Conceptual Framework, Accounting Objective And Key Components For Financial Reporting

Theoretical Framework Appropriate to Crown Resorts Limited

Crown Resorts Limited, the ASX listed company operates in entertainment industry of Australia. It conducts its operation through 4 segments – Crown Perth, Crown Melbourne, Wagering and online and Crown Aspinalls. It is one of the largest entertainment groups in Australia that majorly contributes to the Australian tourism, training, programs related to social responsibility and employment. Core investments and business of the company is in the sector of integrated sectors. The development projects of the company include Crown Sydney Hotel Resort at Barangaroo and are proposed One queens bridge project in Melbourne (Crownresorts.com.au 2018).

Conceptual framework

Revised Conceptual framework that is issued on March 2018 and is effective immediately are used for the purpose of preparing the financial reports sets out fundamental concepts for the purpose of financial reporting provides guidance to the board for developing the IFRS standards. It assists in assuring that standard are conceptually consistent and similar type of transactions are considered in same way for providing useful information to the lenders, investors and various other creditors. It also assists in developing the accounting policies when IFRS standards are not applicable to particular transactions and more specifically, it helps the shareholders in understanding as well as interpreting the standards (Mca.gov.in 2018).

Main objectives of conceptual framework is to deliver the financial information those are useful to the users for making decisions related to providing the resources to the company. Decision of the users involve selling, buying or holding the debt or equity instruments, settling or providing loans and credit in any other forms, voting or influencing the management’s decisions in other way.  For making these decisions the users access the annual reports of the company including various financial statements (Li 2013).

Major components of conceptual framework is elements of the financial statements, recognition and measurements of the items included in the income statements and balance sheet of the company and the qualitative characteristics required to follow by the reporting entity. Main objective of GPFR (general purpose financial reporting) is delivering financial information regarding the reporting organization those are useful to the potential as well as the existing shareholders, creditors and lenders while making decisions regarding extending credit to the organization (Wu, Ramesh and Howlett 2015).

Critical analysis and discussion

Theory appropriate to the company

From analysing the financial reports of Crown Resorts it can be identified that stakeholder theory is appropriate for the entity. The reason behind this is that the stakeholder theory focuses on interconnected relationships among the business and its customers, employees, communities, investors and other people who have stake in the entity. Stakeholder theory argues that the organization shall create value for all the stakeholders and not for the shareholders only (Henderson et al. 2015). Further, this theory has now become the key consideration in complying with the business ethics and it served as the platform for further development of business.

Accounting issues associated with the stakeholder’s theory are as follows –

• Determination of the stakeholders – under this theory, interest of the outsiders shall be exogenously determined that is irrespective of the management or company board’s view. How variety of the groups of such people shall be identified legitimately is not at all clear.
• Stake measurement – success shall be associated with the purpose. While any company is considered as successful it is said based on its performance, returns and revenues. Implication of the stakeholder’s theory is the society and not the company that can be used to determine the success (Salema et al. 2015).

As per the conceptual framework recognition criteria of any items is that it shall possess value or cost and the value shall be reliably measured. However, using the reasonable estimates is essential part of financial statement preparation. If reasonable estimates are not possible to make the item shall not be recognised in the balance sheet or in income statement. However, if the value of the item cannot be measured reliably it shall not be considered as asset or income (Zhang and Andrew 2014) 

Measurement Requirements of Assets, Liabilities, Income, and Expenses

Measurements of asset

Assets shall be reported in the balance sheet only if its value can be measured reliably and it is expected that economic benefits from the asset for the future period will be flown to the organization. It can be identified from the annual statement of the company for the year ended 2018 that the company records the assets in its balance sheet only when its value can be measured reliably. For instance, the plant, equipment and property are stated at cost reduced by the impairment and depreciation (Schulze et al. 2016). Values of the assets are clearly mentioned in the balance sheet like plant, equipment and property is reported at $ 3880.7 million and intangible assets are reported at $ 1080.6 million. Further, the carrying amounts of some of the assets are generally determined on the basis of estimates, judgements and assumptions of the future events.  

Measurements of liabilities

Liabilities shall be reported in the balance sheet only if its value can be measured reliably and it is expected that economic outflow for the future period will be out flown from the organization for meeting an obligation. It can be identified from the annual statement of the company for the year ended 2018 that the company records the liabilities in its balance sheet only when its value can be measured reliably. For instance, trade and other payables are recorded at $ 427.5 million and provisions have been recorded at $ 32.6 million. Further, the carrying amounts of some of the liabilities are generally determined on the basis of estimates, judgements and assumptions of the future events (Crownresorts.com.au 2018).  

 Measurements of incomes

Incomes shall be reported in the income statement while the enhancement of economic resources along with increase of assets and decrease in liability and its value can be measured reliably. It can be identified from the annual statement of the company for the year ended 2018 that the company records the incomes in its income statement only when its value can be measured reliably. For instance, revenues are measured at fair values of consideration receivable or received to the extent that it is predictable that economic benefits will be inflow to the entity and it can be measured reliably (Schaltegger and Burritt 2017). Further, revenue is reported only when significant rewards and risks of goods passed to buyer and the value can be measured reliably.

Measurement of expenses

Expenses shall be measured at the values paid for generating economic benefits or resources and the value for which shall be measured reliably. It can be identified from the annual statement of the company for the year ended 2018 that the company records the expenses in its income statement only when its value can be measured reliably. Further, the expenses are reported as the reduction to the revenues (Crownresorts.com.au 2018).

Hence, it can be stated that Crown resorts is complying with the measurement criteria as per the conceptual framework with regard to assets, liabilities, expenses and incomes.

Compliance with Fundamental and Enhancing Qualitative Characteristics

Compliance with fundamental qualitative characteristics

The information to be useful for the user while making decisions it must be relevant, presented in a faithful manner and material items shall be separately identified.

• Materiality – the concept of materiality states that accounting standard can be ignored if the net impact of doing that will have such small impact on the financial statement that it will not have any impact on the decision making of the users. Hence, the information is material if its omission has an impact on the decisions made by the users. It is identified from the annual report of Crown Resorts for the year ended 2018 that it ensures that any information that may have material regulatory risks or issues are informed to the disclosure officer (Spiceland et al. 2016). Further, the entity does not consider that outcome of any ongoing proceedings at the date of balance sheet have any material impact on individual basis or in aggregate.

• Relevance – relevant information in the financial report can make a difference in user’s decision making. Information may make the differences in decision making even if the users decides not to take the advantages of it or are well known of the fact. However, financial information to be eligible for making the difference fir decisions it must have predictive value and confirmatory value or both of them. Crown Resorts present the financial information with proper value whether it is confirmatory or predictive or both (Crownresorts.com.au 2018).
• Faithful representation – financial reports are presented with economic phenomena in numbers as well as in words. However, to be useful, the information shall not only be presented with relevant phenomena, it shall also be presented in faithful manner. To be presented it faithfully, depiction shall have 3 characteristics – free from error, neutral and complete. The objective of the board is to maximise the qualities to the possible extent. Looking into the annual reports of the company it can be identified that it complies with the appropriate standards of accounting and provides true and fair view of financial performance and position (Ifrs.org 2018).

Compliance with enhancing qualitative characteristics

Understandability, timeliness, verifiability and comparability are considered as the qualitative characteristics those enhance the information’s usefulness that is represented faithfully and relevantly.

• Comparability – decision of the users involve selecting one alternative for instance, holding or selling the investments in any of the reporting organization or other. In the same way, information is more useful if it is comparable with peers or with previous year’s information (Sterling 2014). Looking into the company’s annual report it can be noticed that the company presents its valuable data through graphs and tables that can be used for comparison.

• Verifiability – it helps to assure that different independent and knowledgeable observers may reach consensus that the presented information have been presented faithfully. However, the quantified information is not required to be the single point estimate for becoming verifiable. Looking into the annual report of Crown Resorts it can be stated that the information has been presented with appropriate details and the break up for the item’s amount have been disclosed through notes (Cheng et al. 2014).
• Understandability – presenting, characterising and classifying the financial information in clear and concise manner make it understandable. Though some information are complex and cannot be understood easily, excluding those may make the financial information easier to be understood. However, these types of reports are considered as incomplete and misleading (Ifrs.org 2018).   Looking into the annual report of Crown Resorts it can be stated that the information has been presented with required details to make it understandable.
• Timeliness – information shall be available to the decision makers in proper time to make it capable for influencing the decisions. Information becomes less useful with elapse of time. However, the decision makers may look for old data to assess the trends. To comply with the requirement the company publishes its financial information annually on 30^thJune each year and semi-annually on 31^st December each year (Ball 2013).

Users of financial reports 

As Crown Resorts comply with all the requirements of conceptual framework for preparing presenting its financial statements like recognition and measurement criteria, fundamental and enhancing qualitative characteristics and presents all the data with appropriate details and disclosures it can be used by potential and existing investors, creditors and lenders for making decisions (Ifrs.org 2018).

Requirement of basic knowledge

Financial reports are presented for the users with reasonable knowledge regarding economic activities and business. However, sometimes they require seeking help of the advisers for understanding the complex information.

Requirement of GPFR (general purpose financial reporting)

The financial report of the company is a GPFR prepared in compliance with requirement of Corporation Act 2001, AASB and other pronouncement of AASB.

Recommendation 

As the company is complying with all the requirements no such accounting problems or issues found for Crown Resorts. However, for improving the accounting practices efficiency of disclosures shall be enhanced trough including only that information which is most relevant for the users. Further, the basis of considering the market value for some of the items like inventories shall be clearly disclosed.

Conclusion 

From the above analysis and interpretation it can be stated that the company is complying with all the requirements of conceptual framework for preparing presenting its financial statements like recognition and measurement criteria, fundamental and enhancing qualitative characteristics and presents all the data with appropriate details and disclosures it can be used by potential and existing investors, creditors and lenders for making decisions.

Reference 

Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable beliefs. Accounting Horizons, 27(4), pp.847-853.

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.

Crownresorts.com.au. 2018. [online] Available at: https://www.crownresorts.com.au/CrownResorts/files/3d/3df49065-0cdc-42d5-af4f-b24af8741856.PDF [Accessed 18 Dec. 2018].

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

Ifrs.org. 2018. [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed 18 Dec. 2018].

Li, J., 2013. Accounting conservatism and debt contracts: Efficient liquidation and covenant renegotiation. Contemporary Accounting Research, 30(3), pp.1082-1098.

Mca.gov.in. 2018. [online] Available at: https://www.mca.gov.in/XBRL/pdf/framework_fin_statements.pdf [Accessed 18 Dec. 2018].

Salema, M.A., Hasnanb, N., Osmanb, N.H., Farid, M., Shamsudina, H.I.H. and Shawtaria, F., 2015. The moderating effects of stakeholders’ integration on the relationship between environmental practices and competitiveness: A conceptual framework.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Schulze, M., Nehler, H., Ottosson, M. and Thollander, P., 2016. Energy management in industry–a systematic review of previous findings and an integrative conceptual framework. Journal of Cleaner Production, 112, pp.3692-3708.

Spiceland, D., THOMAS, W., Nelson, M., TAN, P.H.N., Low, B. and LOW, K.Y., 2018. Intermediate accounting.

Sterling, R.R., 2014. The theory of the measurement of enterprise income. In The Development of Accounting Theory (RLE Accounting) (pp. 233-282). Routledge.

Wu, X., Ramesh, M. and Howlett, M., 2015. Policy capacity: A conceptual framework for understanding policy competences and capabilities. Policy and Society, 34(3-4), pp.165-171.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.