au 2018).
The following discussion shows the compliance of Origin Energy with these above-discussed objectives of conceptual framework through financial reporting:
(Source: originenergy.com.au 2018)
The above figure is the published statement of financial position of Origin Energy as on 30 June 2017. The users of financial information can found all the required information about the financial resources like assets, liabilities, equity and others from the above statement in order to determine the current financial standing of the company (originenergy.com.au 2018).
(Source: originenergy.com.au 2018)
The above figure is the published income statement of Origin Energy for the year ended 30 June 2017 (originenergy.com.au 2018). All the necessary information for the determination of the financial performance of the company like revenue, profit/loss and others can be obtained from this statement.
(Source: originenergy.com.au 2018)
The above figure is the published statement of change in equity of Origin Energy as on 30 June 2017 (originenergy.com.au 2018). The users can acquire all the relevant information about change in profit, change in equity and others from the above statement for the ascertainment of the change in financial position of the business entity.
Moreover, as per the 2017 Annual Report of Origin Energy, the entity follows the standards and principles of Australian Accounting Standard, Corporations Act 2001 and the pronouncements of AASB to prepare and present the financial statements (originenergy.com.au 2018). Origin Energy also complies with the standards of International Financial Reporting Standard (IFRS) as issued by IASB. Thus, the presence of all three objectives of AASB conceptual framework can be seen in the financial reporting of Origin Energy (originenergy.com.au 2018).
Target audience of AASB conceptual framework is the uses of the financial statements; they are shareholders, investors, creditors, banks, lenders, customers, taxation authority, suppliers and the government. All these users require financial information for decision-making process of different purposes (aasb.gov.au 2018). As per the earlier part of the report, it can be observed that Origin Energy releases all the required financial information through some major financial statements; like information about financial resources in the statement of financial position, performance related information through income statement and change in financial performance related information through the statement of change in equity. Thus, based on the above discussion, it can be concluded that the target audience able to adequately use the financial reports of Origin Energy for their needs (originenergy.com.au 2018).
In the conceptual framework, AASB has provided some specific criteria for the ASX listed companies in order to recognize assets, liabilities, equity, revenue and expenses and the business entities must follow these recognition criteria. The following discussion shows the compliance of Origin Energy with these recognition criteria of AASB.
ASSET: The asset recognition criteria of AASB is shown below:
For the recognition of property, plant and machinery (PPE), Origin Energy uses cost method after deducting depreciation, depletion, amortization and impairment charges as per AASB 116 (aasb.gov.au 2018). The same technique is followed for the recognition of intangible assets including goodwill as per AASB 138. The recognition of trade receivable is done based on the amount billed to the customers. Hence, it can be observed that Origin Energy will be beneficial with these assets and they can be reliably measured.
LIABILITY: The AASB liability recognition criteria is shown below:
Interest-bearing liabilities are the long-term borrowings in Origin Energy and their recognition is done based on fair value after the deduction of transaction cost and the company has to repay these borrowings. Origin Energy recognizes their other liabilities on their net value. Thus, it can be seen that the company has to pay all the liabilities and they can be measured (originenergy.com.au 2018).
EQUITY: As per the regulation of AASB, business entities are required to follow the same criteria as assets and liabilities for the recognition of equity. Thus, there is not any exception of this fact in case of Origin Energy. The company does not have any authorised capital on par value (aasb.gov.au 2018).
REVENUE: The AASB criteria for revenue recognition of provided below:
Origin Energy recognizes their business revenue at the time of the transfer of the community to the customer (originenergy.com.au 2018).
EXPENSES: The AASB recognition criteria for expenses is shown below:
Origin Energy recognizes all of their business expenses at the time of their occurrences and there is flow of future benefits from the company as Origin Energy has to pay all of their expenses (originenergy.com.au 2018).
As per AASB conceptual framework, the fundamental characteristics of financial information are Relevant and Faithful Representation.
As per relevance characteristic, financial information should be able to create positive difference in the decision-making process of the users (Zhang and Andrew 2014). Earlier discussion shows that Origin Energy releases all the relevant financial information trough the publication of their necessary financial statements (originenergy.com.au 2018).
As per faithful representation characteristic, financial statements should reflect all the financial information about the economic phenomena of the business entities (Cascino et al. 2014). The auditors of Origin Energy have provided the opinion that the company has prepared their financial statements as per the required financial standards (originenergy.com.au 2018).
According to AASB conceptual framework, the enhancing qualitative characteristics of financial reporting are Comparability, Verifiability, Timeliness and Understandability.
Comparability helps in comparing the financial information of companies with the other companies with the application of required knowledge (Henderson et al. 2015). The provided financial information of Origin Energy can be easily compared with the other companies in the presence of required financial knowledge (originenergy.com.au 2018).
Verifiability helps the users in making out the underlying accounting treatments and assumptions behind the financial reporting of the entities (Christensen and Nikolaev 2013). Faithful representation of the financial statements ensures the verifiability of the financial information of Origin Energy (originenergy.com.au 2018).
Timeliness helps in reaching financial information to the users when required (Zeff 2013). Origin Energy releases their financial statements at a particular time of the year that ensures the delivery of this information to the users at the correct time (originenergy.com.au 2018).
Understadability helps in clarifying, characterising and presetting the financial information to the users (Macve 2015). It needs to be mentioned that the users can understand the financial reports of Origin Energy in the presence of adequate financial knowledge (originenergy.com.au 2018).
Conclusion
From the above discussion, it is evident that Origin Energy complies with all the required standards of AASB conceptual framework for the purpose of their financial reporting. In addition, the company also complies with the standards of Corporations Act 2001, Australian Accounting Standard, IASB and IFRS for financial reporting. Thus, it can be concluded that Origin Energy does not have to face major accounting issues in the presence of the compliance with all the required standards and principles of AASB conceptual framework.
References
Aasb.gov.au. (2018). Conceptual Framework for Financial Reporting. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 21 Apr. 2018].
Aasb.gov.au. (2018). Definition and Recognition of the Elements of Financial Statements. [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf [Accessed 21 Apr. 2018].
Aasb.gov.au. (2018). Property, Plant and Equipment. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf [Accessed 21 Apr. 2018].
Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J., Imam, S. and Jeanjean, T., 2014. Who uses financial reports and for what purpose? Evidence from capital providers. Accounting in Europe, 11(2), pp.185-209.
Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?. Review of Accounting Studies, 18(3), pp.734-775.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Originenergy.com.au. (2018). Annual Report 2017. [online] Available at: https://www.originenergy.com.au/content/dam/origin/about/investors-media/annual%20review%202017/AnnualReport_FY2017.pdf [Accessed 21 Apr. 2018].
Originenergy.com.au. (2018). Who We Are – Origin Energy. [online] Available at: https://www.originenergy.com.au/about/who-we-are.html [Accessed 21 Apr. 2018].
Zeff, S.A., 2013. The objectives of financial reporting: a historical survey and analysis. Accounting and Business Research, 43(4), pp.262-327.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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