Discuss about the Interrelation Fundamental Concepts of IFRS.
In the business world of twenty-first centuries, business organizations all over the world have been successful in registering impressive progress in gaining higher profitability and business growth. Due to the presence of complex business operations, business entities have been exposed to various kinds of issue related to their business operations. Accounting Issues considered as one of them. There are many categories of accounting issues that the companies are facing and many factors work behind the development of these accounting issues. In the recent years, it has been seen that the non-compliance with the required accounting standards and regulations is one of the major reasons for accounting issues. It is highly required for the business entities all over the world to comply with the required financial standards and principles and it is also the obligation on the Australian Security Exchange (ASX) listed companies to do so. In Australia, all the required standards and rules of financial reporting can be found in the Australian Accounting Standard Board (AASB) Conceptual Framework. It needs to be mentioned that AASB has developed the accounting conceptual framework with the assistance of International Accounting Standard Board (IASB) and all the ASX listed entities need to follow these regulations (aasb.gov.au 2018). The aim of this report involves in the thorough analysis of the standards and principles of AASB conceptual framework. For this report, Cleanaway Waste Management Limited is considered due to the inclusion of the company in ASX (cleanaway.com.au 2018).
The above discussion indicates towards the obligation of the ASX listed companies to comply with the standards and principles of conceptual framework of AASB. It needs to be mentioned that AASB has certain objectives behind the introduction of accounting conceptual framework for the Australian business entities. They are mentioned below:
For the determination of the current financial health of the business entities, the users of financial information require information about the economic resources of the entities and these resources are current assets, non-current assets, different liabilities and equity. For this reason, AASB conceptual framework aims to deliver the financial statements containing information about the above-mentioned resources for the determination of financial position (aasb.gov.au 2018).
In order to ascertain the financial performance of the companies, users need information about the major financial factors like revenue, profit level, expenses and others for effective decision-making. For this reason, it is the objective of the conceptual framework of AASB to deliver the above-mentioned information (aasb.gov.au 2018).
For the purpose of effective decision-making, users need financial information helps them in determining the change in financial performance of the organizations. It provides the users with better understanding about the financial situation of the companies. Thus, the third objective of AASB conceptual framework is to give change in financial position related information to the users (aasb.gov.au 2018).
As per the above figure, Cleanaway Waste Management Limited has released the consolidated balance sheet with 2017 Annual Report. Information related to the financial resources of the company can be seen in the above statements that can help the users in determining the financial standing of the entity (cleanaway.com.au 2018).
As per the above figures, Cleanaway Waste Management Limited has released the consolidated income statement and consolidated statement of comprehensive income in 2017 Annual Report. The users can get the necessary information about aspects like revenue, income, expenses, profit and others from these statements and can determine the financial performance of the company for better decision-making (cleanaway.com.au 2018).
As per the above figure, Cleanaway Waste Management Limited has published the consolidated statement of change in equity and the consolidated statement of cash flow in the 2017 Annual report. The users can obtain information about the change in profit, sales and other from these statements and can judge the financial performance of the company over the years (cleanaway.com.au 2018).
The analysis of the 2017 Annual Report of Cleanaway Waste Management Limited indicates towards the compliance of the company with the standards of Australian Accounting Standards, AASB conceptual framework and Corporations Act 2001 for the preparation and presentation of financial statements. In addition, it also shows the compliance of the company with the standards of International Financial Reporting Standards (IFRS) and IASB for financial reporting (cleanaway.com.au 2018). Moreover, the financial statements of Cleanaway Waste Management Limited show various notes supporting the accounting treatments of different factors. Thus, based on the above discussion, it can be said that Cleanaway Waste Management Limited develops their financial statements by complying with all the objectives of AASB conceptual framework (cleanaway.com.au 2018).
Along with the above-discussed objectives, the conceptual framework of AASB has provided some guidelines or criteria for the recognition of some of the major financial aspects; they are assets, liabilities, equity, revenue and expenses (aasb.gov.au 2018). These are known as AASB recognition criteria and all the ASX listed companies have the obligation to follow these criteria for the recognition process. In this context, two major aspects need to be mentioned. The management of the companies are needed to consider the information related with the important financial aspects in the recognition process. After the consideration of all the important information, it is needed for the business entities to ensure that all the financial information is faithfully represented (aasb.gov.au 2018).
The following discussion shows the compliance of Cleanaway Waste Management Limited with the above-discussed recognition criteria of AASB conceptual framework:
Assets: Cleanaway Waste Management Limited has different kinds of assets. Plant and equipment is a major asset of the company and they are recognized in cost value after deducting accumulated depreciation and impairment as per AASB 116. In addition, the landfill assets are also recognized in the fait value basis (aasb.gov.au 2018).
Cleanaway Waste Management Limited recognizes goodwill on the basis of fair value and the goodwill of the company is subject to amortization as per AASB 138 (aasb.gov.au 2018).
As per AASB 9, Cleanaway Waste Management Limited recognizes the trade and other receivables on ongoing basis and they are measured at fair value. The settlement period of trade receivable is 30 days (aasb.gov.au 2018).
According to the standards of AASB 102, Cleanaway Waste Management Limited recognizes their inventories at lower cost and net realizable value. In this process, the company considers all the relevant costs involved with inventory (aasb.gov.au 2018).
Liabilities: Trade and other payable is a major liability for Cleanaway Waste Management Limited and the company recognizes them as liability for goods and services provided. Their payment is done within 45 days of the recognition as per AASB 9 (aasb.gov.au 2018).
In Cleanaway Waste Management Limited, borrowings is considered as another major liability and the company recognizes them based on fair value after considering the cost of issue (aasb.gov.au 2018).
The company recognizes their provision in the consolidated balance sheet when the company has preset legal obligation due to any past event (aasb.gov.au 2018).
Equity: For the recognition of issued and paid capital, Cleanaway Waste Management Limited use fair value measurement technique of the consideration received. In this process, the company considers all the costs directly attributed towards the issue of shares as per AASB 1004 (aasb.gov.au 2018).
Revenue: According to the standard of AASB 118, Cleanaway Waste Management Limited recognizes the amount considered as revenue based on fair value method on the consideration received (aasb.gov.au 2018).
Thus, from the discussion, one aspect is clear that Cleanaway Waste Management Limited follows the recognition criteria of AASB conceptual framework for the recognition of their major financial aspects and it shows the full compliance with the AASB recognition criteria.
Fundamental qualitative characteristics of financial reporting are another major dimension of the conceptual framework of AASB for effective financial reporting. The inclusion of these two fundamental qualitative characteristics provides usefulness in the financial statements so that it can assist the uses in decision-making process. Relevance and Faithful Representation are the two characteristics (Kulikova Grigoryeva and Gubaidullina 2014). In the presence of relevance characteristic in the process of financial reporting, the users can get major assist in the decision-making process. Apart from this, the presence of faithful representation characteristic ensures that all the financial information is presented in the correct manner (Bohušová 2014).
The presence of both of these characteristics can be seen in the financial reporting of Cleanaway Waste Management Limited. The latest annual report of Cleanaway Waste Management Limited contains the relevant statements like statement of financial position, statements of profit and loss and others that contain all the relevant financial information able to create positive effect on the decision-making process (cleanaway.com.au 2018).
According to the above statement, the auditors of Cleanaway Waste Management Limited provided the opinion that all the financial statements of the company has been developed and presented as per the standards of Australian Accounting Standard, AASB, IASB, IFRS and Corporations Act 2001. Thus, it can be said that all the financial information is provided in faithful basis (cleanaway.com.au 2018).
There are four enhancing qualitative characteristics of AASB conceptual framework that help in the enhancement of the quality of financial statements for the ASX listed companies. These characteristics are Comparability, Verifiability, Timeliness and Understandability (Gebhardt, Mora and Wagenhofer 2014). Users of financial information can identify the similarities and differences in the financial aspects in the presence of comparability (Yurisandi and Puspitasari 2015). Users of financial information can verify the provided financial information with the help of knowledge application (Sytnik 2014). The characteristic of timeliness helps in the delivery of financial information to the users in the correct time (Nobes and Stadler 2015). The characteristics of understandability helps to make the financial statements user-friendly by providing understandability.
Comparability and verifiability has a positive connection with faithful representation. Faithful representation helps Cleanaway Waste Management Limited to comply with the standards of AASB conceptual framework. This faithful representation leads to the comparability and verifiability of the financial statements of Cleanaway Waste Management Limited (cleanaway.com.au 2018). Cleanaway Waste Management Limited releases their financial results through financial statements at a particular time of the financial years so that the users can use this information at the right time. Moreover, users of the financial information can easily understand the provided financial information of Cleanaway Waste Management Limited in the presence of reasonable financial knowledge (cleanaway.com.au 2018).
Conclusion
From the above discussion, it can be seen that Cleanaway Waste Management Limited follows all the principles and standards of the conceptual framework of AASB. In addition, the company also follows Corporations Act 2001, IASB and IFRS standards. Fair value accounting is used for the measurement of the major financial aspects. For all these reasons, there is not any significant accounting issue in the financial reporting of Cleanaway Waste Management Limited. Thus, based on the above discussion, it can be concluded that the companies can avoid the significant accounting issues by complying with all the required accounting standards.
Based on the discussion, some recommendations are provide below:
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 16 Apr. 2018].
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 16 Apr. 2018].
Aasb.gov.au. (2018). Contributions. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB1004_12-07_COMPjan15_07-15.pdf [Accessed 16 Apr. 2018].
Aasb.gov.au. (2018). Financial Instruments. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-14.pdf [Accessed 16 Apr. 2018].
Aasb.gov.au. (2018). Intangible Assets. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf [Accessed 16 Apr. 2018].
Aasb.gov.au. (2018). Inventories. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-15.pdf [Accessed 16 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 16 Apr. 2018].
Aasb.gov.au. (2018). Revenue. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB118_07-04_COMPmay09_01-10.pdf [Accessed 16 Apr. 2018].
Bohušová, H., 2014. General aaproach to the IFRS and US GAAP convergence. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(4), pp.27-36.
Cleanaway.com.au. (2018). About Us. [online] Available at: https://www.cleanaway.com.au/about-us/ [Accessed 16 Apr. 2018].
Cleanaway.com.au. (2018). Annual Report 2017. [online] Available at: https://www.cleanaway.com.au/wp-content/uploads/2017/09/asx-1716493.pdf [Accessed 16 Apr. 2018].
Gebhardt, G., Mora, A. and Wagenhofer, A., 2014. Revisiting the fundamental concepts of IFRS. Abacus, 50(1), pp.107-116.
Kulikova, L.I., Grigoryeva, L.L. and Gubaidullina, A.R., 2014. The interrelation between the professional judgment of the accountant and the quality of financial reporting. Mediterranean Journal of Social Sciences, 5(24), p.61.
Nobes, C.W. and Stadler, C., 2015. The qualitative characteristics of financial information, and managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research, 45(5), pp.572-601.
Sytnik, O.E., 2014. Comparative analysis of the guidelines for the preparation of financial statements in accordance with IFRS and formed the Russian accounting rules. ??????? ??????? ?????? Sworld, 27(2), pp.27-31.
Yurisandi, T. and Puspitasari, E., 2015. Financial Reporting Quality-Before and After IFRS Adoption Using NiCE Qualitative Characteristics Measurement. Procedia-Social and Behavioral Sciences, 211, pp.644-652.
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