Financial Reporting is regarded as one of the major part in the financial operations of the companies and it is needed for the business organizations to follow all the required regulations and principles at the time of the development and presentation of the financial statements. The Conceptual Framework for financial reporting is an essential aspect for the business entities as it provides the companies with all the required regulations and guiding principles for the true and fair development and presentation of the financial statements. In Australia, the Australian Accounting Standard Board (AASB) provides the companies with the conceptual framework for the purpose of their financial reporting and it is the obligation on the companies to follow all the standards of AASB conceptual framework in their financial accounting (aasb.gov.au 2018). The main aim of this report is to shed light on diverse accounting policies for Domain Holdings Australia Limited (Domain Holdings) as it is a newly established company in Australia. The main operation of the company can be seen in providing multiplatform property solutions in different regions of Australia as the Domain Holdings provides different marketing solutions for new developments, commercial properties and residents.
It can be observed from the above discussion that the conceptual framework of AASB is a major tool for the companies to prepare and present the financial statements. In this context, it is need to be mentioned that the conceptual framework of AASB has certain objectives and the management of Domain Holdings is needed to consider these objective in every aspects of their financial reporting. The objectives are shown below:
First Objective: As per the AASB, the first major objective of conceptual framework is to articulate the true financial standings of the company with the release of the required financial information for the users of the financial statements. For this reason, the companies are needed to publish all the required financial statements for this purpose such as income statement, balance sheet, statement of change in equity and the statement of cash flows. Being a newly established organization, the management of Doman Holdings must ensure the publication of above-mentioned financial statements so that the users can assess the financial position of them by analyzing those statements (Henderson, et al. 2015).
Second Objective: According to AASB, the next major objective of conceptual framework can be found in showing the financial performance of the entities organizations with the help of required financial information. The required information for jusding the financial performance of the companies can be found in the income statements and thus, the companies are required to ensure the release of their income statement regular basis. Hence, the management of Domain Holdings is needed to ensure the fact that their financial statement contains all the information about their revenue, expenses, profit and loss so that the investors and other users can assess the financial position of their business (Nobes, 2014).
Third Objective: As per AASB, the third objective of conceptual framework is to show the change in the financial position of the companies with the help of required financial statements. For this reason, the business organizations are needed to release the statement of change in equity along with the statement of cash flows for showing the change in the financial position of the companies. As Domain Holdings is a newly established companies, at the time to the preparation of the annual report, the management of the company must develop these two statements so that the investors and other uses can understand the extent to the change in the financial position of their business (Palmer, 2013).
It is needed for the Australian companies to pursue the provided recognition criteria of AASB conceptual framework at the time to recognize five major financial aspects; they are Assets, Liabilities, Revenues, Expenses and Equity. There is not any exception of this aspect in case of Domain Holdings and the company is also needed to follow the same guidelines (Perera and Chand, 2015). The following discussion shows the recognition criteria as per AASB conceptual framework:
Assets: According to AASB conceptual framework, it is needed for Domain Holdings to recognize their business assets in the statement of financial position at the time when it is probable that there will be inflow of the future economic benefit related to the assets to the company. At the same time, the company should be able in the correct valuation of the costs and others associated value of the assts reliably (aasb.gov.au 2018).
Liabilities: The same aspect can be seen with the valuation of the liabilities. AASB conceptual framework states that Domain Holdings will recognize their liability in the statement of financial position at the time when it is probable that there will be outflow of the future economic benefits from the side of the company and the company is able in the correct and reliable valuation of the costs and other values associated with the liability (Potter, Ravlic and Wright, 2013).
Equity: In case of the recognition of equity, AASB conceptual framework follows almost same rule as per the recognition of assets and liabilities. As per AASB, Domains Holdings will not recognize any equity in case the total amount of the liability exceeds the aggregate amount assigned to the assets. However, for the recognition of equity, the company is needed to follow the same regulations as per assets and liabilities (Newberry, 2015).
Revenue: According to AASB conceptual framework, Domain Holdings is needed to recognize their revenue in the income statement at the time when there is a probability that there is inflow or other enfacements of savings occur in the favor of the company; and the company needs to be able in the reliable measurement of the revenue (aasb.gov.au 2018).
Expenses: As per AASB conceptual framework, it is needed to Domain Holdings to recognize their expenses in the income statement at the time when there is a probability of the loss or consumptions of the future economic benefits for the company resulted to the decrease in asset or increase in liability. However, Domain Holdings must be able in the reliable measurement of the loss or consumption of economic benefits (Budding, Grossi and Tagesson, 2014).
The qualitative characteristics of financial statements are considered as crucial aspect in the process of financial statements. The presence of both the fundamental and enhancing qualitative characteristics make the financial information more useful for the users of the financial statements. The management of Domain Holdings is also needed to ensure the presence of these charatecrstcs in the financial information. They are discussed below:
Relevance: According to AASB conceptual framework, it is require for Domain Holdings to provide all the relevant information about all the economic elements of their business such as asset, liability, equity, revenue and expenses. In this way, the company will be able to provide relevant financial information to their users (Lovell, 2014).
Faithful Representation: According to AASB, it is needed for the company to consider the true and faithful representation of their financial statements. In order to ensure that Domain Holdings is needed to comply with all the rules of AASB, IFRS, IASB and Corporations Act in the process of financial reporting (aasb.gov.au 2018).
Comparability: According to this particular characteristic, Domain Holdings is required to prepare and present their financial statements in such a manner so that the users of the financial statements become able in cmparing the financial information of their entities with the other companies or different timeline of the same company (Biondi and Lapsley, 2014).
Verifiability: In the presence of this particular characteristic, the users of the financial statements can reach to a conclusion about the financial position of the companies with the application of knowledge and independent observation. Thus, Domain Holdings is needed to ensure the presence of this characteristic in their financial statements.
Understandability: As per AASB, the companies are needed to provide all the clarification and justification of their accounting treatment so that the users can easily understand them. In order to comply with this, Domain Holdings is needed to provide all the clarification and justification of their accounting treatment with the help of notes to the financial statements (Yao, Percy and Hu, 2015).
Timeliness: In order to make the financial information available to the users at the time of their investment decision-making, Domain Holdings must ensure the quarterly, half yearly and annual publication of their financial statements (aasb.gov.au 2018).
Conclusion
It can be observed from the above discussion that AASB conceptual framework provides the Australian companies with all the required guidelines those they are required to comply with in the process of financial reporting. The report shows that AASB conceptual framework has specific objective and they have provided some basic requirement criteria for the recognition of asset, liability, equity, revenue and expense. Based on the whole discussion, some recommendations are provided 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 10 Aug. 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 10 Aug. 2018].
Biondi, L. and Lapsley, I., 2014. Accounting, transparency and governance: the heritage assets problem. Qualitative Research in Accounting & Management, 11(2), pp.146-164.
Budding, T., Grossi, G. and Tagesson, T. eds., 2014. Public sector accounting. Routledge.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting. Economy and Society, 43(2), pp.260-284.
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.
Nobes, C., 2014. International classification of financial reporting. Routledge.
Palmer, P.D., 2013. Exploring attitudes to financial reporting in the Australian not?for?profit sector. Accounting & Finance, 53(1), pp.217-241.
Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting standards (IFRS) for small and medium-sized enterprises (SMES). Advances in accounting, 31(1), pp.165-178.
Potter, B., Ravlic, T. and Wright, S., 2013. Developing Accounting Regulations that Reflect Public Viewpoints: The Australian Solution to Differential Reporting. Australian Accounting Review, 23(1), pp.18-28.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and audit fees: Evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), pp.31-45.
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