Caltex Australia is a honoured and iconic Australian company. Caltex over the years has become country’s foremost supplier of fuel transport having a network of around 1900 company owned or affiliated sites. The multifaceted supply chains safely and consistently deliver the fuel with the growing choice of suitability goods and services to greater than three million consumers every week (Caltex 2018). Caltex imports, refines and markets the lubricants and fuels that satisfies the one third of the Australian conveyance fuel requirements. The company has the history that dates back to early 1900 and has come a long distance to more than 4700 employees with a largely convenient retail network covering Australia.
The conceptual framework lay down the concepts which facilitates the preparation and presentation of financial statements for the external users. The conceptual framework helps the AASB in developing the future Australian Accounting Standards and evaluating the current Australian Accounting Standards (Aasb.gov.au 2018). The framework helps the preparers of financial statements in implementing the Australian Accounting Standards by dealing with the topics which is yet to be a part of subject of Australian Accounting Standards. The framework helps the auditors in creating an opinion as to whether the financial statement complies with the Australian Accounting Standards.
The conceptual framework is helpful in forming an accounting policies when IFRS standards are not pertinent to a specific transaction and particularly it provides assistance to the shareholder’s in understanding and interpreting the standards (Deegan 2013). The central purpose of conceptual framework is to deliver the financial information that are useful for the users in making decision. This includes purchasing, selling and holding the debt or equity instruments, settlement or offering of loans or credits in any form to influence the day to day management decision.
The main components of conceptual framework include the elements of financial reports, identification and measurement of items that forms the part of income statement and balance sheet and includes the qualitative characteristics that is required to be followed by a business while financial reporting (Robson, Young and Power 2017). The main purpose of GPFR is to deliver financial information by the reporting organization to the potential users and current set of shareholders, creditors and borrowers at the time of making decision relating to credit extension of an organization.
Theory appropriate for the company:
On evaluating the financial report of the Caltex Australia it can be stated that the stakeholder theory is suitable for the company. The primary reason for selecting the stakeholder theory is to emphasis on the interconnected relationships amid the business and its customers, employees, communities, investors and people that has their stake in that entity. The stakeholder theory provides that a business should create a value not only for its shareholders but should also create value for its stakeholders (Khan 2015). In addition to this, the stakeholder theory has turned out to be a key factor in meeting business ethics by serving as the stage for further growth of business. There are certain accounting issues associated with the stakeholder theory which are as follows;
Measurement refers to the procedure of ascertaining the monetary sum based on which the elements of financial reports should be identified and carried in the statement of financial position and comprehensive income statement. This comprises of selecting a particular base of measurement. The conceptual framework states that the recognition criteria for an item should carry the value or cost and the value should be reliably measured (Hoskin, Fizzell and Cherry 2014). Using the suitable estimations forms the essential part of preparing the financial statements. Given the reasonable estimations are not available then an item would not be classified in the balance sheet or statement of comprehensive income.
An asset must be reported in the statement of financial position given its value can be reliably measured and it is anticipated that the economic benefit of an asset for the future is flown into the organization (Mullinova 2016). As evident from the yearly financial statement of Caltex for the year 2017, the business records the assets in the balance sheet when the value of the assets is reliably measured. The property, plant and equipment of the assets is reviewed by the company to ascertain if there are any signs of impairment. The recoverable amounts of the assets are estimated and if necessary the impairment is identified in the income statement. While evaluating the carrying amount of the property, plant and equipment the management take into account the long term assumptions associated to the key external factors such as foreign exchange rates and price of crude oil that can create a material impact on the asset.
A liability is identified in the balance sheet when it becomes probable that the outflow of resources exemplifying economic benefits would result from the settlement of the current obligation and the amount based on which the settlement would take place can be reliably measured (Barth 2015). Caltex estimates the fair values of liabilities based on the present value of future cash by using the company’s risk free rate. Caltex has the established framework for measuring the fair value. While measuring the fair value of a liability the company uses the market observable data when it is available.
Income is identified in the statement of income when a rise in the future economic benefit associated to the increase in the asset or decrease in liability has originated which can be measured reliably (Trotman and Carson 2018). The measurement of income takes place simultaneously with the identification of increase in the assets or decrease in the liabilities. Caltex measures the revenue from the sale of goods during the ordinary business course based on the fair value of the considerations that is received or receivables of the net rebates, discounts and allowances. The sales revenue is identified when the significant risk and rewards of ownerships is transferred to the customers which includes the date of products that are delivered to the customers.
Expenditure are identified in the income statement when there is a decrease in the future economic benefits associated to the decrease in the asset or the liability has increased which can be reliably measured (Warren and Jones 2018). Caltex identifies the costs and expenses unless it is related to the qualifying assets. For Caltex the qualifying assets includes those assets that take greater than 12 months to get ready for their proposed use or sale.
As evident from the above stated explanation it can be stated that the Caltex adheres with the conceptual framework measurement criteria with respect to its assets, liabilities, expenditure and income.
The relevant financial information is viewed as capable of making differences in the decision that is made by the users. The information should be presented in a faithful way and material items must be identified separately.
Materiality: Information may be considered material if omission or misstatement can influence the decision which the users of GPFR make based on the financial information regarding a particular reporting entity (Schipper, Francis and Weil 2017). As evident from the financial statement of Caltex for the year 2017 the company assures that the information that has the material regulatory risks is informed to the disclosure officer.
Relevance: The relevant information in the financial report can create a difference among the user’s decisions making. Information might create differences in the process of decision making even though the users undertakes the decision of not taking the advantage or are well known fact (Narasimhan 2017). The financial statements of Caltex are prepared based on the general purpose financial report and it is in accordance with the requirements of the corporation Act and Australian Accounting Standards. The financial report of Caltex is in accordance with the IFRS that is adopted by the IASB.
Faithful representation: The financial reports of Caltex represents the economic phenomena in terms of the words and numbers. For a faithful representation, depiction would possess three characteristics (Macve 2015). It would complete, natural and free from any kind of error. The objective of Caltex is to increase the qualities to the possible extent. By gauging into the annual reports of Caltex the company complies with the IASB and IFRS. Furthermore, the financial statement provides true and fair view of the financial performance.
Comparability, timeliness, verifiability and understand ability is regarded as the qualitative characteristics which improves the usefulness of the information that are relevant and represented faithfully. The qualitative characteristics are as follows;
Comparability: The decision of the users involves comparing and choosing between the two alternative for instance selling or holding the investment in one reporting entity or another (Spiceland et al. 2018). By gauging into the annual report of Caltex it is understood that the company has graphically presented numerical data and table for comparative decision making.
Verifiability: Verifiability enables the users in assuring that the information represents faithfully the economic phenomena that it purports to represents. By gauging into the financial statement of the Caltex it is understood that the information that has been presented carries suitable details and explanation for accounting transaction has been provided into the notes section.
Understandability: Characterising, classifying and presenting the information in clear and concise manner makes it easy to understand for the users. There is certain phenomenon which is complex and are not easy to understand (Handel, Valerio and Sánchez Puerta 2016). Therefore, excluding the information from the financial reports might make the information easy to understand. By taking into the account the annual report of Caltex it is can be stated that the information presented in the financial statement is not complex and can be easy to understand and interpret.
Timeliness: Timeliness refers to the having information on time so that the relevant shareholders and stakeholders can facilitate decision making (Zhang and Andrew 2014). Usually, the information that is older is often viewed as less useful. To comply with the requirements of timely presenting the information the company publishes the interim and annual report on 31st December and 30th June.
Caltex Australia complies with the requirements of Conceptual Framework for the purpose of preparing and presenting in the financial statements such as recognition and measurement criteria that are fundamental as well as qualitative characteristics. It also includes the presentation of all the data with sufficient details and disclosing the relevant information that can be used by the probable as well as existing creditors, investors and lenders for the purpose of making decision.
The financial statements are prepared and presented to the users with sufficient knowledge relating to the economic and business laws. Nevertheless, there are at times the users of financial report seek the assistance of advisers for understanding the difficult information.
The financial statements of Caltex are prepared in accordance with the Corporation Act 2001. There are no contraventions of the auditor’s independence requirements as defined under the “Corporation Act 2001” in respect to the audit. The financial report of the company is the GPFR that is prepared in compliance with the Corporation Act 2001 and adhering with the Australian Accounting Standards.
Issues relating to Remuneration: The accounting issues that has been identified for Caltex is issues relating to the MD and CEO issues where an increase in the short term incentives and a total target remuneration to below median of the customized group that is used for the purpose of benchmarking. The business further fails to identifies the financial contingencies and may not able to adopt because of the unwelcome surprises can take place on frequent basis.
Inadequate Financial Planning: For Caltex Australia, the strategic planning is mainly reliant on the success of the financial planning. As Caltex is largely reliant on the equity capital for fund its strategic objectives, it might be disappointed if management of cash is inappropriate. Furthermore, Caltex assumptions regarding the profitability is overly optimistic as there might be insufficient retained earnings available for the re-investment in strategic objectives.
Taking into the accounting issues of Caltex the executives should be should be charged with assessing and identifying the corporate opportunities and developing the strategic vision for Caltex business plan. Furthermore, the accounting issues can be further addressed by Caltex executives given the financial contingencies to equity capital is allocated towards appropriate cash management.
Conclusion:
The analysis of Caltex signifies that the financial statement is presented faithfully and carries useful information for the users. The assets and liabilities is faithfully represented at cost and estimation of the carrying value of the assets is adjusted to portray the impairment in the value of assets. The information presented is both faithful and relevant given it is useful for the users. The report evidently identifies the economic phenomenon that is useful to the users of reporting entity financial information.
References:
Aasb.gov.au. (2018). Aasb.gov.au. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf [Accessed 18 Dec. 2018].
Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus, 51(4), pp.499-510.
Caltex. (2018). Caltex Australia | Fuels, Lubricants & Convenience Retail. [online] Available at: https://www.caltex.com.au/ [Accessed 19 Dec. 2018].
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Handel, M.J., Valerio, A. and Sánchez Puerta, M.L., 2016. Conceptual Framework.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39″ Financial instruments: recognition and assessment” for bank financial accounting. Modern European Researches, (1), pp.60-64.
Narasimhan, M.S., 2017. Financial Accounting Regulations.
Robson, K., Young, J. and Power, M., 2017. Themed section on financial accounting as social and organizational practice: exploring the work of financial reporting. Accounting, Organizations and Society, 56, pp.35-37.
Schipper, K., Francis, J. and Weil, R., 2017. Financial Accounting: Introduction to Concepts, Methods and Uses. Cengage Learning.
Spiceland, D., Thomas, W., Nelson, M., TAN, P.H.N., Low, B. and LOW, K.Y., 2018. Intermediate accounting.
Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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