In today’s business world, business organizations have to face carious kinds of issues related to their financial and accounting works. These issues are considered as complex financial and accounting issues based on the complex characteristics of the companies (Weil, Schipper and Francis 2013). For this reason, it is important for the business organizations to comply with the principles and standards of Conceptual Framework for Financial Reporting as it helps the companies to deal with their complex accounting and financial issues. Revolution in the accounting world can be seen in the 1989 when International Accounting Standard Board (IASB) introduced the concept of conceptual framework so that preparation and presentation of financial statements can be done in most appropriate way (Nobes 2014). This particular report takes an honest attempt for examining the adherence of the requirements of conceptual framework by the companies. For this purpose, Boral Limited is taken into consideration. Boral Limited is an Australian company operates in the building and construction material industry. The company was established in 1946 (boral.com 2017). The company is listed among top hundred companies under Australian Stock Exchange (ASX) with the code name of ‘BLD’ (m.asx.com.au 2017). This report examines the compliance of conceptual framework requirements by Boral Limited.
According to the above discussion, it is required for all companies to comply with various requirements of conceptual framework. Boral Limited is well known for their compliance with different accounting legislative requirements. According to the latest annual report of Boral Limited, the general purpose financial statements of the company is prepared based on the conceptual framework of Australian Accounting Standard Board (AASB) and Corporation Act 2001. At the same time, the consolidated financial statements of Boral Limited are prepared in accordance with the principles of IFRS and International Accounting Standard Board (IASB) (boral.com 2017).
According to the conceptual framework of AASB, business organizations are required to comply with three major objectives of conceptual framework. Following discussion shows the compliance with three objectives of conceptual framework by Boral Limited.
First Objective: Business organizations are required to give potential investors and creditors the necessary financial information. Provided financial information are required to be useful to provide support in different financial decisions (fasb.org 2017). In case of Boral Limited, AASB conceptual framework works guide in the preparation of financial statements. Thus, the adoption of the principles of AASB and other standards makes it sure that Boral Limited provides useful and relevant information to their stakeholders and other users of financial statements.
Second Objective: Business organizations must provide such information through their financial statements that can help the users in the assessment of company’s cash flows. It implies that the provided information must help the users in assessing uncertainty, time and amount of cash flows. The annual report of Boral Limited shows the consolidated cash flow statement of the company (fasb.org 2017).
It can be seen that the potential investors and creditors can get all the necessary information from the above statement of cash flows. In addition, end notes also helps the users in the assessment of various elements of cash flows.
Third Objective: Business organizations should disclose all the necessary information about all economic resources of the company like assets, liabilities and equities. All these information can be acquired from the balance sheet of the companies (fasb.org 2017). In case of Boral Limited, it can be observed that the company prepares their balance sheet by complying with the regulations of AASB, IASB, IFRS and Corporations Act 2001 that includes all the necessary information about the economic resources of the company.
Hence, the above discussion shows that Boral Limited complies with the three objectives of conceptual framework.
Conceptual framework provides the companies with some criteria for the recognition of some major financial aspects like assets, liabilities, equity, revenue and income. As per the first criteria, financial items are required to meet the definition. As per the second criteria, economic benefits related with these aspects needs to flow to or from the companies. The third criteria states that the cost values of these financial items can be measured with reliability. The following discussion shows the compliance of Boral Limited with the recognition criteria:
In the initial stage, Boral Limited recognizes trade receivables based on their invoice value and the receivable value is considered. In this case, interest rate is used under amortized costs (boral.com 2017).
For inventories, Boral Limited values them at lower cost and new realizable value. In case of property, plant and machinery (PPE), they are recognized on their costs after deducting accumulated depreciation and impairment losses (boral.com 2017).
Intangible assets including goodwill are recognized by deducting accumulated impairment losses from their costs.
There are different aspects of liability in Boral Limited. In case of provisions, they are recognized in the balance sheet of the company. They are determined by discounting future cash flow at a pre-tax rate (boral.com 2017).
In case of loans and borrowings, Boral Limited recognizes them based on their fair value by deducting attributed transaction costs. At the same time, they are stated at amortized costs.
In Boral Limited, ordinary issued shares are classified as equity. They are fully paid and do not have any par value. Direct attribution of incremental costs related to equity is recognized as deduction from equity (boral.com 2017).
For Boral Limited, the sources of revenue are products or services, net of returns, allowances and discounts. The company recognizes the revenues at the time of transfer of risks and rewards to the buyers. Sale of goods includes revenue from contracting businesses and is recognized in the stages of completion. Revenue from rendering services are recognized while delivering the services (boral.com 2017).
In case of expenses, they are recognized at the time of their occurrence. Boral Limited uses to mention expenses separately in order to explain their effects on company performance.
In addition, net financial costs or expenses are the interest costs on borrowings. Boral Limited recognizes this cost in profit and loss at the time of their occurrence (boral.com 2017).
Major qualitative characteristics of conceptual framework help to increase the quality of financial reporting for the companies. The following discussion shows Boral Limited’s compliance with the qualitative characteristics of conceptual framework:
Relevance: Information regarding investment, credit and resource allocation of the companies must be relevant to the financial decisions (aasb.gov.au 2017). In case of Boral Limited, it can be seen that the company provides all relevant financial information to their investors and creditors to support their financial decisions.
Faithful Representation: It is the responsibility of the companies to present their financial information based on real-world economic phenomena (fasb.org 2017). It is expected that provided financial information is neutral, verifiable and completed. KPMG is audit partner of Boral Limited. As per the audit report, Boral Limited has presented their financial information faithfully by complying with all the required accounting standards.
Comparability: The users of financial statements should be able to identify and understand the similarities and differences among the financial statements of the companies (Henderson et al. 2015). With the help of faithful representation, users can compare the financial information of the companies. Above discussion shows, that Boral Limited presents their financial information on faithful basis. The faithful representation ensures that the users of financial information are able to identify the differences and similarities among the financial statements.
Verifiability: Verifiability can be considered as a part of faithful representation. Verification can be direct and indirect (ifrs.org 2017). The annual report of Boral Limited shows that that there are many financial notes providing classification and justification of various financial aspects. Thus, the potential creditors and investors can verify the provided financial information.
Timeliness: Provided financial information by the companies is needed to be available in timely manner so that they can be helpful in various financial decision-making process. Older information is less helpful for the users. The financial statements of Boral Limited contain current financial information for assisting the users in financial decision-making process (ey.com 2017).
Understandability: Financial information becomes understandable when they are classified and justified. Boral Limited provides classification and justification of various financial aspects through end notes. In addition, they provide financial information in simple tabular forms along with graphs and charts for easy understanding (ey.com 2017).
Conclusion and Recommendations
According to the above discussion, it can be observed that Boral Limited prepare their general purpose financial statements by complying with the principles of AASB, IFRS, IASB and Corporations Act 2001. In case of the objectives of conceptual framework, Boral Limited has satisfied them in an appropriate manner by complying with the required accounting standards. After that, the above discussion shows that Boral Limited follows the standards of AASB for recognizing their assets, liabilities, equity, revenues and expenses. Lastly, Boral Limited develop their financial statements by complying with the qualitative characteristics of conceptual framework so that quality of financial reporting can be enhanced. However, it is recommended that Boral Limited should put more graphs and charts in order to make their financial statements more acceptable and understandable for the users.
References
Aasb.gov.au. (2017). Conceptual Framework for Financial Reporting. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 6 Dec. 2017].
Australian Securities Exchange – www.asx.com.au. (2017). Company details – BLD – ASX – Australian Securities Exchange. [online] Available at: https://m.asx.com.au/m/company-info.xhtml?issuerCode=BLD [Accessed 6 Dec. 2017].
Boral. (2017). About Boral. [online] Available at: https://www.boral.com/about [Accessed 6 Dec. 2017].
Boral.com. (2017). Annual Report 2017. [online] Available at: https://www.boral.com/sites/corporate/files/media/field_document/Boral-Annual-Report-2017.pdf [Accessed 6 Dec. 2017].
Ey.com. (2017). Conceptual Framework: Objectives and Qualitative Characteristics. [online] Available at: https://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$FILE/Supplement_86_GL_IFRS.pdf [Accessed 3 Dec. 2017].
Fasb.org. (2017). Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. [online] Available at: https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true [Accessed 3 Dec. 2017].
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Ifrs.org. (2017). IFRS . [online] Available at: https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/ [Accessed 3 Dec. 2017].
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
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