Evolution Mining Limited is an Australian gold miner company established in 2011 as a mid-tier gold producer with the merging of Conquest Mining Ltd and Catalpa Resources Ltd as well as the concurrent acquisition of Newcrest Mining’s interests in the Cracow and Mt Rawdon mines. Since its establishment, the company has grown through acquisition; acquiring Cowal and Mungari in July and August of 2015 respectively as well as Ernest Henry in November 2016. Having created a reputation for consistency and reliability Evolution has won several accolades such as Craig Oliver Award, 2016 Miner of the Year to mention a few (Piper, 2018 p.33).
Conceptual Framework
The conceptual framework for financial reporting creates the concepts that lie in financial reporting. Financing reporting provides information useful to both the potential and existing investors, creditors and others in the making decisions on resource allocation and investments. It is also useful in evaluating prospects of cash flow and the provision of information on resources of a business organization including claims. The key conceptual framework elements include relevance, faithful representation, understandability and comparability. An information should be relevant in decisions relating to allocation of resources, investment and credit allocation.
An information which is relevant can make a difference in the decisions of users by helping them in the evaluation of potential past, present and future transaction effects on future cash flows. A faithful representation of the real world economic phenomena is useful in investing, credit resource allocation decisions.
Thus the information must be verifiable, neutral and complete. Comparability enhances the financial reporting information usefulness in making investment, credit and resource allocation decisions (Piper, 2018 p.33). Understandability enables users having a reasonable knowledge of business and economic activities and financial accounting to study the information and comprehend its meaning. The critical requirements for a general purpose financial reporting are that one a company must comply with the accounting standards and such a report has to be prepared in accordance with the Australian Accounting Standards.
The other requirement is that the general purpose financial reporting should offer an accurate representation of the financial position, cash flows and financial performance of a particular company in a structured manner.
Moreover, the general purpose financial reporting should also be in a position to provide relevant information which is useful to a variety of users to enable them to make viable economic decisions. Lastly, it is required of the general purpose financial reporting to indicate the results of the stewardship of management of the resources which have been allocated in a particular company. However, to comply and meet the requirements, the financial statements must be prepared on the basis of measurement and recognition criteria which would represent the financial position and performance of an entity faithfully.
Critical Analysis
Stakeholder Theory
According to the theory, the primary aim of the business entity is the creation of value for the key stakeholders of the company. The executive members of the company should ensure therefore that the various interests of the stakeholders such as employees, customers, shareholders, customers and suppliers are aligned and therefore go together in the same particular direction (Piper, 2018 p.33). The stakeholder theory has however been criticized by different individuals especially in relation to the fiduciary obligations. According to the critics of the theory, they argue that the theory results in the breakage of the fiduciary duties which the managers of the company have on shareholders and this has been considered as unethical. However, there are several benefits which have been obtained by the company due to the use of the stakeholder approach.
Generally, the primary activity of any particular business entity is not to make profits for the shareholders, but rather it entails the enhancement of the state of the world including the creation of value for the stakeholders which form the critical benefit which has been obtained by the company (Baur, 2014 p.174). Moreover, when the right thing is done for the customer, the company would gain financially. Thus it is vital to focus on the various stakeholders of the company.
Accounting Problems
There are a variety of accounting problems and issues faced by the company. One of the key problems is that of fraudulent reporting activity which entails the reporting of certain false figures with the aim of making the company appear as if it is financially stable. However, this has damaged the image of the firm including its reputation leading to criminal charges. The other fraudulent activity which had earlier been committed by the company is that of deferring the gross profit by use of revenue recognition system which is unacceptable by the General Accepted Accounting Principles (Henderson et al.2015 p.10).
Another accounting problem the company faces is that of the use of varying accounting methods in every particular financial year. The use of different accounting techniques in the company has created a lot of confusion resulting in miscommunication among various employees (Herman, 2016 p.40). It is therefore essential for the company to comprehend the various accounting techniques which should be used to avoid such an accounting issue.
Measurement Requirements
According to the annual report of the company, Evolution Mining Limited often complies with the measurement requirements of the conceptual framework. One of the key measurement requirements is that the measurement cost in the often justified by certain benefits which are as a result of the information which is available for the potential, investors and creditors who rely on the information for decision-making purposes (Kroeger and Weber, 2014 p.520). The other measurement requirement which has been complied with by the company is that of a faithful representation of relevant information on the economic resources, the efficiency of the management, utilization of resources of the company by the board and various claims levelled against the Evolution mining company.
Besides the above mentioned measurement requirement which has been adhered to by the company, the other typical requirement is that of preparation of financial information on the basis of a measurement technique which would have an impact on the statement of comprehensive income including the notes to the financial statements and the statement of the cash flows. During the process of establishing the measurement requirements, the company often takes into account various factors such as the cost incurred in the use of measurement of a particular item in a statement of financial position which later provides another measure in the notes of the financial statements (Baumgartner, 2014 p.260).
According to Chatburn et al. (2018 p.20), the other factor which it considers is the losses and gains which are reported in the financial statements. Such a factor is looked into due to the changes which may occur as a result of the use of one particular measurement technique to another which could mislead the various users of financial statements. Furthermore, there is the consideration of the number of various measures used since there is an assumption that with a minimum number of measures, it becomes easier to offer relevant information to the various stakeholders of the company.
Compliance of Evolution Mining Company with the Fundamental Qualitative Characteristics
According to the annual reports of the company, it has complied with the fundamental qualitative characteristics. For example, in its financial reporting, it faithfully represents information by ensuring that the reports are free from material error, complete and neutral. The faithful representation has been enhanced by the company by the use of estimates and assumptions which are closely related to the underlying standards and economic constructs (Kythreotis, 2014 p.15). The common proxies used by the company in the measurement of the faithful representation include corporate governance statement, neutrality, freedom from bias and unqualified audit report.
The other way through which the firm has complied with the fundamental qualitative characteristics is by providing information which is relevant which can make a difference in the decisions made by the different users. The relevance of the information is based on the confirmatory and predictive value (Birt, Muthusamy and Bir, 2017 p.118). The company measures the predictive value on the basis of the use of fair value, provision of forward-looking statements by the annual reports and the disclosure of information on the basis of risks and business opportunities in the annual reports. Moreover, the financial reports of the company entail both the financial and non-financial information which are considered as relevant to the different users of the firm.
Apart from the above mentioned ways through which the company has complied with the fundamental qualitative characteristics, Evolution Company provides understandable information which is an essential qualitative characteristic. Generally, understandability increases due to characterization, classification and presentation of information in a clear and precise manner to allow various users to understand their meanings (Al-dmour et al.2017 p.10).
To measure understandability, the company uses various items such as the organization of information in the annual report in a proper manner, the inclusion of a glossary of unfamiliar terminologies, the disclosure of information in the notes of the financial statements and provision of information in graphs and tables. Additionally, the company usually takes into account the comparability qualitative characteristics of information. The comparability feature of information has enabled the users of the company to recognize differences and similarities in various sets of economic phenomena.
According to Mbobo and Ekpo (2016 p.188), the firm measures comparability of information using a number of items. Such include, the presentation of ratios and financial index numbers in the annual reports, provision of comparable results of the previous accounting periods and those of the current accounting periods. The others are notes to the revisions of the accounting judgments and estimates which explains the effect of the changes and the comparability of information of the company with those of the other organization in the same mining industry.
The last qualitative characteristics which Evolution Mining Company has complied with is that of timeliness. Generally, the company makes available the information to the different users at a time which it has not lost its capacity to influence the decisions made (Zheng and Chen, 2017 p.3). The timeliness of the information is estimated by the company on the basis of the number of days taken by the company’s auditor in signing the books of account.
Compliance of Evolution Mining Company with Enhancing Qualitative Characteristics of Information
Evolution Mining Company has indeed complied with the enhancement of the qualitative characteristics of information, and this is according to the annual financial reports. Some of the qualitative characteristics which have been complied by the company include verifiability such that the financial information produced by the company is provided in the same assumptions and data. Thus the information is made verifiable by the key financial users for decision making (Lee, 2017 p.215).
The other enhanced qualitative characteristics of the financial information which is adhered to by the company are the comparability where the policies and accounting standards applied by the company are used consistently in various financial periods (Yakovleva, 2017 p.100). The users of the financial information of the firm can, therefore, gather insightful conclusions in relation to the performance and trends of Evolution Mining Limited for a particular period. The financial information provided in the annual reports of the company is clear and thus can be understood by the average user, which forms a way in which the organization enhances the qualitative characteristics of information (Ly et al.2015 p.220).
Consequently, the financial performance of the company can easily be established. Timeliness is another enhancing qualitative characteristics which the company has complied with in its preparation of annual financial reports (Zhu et al.2014 p.4). Evolution Company often avails financial information to the users for proper decision making. The company values its stakeholders. Thus it ensures that it avails financial information promptly.
The users of financial reports that is lenders, creditors and investors are therefore able to use the reports to make viable decisions because, the information contained in the reports all complies with the qualitative characteristics of information such as understandability, comparability and relevance among others. Based on the information contained in the annual reports of the company, the basic knowledge of accounting has been provided and therefore the users of the information do not need much than that which has been provided to evaluate the company. Moreover all the requirements for the general purpose financial reporting has been met by the company. The diagrams below indicates the operating and financial review of the company
Recommendation
To avoid the accounting problems, Evolution Mining Company should therefore keep on enhancing the fundamental qualitative characteristics of information to remain relevant in the industry. Additionally, the company should comply with conceptual accounting framework standards and procedures to enable it to improve on the qualitative characteristics of accounting information. The company should also focus on reducing the number of accounting problems such as fraudulent activities by reporting the correct figures in the financial reports and this will enhance its image and reputation in the industry.
Conclusion
To conclude, Evolution Mining Company has complied with the conceptual framework requirement because it has enhanced all the qualitative characteristics of accounting information such as comparability, understandability and timeliness among others. The key recommendations for the company should be reduction of fraudulent activities by reporting right figures in annual reports. Other recommendations include, compliance with the accounting conceptual framework and enhancement of the qualitative characteristics of information.
References
Al-dmour, A., Abbod, M.F. and Al-dmour, H.H., 2017. Qualitative Characteristics of Financial Reporting and Non-Financial Business Performance. International Journal of Corporate Finance and Accounting (IJCFA), 4(2), pp.1-22.
Baumgartner, R.J., 2014. Managing corporate sustainability and CSR: A conceptual framework combining values, strategies and instruments contributing to sustainable development. Corporate Social Responsibility and Environmental Management, 21(5), pp.258-271.
Baur, D.G., 2014. Gold mining companies and the price of gold. Review of Financial Economics, 23(4), pp.174-181.
Birt, J.L., Muthusamy, K. and Bir, P., 2017. XBRL and the qualitative characteristics of useful financial information. Accounting Research Journal, 30(01), pp.107-126.
Chatburn, E., Macrae, C., Carthey, J. and Vincent, C., 2018. Measurement and monitoring of safety: impact and challenges of putting a conceptual framework into practice. BMJ Qual Saf, pp.bmjqs-2017.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Herman, R.T., 2016. Primary accounting problems: national and foreign experience of solution. Vìsnik Žitomirs?kogo Deržavnogo Tehnologì?nogo Unìversitetu. Ekonomì?nì Nauki, 4(78), pp.37-42.
Kroeger, A. and Weber, C., 2014. Developing a conceptual framework for comparing social value creation. Academy of Management Review, 39(4), pp.513-540.
Kythreotis, A., 2014. Measurement of financial reporting quality based on IFRS conceptual framework’s fundamental qualitative characteristics. European Journal of Accounting, Finance & Business, 2(3), pp.4-29.
Lee, K.H., 2017. Does size matter? Evaluating corporate environmental disclosure in the Australian mining and metal industry: A combined approach of quantity and quality measurement. Business Strategy and the Environment, 26(2), pp.209-223.
Ly, L.T., Maggi, F.M., Montali, M., Rinderle-Ma, S. and van der Aalst, W.M., 2015. Compliance monitoring in business processes: Functionalities, application, and tool-support. Information systems, 54, pp.209-234.
Mbobo, M.E. and Ekpo, N.B., 2016. Operationalising the qualitative characteristics of financial reporting. International Journal of Finance and Accounting, 5(4), pp.184-192.
Piper, D., 2018. Collaboration leads to productivity gains. Gold Mining Journal, 2(133), p.33.
Yakovleva, N., 2017. Corporate social responsibility in the mining industries. Routledge.
Zheng, X. and Chen, J., 2017. FINANCIAL REPORTING QUALITY IN CHINA: A PERSPECTIVE OF QUALITATIVE CHARACTERISTICS. Transformation in Business & Economics, 16(3).
Zhu, H., Madnick, S.E., Lee, Y.W. and Wang, R.Y., 2014. Data and Information Quality Research: Its Evolution and Future.pp.1-10
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