The conceptual framework for financial reporting provides immense support to the organisations in preparing financial statements. The businesses are provided with the required outline along with standards and doctrines for preparing the financial statements (Almeida et al. 2014). Besides time, several business issues related to financial reporting could be solved, if the standards and doctrines of conceptual framework are applied. Henceforth, it is inherent that there are number of roles for conceptual framework in the financial aspects of the organisations.
In 1989, “International Accounting Standards Board (IASB)” initiated the conceptual framework of financial reporting. This report intends to investigate the compliance with recognition criteria, objectives and qualitative characteristics of the framework on the part of the organisations. In order to fit the purpose of this report, Qantas Airways has been taken into consideration. Qantas Airways is the Australian flag carrier and it is the biggest airline in terms of fleet size, global flights and global destinations. The airline is based in the Sydney suburb of Mascot and its main hub is at Sydney Airport. In March 2014, the airline had 65% share of the domestic market of Australia and it had carried 14.9% of all passengers travelling in and out of Australia (Investor.qantas.com 2017). Thus, the report dissects the adherence of Qantas with necessary conceptual framework requirements for financial reporting.
It has been identified that the conceptual framework for financial reporting is a crucial element for the business firms in terms of financial reporting. The annual report of Qantas Airways is filled with vital information about the conformance to different aspects pertaining to conceptual framework. Based on its 2017 annual report, it could be seen that the airline has adopted the norms and doctrines of “Australian Accounting Standard Board (AASB)” and “Corporations Act 2001” in relation to financial reporting. Besides, the airline has prepared its consolidated financial statements developed on the doctrines and norms of “International Accounting Standard Board (IASB)” as well as “International Financial Reporting Standards (IFRS)”. Hence, it could be stated that the issues of conceptual framework in IFRS are followed on the part of Qantas Airways for its financial reporting. In this regard, it could be cited that conceptual framework has three main objectives, which the airline needs to satisfy and they are depicted briefly as follows:
The initial objective of this framework denotes the accountability of the business organisations to provide useful and meaningful financial information to their related stakeholders so that they could undertake appropriate financial decisions (Beattie 2014). In case of Qantas, it needs to be mentioned that the airline provides the needed financial information by publishing the same in its annual report within the stipulated time. Such information is provided mainly through the different financial statements like income statement, balance sheet statement, statement of changes in equity and cash flow statement. Along with this, financial notes are attached in the annual report, which could be adjudged as a primary source of financial information.
According to the second objective of this framework, the financial information provided needs to be helpful for determining timing, amount and uncertainties associated with the cash flows of the organisation (DesJardins and McCall 2014). In this regard, it could be stated that Qantas publishes its cash flow statement timely, which helps the users to obtain necessary inflow related to the cash flows of the organisation.
The third objective of this framework denotes that the organisations need to disclose necessary information about their resources so that they could be supportive for the process of financial decision-making. For Qantas Airways, it could be observed that the airline formulates its balance sheet in accordance with the norms of AASB, which comprises of the needed information regarding its economic resources.
Hence, from the above analysis, it is evident that Qantas Airways has satisfied the primary objectives of conceptual framework.
The conceptual framework for financial reporting states that the business firms need to be accountable for fulfilling the recognition criteria related to assets, equity, liabilities, expenses and revenue. There are three primary needs, which are represented as follows:
The below-stated discussion depicts the way Qantas Airways fulfils the recognition criteria of conceptual framework:
Qantas Airways has different classes of assets. For property, plant and equipment, it is recorded by deducting accumulated depreciation and impairment losses from the asset cost. The cost associated with these assets is realised, if the future benefits are directed towards the favour of the airline.
The intangible assets of the airline are subject to impairment. The losses from impairment are realised in opposition to the carrying amounts of those specific assets. In Qantas, the intangible assets have particular useful lives and amortisation is subjected on them.
The annual report of Qantas Airways contains various kinds of liabilities. For deferred tax liabilities, they are realised based on the temporary differences between the carrying amounts of liabilities for financial reporting and amount used for taxation.
In case of contingent liabilities, the main items include guarantees, aircraft financing and litigation. According to the management of Qantas Airways, there is no need for any provision in relation to these matters, since it is not likely that a future outflow of economic benefits would be needed or the amount is incapable of reliable measurement (Landerer 2013).
Qantas Airways categorises ordinary shares in the form of equity. The incremental costs are attributed to the issuance of shares of the airline. Such costs are subtracted from the overall equity of the airline.
There are various sources, from which Qantas Airways realise revenue and they include passenger and freight revenue, frequent flyer marketing revenue, frequent flyer redemption revenue and frequent flyer membership fee revenue. Passenger and freight revenue is realised at the time of upliftment of freight or passengers. Frequent flyer marketing revenue is realised at the time of service performance. The frequent flyer redemption revenue is realised in passenger revenue. The frequent flyer membership fee revenue arises from the beginning joining fee charged to the members of the group.
For Qantas Airways, expenses are realised depending on specific categories. These include commissions and other selling costs, capacity hire, computer and communication, marketing and advertising, contract work materials and others. Each of these expenses are realised and they are recorded when they occur.
Thus, it could be seen that Qantas Airways has fulfilled the recognition criteria of conceptual framework in order to report liabilities, revenue, assets, equity and expenses.
The below-stated discussion depicts the extent of compliance with the main qualitative characteristics of conceptual framework in the context of Qantas Airways:
Relevance:
In the words of Macve (2015), according to this characteristic, the provided financial information needs to be pertinent for assisting in financial decisions. The airline conforms to all the norms and doctrines of IFRS, AASB and Corporations Act 2001. Moreover, it considers the current depreciation and tax rates; thus, showing its relevancy.
Faithful presentation:
This characteristic states that the organisations are required to depict their financial information based on fair and true values (Maleti? et al. 2014). The audit report of Qantas Airways on the part of KPMG states that the airline has represented its financial statements accurately by conforming to the needed standards of accounting, which signifies faithful representation.
Comparability:
This characteristic of conceptual framework states that the financial information of an organisation needs to be suitable so that the stakeholders could understand the similarities and dissimilarities among the different financial statements (McCombs 2017). Based on the annual report of Qantas Airways, it could be seen that the airline has represented its financial statements in the form of simple tables, charts and graphs. Thus, the creditors and investors could find it easier in comparing the financial condition of Qantas Airways with the other organisations.
Verifiability:
According to this characteristic, the users of the financial reports could be able to verify the provided financial information of the organisation (O’Riordan and Fairbrass 2014). In order to meet this characteristic, the airline has provided notes to all the accounting estimates made in its annual report.
Timeliness:
This characteristic denotes that an organisation needs to disclose its financial information within scheduled time (Smith 2017). It has been assessed that Qantas publishes its financial statements both quarterly and annually, which indicates its conformance to timeliness.
Understandability:
In accordance with this financial statement, an organisation needs to present its financial statements in a manner, which the users could find easy to understand (Zhang and Andrew 2014). Qantas publishes its financial statements in simple format for easy understanding of the users.
Conclusion:
From the above discussion, it has been found that Qantas Airways complies with the AASB conceptual framework in relation to financial reporting. Besides this, the airline has implemented the doctrines and norms of AASB, IFRS, IASB and Corporations Act 2001 in order to prepare its consolidated financial statements. It has been inherent that the airline has fulfilled the main objectives of conceptual framework and the AASB regulations related to assets, liabilities, equity, revenue and expenses. Finally, Qantas Airways has satisfied the main qualitative characteristics of conceptual framework in order to improve the quality associated with financial reporting
References:
Almeida, H., Campello, M., Cunha, I. and Weisbach, M.S., 2014. Corporate liquidity management: A conceptual framework and survey. Annu. Rev. Financ. Econ., 6(1), pp.135-162.
Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), pp.111-134.
DesJardins, J.R. and McCall, J.J., 2014. Contemporary issues in business ethics. Cengage Learning.
Hörisch, J., Freeman, R.E. and Schaltegger, S., 2014. Applying stakeholder theory in sustainability management: Links, similarities, dissimilarities, and a conceptual framework. Organization & Environment, 27(4), pp.328-346.
Investor.qantas.com. (2017). Qantas | 2017 Annual Report. [online] Available at: https://investor.qantas.com/annual-report-2017/ [Accessed 12 Dec. 2017].
Landerer, N., 2013. Rethinking the logics: A conceptual framework for the mediatization of politics. Communication Theory, 23(3), pp.239-258.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Maleti?, M., Maleti?, D., Dahlgaard, J.J., Dahlgaard-Park, S.M. and Gomiš?ek, B., 2014. Sustainability exploration and sustainability exploitation: From a literature review towards a conceptual framework. Journal of Cleaner Production, 79, pp.182-194.
McCombs, M., 2017. Contemporary public opinion: Issues and the news. Routledge.
O’Riordan, L. and Fairbrass, J., 2014. Managing CSR stakeholder engagement: A new conceptual framework. Journal of Business Ethics, 125(1), pp.121-145.
Smith, M., 2017. Research methods in accounting. Sage.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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