When it comes to the concept of the conceptual framework it needs to be noted that it plays a predominant part in the presentation, as well as preparation of financial statement for the users so that they can be assisted in undertaking useful decision. Decision making is enriched through the concept of CF as it leads to a formidable foundation. Therefore, it is vital that it provides them with the knowledge to understand the pitfall of financial reporting. Moreover, to make amend with the need of the conceptual framework, the IASB has provided various characteristics of qualitative nature such as materiality, reliability, etc. that needs to be fulfilled by every company. Moreover, the framework even presents a criterion of recognition that needs to be met so that the reporting of assets, liabilities, expenses can be projected in a well-defined manner. For the main aim of the report, the annual report of A1 Investment & Resources Ltd has been selected, and the report will consider whether the company met with the specifications of the CF.
As per the report of the A1 Investment and Resources Ltd, it can be commented that the annual report is in tune to the rules and regulations defined by the IFRS. Moreover, it is even noted that the financial statements adhere to the Article 4 of the IAS Regulation and the Companies Act 2006 that helps the IASB in the establishment of consistent and strong accounting. Furthermore, it can be commented that depending on the AASB, the financial statements of the company projects a real view of the performance that indicates the company adhered to the conceptual framework objectives (Conceptual Framework, 2016). It even needs to be noted that directors report is properly linked to the financial statement disclosure and that plays a vital role in understanding the aim and limitation of the financial reporting. Therefore, it can be commented that annual report of A1 Investment & Resources Ltd is as per the obligation of the company and the presentation, as well as preparation, is entire as per the Corporation Act 2001 of Australia (A1 Investment and Resources, 2016). This is a clear indication that the company has met with the requirements and that denotes the strong management of the company.
(A1 Investment and Resources, 2016)
As per relevance, it can be commented that the company has provided a deep-rooted financial indication to the users in terms of the company’s performance. For instance, the company has provided information in tune to the earnings that are underlying in the current year and the same has been compared with the previous year so that the changes can be done in such a segment (Seilber, 2015). Hence, with such a comparison, the users can judge whether the company is able to perform in an effective manner. Another important point that should be considered is that the company has considered both financial and non-financial features of the conceptual framework so that it can satisfy the quality of relevance when it comes to reporting (Conceptual Framework, 2016). This can be claimed by the fact that the auditor of the Group has asserted that the financial statements boast of the financial, as well as non-financial details so that the ineffectiveness of material nature present with the audited report of the financial statements can be traced with ease (Tysiac, 2015).
In tune to the faithful representation, it can be commented that the company adhere to the requirements and the same is presented by a declaration in written form. This done from the directors that states the annual report projects a real scenario of the financial performance (Melville, 2013). Furthermore, to ensure a better surety, the Group has even complied to the section 295A of the Corporation Act 2001. The directors further ascertain that the annual report is prepared in accordance with the accounting standard that is supported by judgements and estimates of generous nature (Horngren, 2013). Hence, the company has effectively met the faithful representation and concept of relevance in the annual report.
(A1 Investment and Resources, 2016)
It can be commented from the annual report of the company that it has provided material information of the data performance for the past five years. For example, in the annual report, the performance in terms of economic contribution has been clearly laid down that leads to better understanding and comparison (Petty et. al, 2012). Such aspects even contain different sub heading s that projects a strong focus on the various segments of the company. therefore, the information can be compared easily from one year to another so that it can be clearly ascertained whether the company is performing to the best of its abilities. Hence, it is proved that the company has met with the comparability feature of the CF in its annual report. Thereafter, the company has an adequate procedure of verification in movements that help in detection of the material error if the data of the previous year is not correctly provided so that the comparability feature is not disturbed (Parrino et. al, 2012). Furthermore, if the information can be compared easily, then it can be verified whether the segments of the company is performing in an effective manner.
When it comes to the timely information, then it can be commented that the director of A1 investment & Resources Ltd attain the information in a timely manner so that the fulfillment of duties can be done in an effective manner. This projects that the directors are able to grab the information in a timely manner so that the responsibilities are smoothly performed. This even helps them in reporting the information to the financial statement users hence completing the process of strong decision making (Deegan, 2011). Furthermore, the company understands the concept of timely information that is in tune with the stakeholders that ensures all the disclosures has been done in tune to understandability. It can be visualized through the company’s performance indicators that the reporting has been done in a simple manner that helps in taking effective decision making. Hence, the information projects the concept of understandability (Gowthrope, 2011). Overall, the enhancing qualitative characteristics of the conceptual framework have effectively complied.
Yes, the users of the financial report are able to use the report in taking a valid decision. The three financial reports that are used by the financial users are the balance sheet, the income statement and the Cash Flow statement. The financial report is accurate and is in tune with the accounting standards thereby helping in taking valid decisions.
The balance sheet projects the financial balances that are the assets, liabilities and the company’s equity. The strength of the company and the working capital days can be easily ascertained with the help of it. This means that financial users can easily ascertain the manner in which the company can handle alterations in revenue while staying in business (Hamilton, Hyland & Dodd, 2011). Balance sheet even helps in identification of the trend that is prevalent such as the receivable cycle and how the net profit is being utilized and how often the equipment is replaced.
The income statement projects the revenue, as well as expenses of the company during a specified period of time. The main aim of an income statement is to help the users of the financial statements in knowing about the sales, expenses and the profit and loss.
The Cash Flow Statement projects the inflow, as well as outflow of cash during a specified time span. Such movement of money will help in the accountability of the operation, investment and financial activities. The users of the income statement can help in getting strong information of the company’s skills to generate cash so that a healthy business can be maintained (Hamilton, Hyland & Dodd, 2011). The users can gather up to date reporting in terms of reduction of costs, the increment in sales, enhance profitability, allocation of human resources, etc. The financial statements are important because it provides ample information in terms of decision making and the trend can be interpreted from the financial report. Therefore, the financial users of the report use it as a guide in terms of the economic decision making process, and it strives to aid in the concept of forecasting. From the financial statements, a strong understanding in terms of business practices and market trends can be gathered with ease and flexibility (Kieso et. al,, 2010).
The conceptual framework is correct in the regard because that user needs a basic knowledge of accounting. The financial reports are available and provided in the annual report that can be easily accessed by the users. The users need a simple knowledge of accounting that can be used for the interpretation. There are various manner and mechanism that can be used in the process of interpretation. A simple knowledge in this regard helps in knowing about the status of the company. The Conceptual framework sets the concepts and notion that helps in underlying as well as interpreting the financial statements (Gibson, 2010). Hence, going by the overall discussion, it can be commented that simple knowledge in this regard can help in ensuring a smooth activity. As the report of the two years are provided in the annual report, and that can be used for differentiation and getting a knowledge of the actual performance of the two years. The same can be used to differentiate in terms of percentage type.
Conclusion
After the assessment of Investment and Resources Ltd, it can be commented that the company has adhered to the conceptual framework in the annual report. For such an instance, the company has effectively met with the criteria of recognition in the annual report. Moreover, the objectives of the conceptual framework have been effectively meeting. For this instance, the company has adhered to the fundamental and enhancing qualitative characteristic of corporate reporting that helps the user in taking an effective decision.
References
A1 Investment and Resources. (2016) A1 Investment and Resources 2016. Available from: https://www.riotinto.com/documents/RT_2016_Annual_report.pdf [Accessed 21 December 2018]
Conceptual Framework. (2016) Conceptual Framework Pronouncements. Available from: https://www.aasb.gov.au/Pronouncements/Conceptual-framework.aspx [Accessed 21 December 2018]
Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Everingham, G.K, Kleynhans, J.E & Posthumus, L.C. (2007) Principles of Generally Accepted Accounting Practice. Juta and Company Ltd.
Gibson, C. (2010) Financial Reporting and Analysis: Using Financial Accounting Information, Cengage Learning.
Gowthrope, C. (2011) Business accounting and finance for non specialists (3rd ed.). South Western
Hamilton, K., Hyland, B. and Dodd, J. L. (2011) Impairment: IASB-FASB Comparison. Drake Management Review. [online]. 1(1), p. 55–67. Available from: https://pdfs.semanticscholar.org/8d8f/5fd070193d6fa52e79d1dee9cc6632159d8a.pdf [Accessed 21 December 2018]
Horngren, C. (2013) Financial accounting, Frenchs Forest, N.S.W: Pearson Australia Group.
Kieso, D., Weygandt, J., Warfield, T; Young, N. and Wiecek, I . (2010) Intermediate accounting. Toronto: John Wiley & Sons Canada.
Melville, A. (2013) International Financial Reporting – A Practical Guide, Pearson, Education Limited, UK
Parrino, R., Kidwell, D. & Bates, T. (2012) Fundamentals of corporate finance, Hoboken, NJ: Wiley
Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012) Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education Australia.
Seilber J. (2015) FASB removes concept of extraordinary, retains guidance on unusual item. Available from: https://www.pwc.com/us/en/cfodirect/assets/pdf/in-brief/us2015-01-fasb-extraordinary-unusual-items.pdf [Accessed 21 December 2018]
Tysiac K. (2015) No more extraordinary items: FASB simplifies GAAP. Available from: https://www.journalofaccountancy.com/news/2015/jan/gaap-extraordinary-items-201511630.html [Accessed 21 December 2018]
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