Comparison Of Conceptual Framework And Financial Reporting System Of Wesfarmers And Woolworths In Australia

Analyzing the Conceptual Framework with Reference to the Annual Reports of Wesfarmers Limited and Woolworths Limited

In this study, two Australian-listed companies are taken into account named as Wesfarmers Limited and Woolworths Limited. Both deals in retail sector and operates in Australia. Wesfarmers is an Australian-listed retail sector company that provides range of activities starting from department stores, Supermarkets And Home Improvements (Wesfarmers.com.au. 2016). The other mentioned company used for comparison is Woolworths Limited that is a retail sector company and covers both Australia and New Zealand (Woolworthslimited.com.au. 2016). The present study discuss on the aspect of conceptual framework as it is directly related to Prudence financial reporting system. Therefore, all the information for this assignment is taken from the annual reports of both the above-mentioned retail sector companies.

Analyzing the conceptual framework with reference to the annual reports of Wesfarmers Limited and Woolworths Limited  

Explanation on how annual reports are used by companies that represents whether the company follow AASB standard requirements and conceptual framework

As far as Wesfarmers Limited is concerned, the company diligently compiles and follows the AASB Standards and the conceptual framework (Weil, Schipper and Francis, 2013). They are under IASB Exposure Draft where proper emphasis has been given on the extracted financial statements and the reports in accordance to AASB Standard. This is the reason why this company receives several invitations so that they participate in the IASB outreach programs in case of lease projects for the year 2015 and 2016.

On case of Woolworths Limited, the company gives immense opportunity for conducting the discussions as mentioned in the initial comment letter. It is all about specifying the leases based on the proposed leasing standard. This company thereby believes in treating all the leases that majorly concerns as financial alternatives that pertains towards bringing economic reality. Woolworths Limited follows IAS 17 that is used for on-balance sheet recognition for the leases for accounting treatment (Schipper, Francis and Weil, 2017). Hence, the company actually uses the economic implications in an appropriate way such as long-term supply arrangements and service contracts.

Concept of conceptual framework that aligns with Prudence that actually address the rate of disparity used in the corporate reporting

As far as Wesfarmers Limited is concerned, they take into consideration the model on conceptual framework based on prudence and reliability. By this, the model on conceptual framework helps in reducing the rate of disparity that is mentioned in the corporate reporting in an appropriate way (Saunders and Cornett, 2014). Hence, there is wide variety of options that needs to be taken into consideration at the time of identification of disparities. Identification will help in bringing insights of information on matters relating to accountability and fair representation of financial statements in an effective way.

Explanation on how Annual Reports are Used by Companies that Represents Whether the Company Follow AASB Standard Requirements and Conceptual Framework

In case of Woolworths Limited, it is important in considering the fact that prudence and reliability are present in the model on conceptual framework. These aspects will help financial users for getting the information that is needed for evaluation purpose. In order to undertake decisions, information needs to be extracted from the annual reports of Woolworths Limited (Pratt, 2013). Financial statement thereby represents fair values of financial information for the company named as Woolworths Limited.

Identifying the disclosures used by Wesfarmers Limited and Woolworths Limited- A comparison and basis of differences

As far as Wesfarmers Limited is concerned, they have an income proportion that comes around 6.1% for the fiscal year 2015 that is even inclusive of benefit transaction. In addition, it is noted that Cole’s pre-tax income arrives at $167 billion. The company follows core values and principles that ranges from superstore that is about 4.5% and amounts to $37.4 billion (Hoskin, Fizzell and Cherry, 2014). In case of income office that is regarding the work salary that appears to be 10.8% and amounts to about $103 million

In case of Woolworths Limited, the company has net income of around 8.5% that amounts to around $60.8 billion. Hence, the company needs to move forward to normalizing the level of earnings that takes into consideration, food, liquor and home improvements.

After making the comparison between both the retail companies, it was interesting to know that Wesfarmers and Woolworths had made the investments for the present financial year. This has been mentioned in the Stock Doctor Database where Wesfarmers Limited had total return after generating the capital and adding up to the dividend policies (Henderson et al. 2015). The other retail company named as Woolworths Limited had total return for 12 month basis that arrives at 6.8% for consecutive five financial years.

As far as Wesfarmers Limited is concerned, the company properly follows AASB Standards depending upon the expenses on accounting. It is necessary for the company to follow corporate disclosure that is made for the Executive Directors who gets the compensation and the relevant benefits (Gassen, 2014). The AASB Standard properly mention the criteria on which employee can get the benefits and the compensation within the specified time frame. It is thereby essential for noting down the activities as it improves in understanding the concept on corporate governance for the business organization. It is already mentioned in the Corporate Disclosure Plan on matters relating to attainment of integrity level and accountability that connects with the business operations and used for monetary performance.

Concept of Conceptual Framework that Aligns with Prudence that Actually Address the Rate of Disparity Used in the Corporate Reporting

In case of Woolworths Limited, they use the conceptual framework as it highlights the major concepts as presented in the annual reports. The financial users will be using the reports as they will gain insights of information where they can efficiently involve in financial decision-making process. In case of corporate disclosures, there include AASB and IASB that is already mentioned in the annual reports and managerial disclosures of Woolworths Limited (Edwards, 2013). In the notes to financial statements section, the Standard on AASB and IASB clearly takes into account on matters relating to information on potential users for undertaking the decisions in an effective way.

In the remuneration report, it is clearly mentioned on matters relating to how much compensation the Executive Directors receives for a given period of time. The Executive Directors receives annual basic pay, bonus, incentives and many other perquisites. Each company has a remuneration committee team who decides over the compensation packages for the Executives Directors while they work for the company. There are remuneration policies that need to be followed by the Executive Directors (Deegan, 2013). Companies try to give maximum remuneration so that employees are retained ad work hard for generating revenues in the next financial years.

In order to understand the difference of operations between the two listed companies, it is necessary for presenting it in graphical and tabular form. In this particular section, inventory is presented for the retail sector companies for two years (2015 and 2016). Wesfarmers has better liquidity position than Woolworths that can be noted from the calculated figures extracted from the annual report (Beatty, and Liao, 2014).

In order to understand the difference of operations between the two listed companies, it is necessary for presenting it in graphical and tabular form. In this particular section, accounts receivable is presented for the retail sector companies for two years (2015 and 2016). Wesfarmers has better liquidity position and has the ability to face the short-term obligations than Woolworths that can be noted from the calculated figures extracted from the annual report.

In order to understand the difference of operations between the two listed companies, it is necessary for presenting it in graphical and tabular form. In this particular section, PPE is presented for the retail sector companies for two years (2015 and 2016). Both the companies have negative fixed assets that need to be acquired in the long-run.

In order to understand the difference of operations between the two listed companies, it is necessary for presenting it in graphical and tabular form. In this particular section, liabilities are presented for the retail sector companies for two years (2015 and 2016). Liabilities should be less than assets so here Woolworths Limited has better position than the former for the given period of time.

As far as Wesfarmers Limited is concerned, they have a lease period of 15 years that will be used for options and has a turnover of over $62.4 billion for the year 2016. In case of Woolworths Limited, they have a lease of 12 years that will be used for options where they can easily meet the goals and objectives for a given period of time.

In case of Taxation, Wesfarmers uses incentives metrics while Woolworths uses redesigned level of transparency.

Conclusion

Entire study has been conducted for discussing on the fact whether Wesfarmers and Woolworths follow the AASB Standard and conceptual framework. In this assignment, there has been evaluation on the Executive Remuneration Report where amount of remuneration are mentioned that will paid to the Executive Directors. Information had been extracted from the annual reports of the above-mentioned companies so that there is no manipulated data that can harm the transparency of the assignment. It is the annual report that clearly represents the operational activities that are being used by the company over a period of time.  

Reference List

Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2), pp.339-383.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.

Gassen, J., 2014. Causal inference in empirical archival financial accounting research. Accounting, Organizations and Society, 39(7), pp.535-544.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.

Pratt, J., 2013. Financial accounting in an economic context. Wiley Global Education.

Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education,.

Schipper, K., Francis, J. and Weil, R., 2017. Financial Accounting: Introduction to Concepts, Methods and Uses. Cengage Learning.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Wesfarmers.com.au. 2016.  Reports. [online] Available at: https://www.wesfarmers.com.au/investor-centre/company-performance-news/reports [Accessed 9 Aug. 2016].

Woolworthslimited.com.au. 2016. Reports – Woolworths Limited. [online] Available at: https://www.woolworthslimited.com.au/page/Invest_In_Us/Reports/Reports [Accessed 9 Aug. 2016].