Conceptual framework is very important aspect in the process of financial reporting. It sets out the concepts and policies that help in preparation and presentation of the financial statements for the users of the financial reports. Conceptual framework aims to provide the objectives of the financial reporting. As per the conceptual framework company must provide useful financial information about the reporting entity that must be important for the existing and potential investors and other stakeholders. According to conceptual framework financial statements must adhere to the qualitative characteristics financial reporting. Some of the qualitative characteristics of the useful financial information are faithful representation, comparability, verifiability, timeliness, relevance and understandability. Conceptual framework detailed definitions of the assets, liabilities, equity, income and expenses. So entities must follow these definitions and recognize the different transactions as per these definitions.
In this report, annual report of the CSL Limited has been evaluated in detailed in order to report for this application of conceptual framework while preparing the financial statements. It will include company compliance with the objectives of the conceptual framework with the financial reporting process followed. In other part it has been verified that financial items presented in the financial statements has been properly recognised as the assets, liabilities, equity, income and expenses. In last part of the report fundamental characteristics and qualitative characteristics of the financial statements are reviewed in connection of financial reporting done by the CSL Limited (Deloitte, 2017).
The conceptual accounting framework has addressed the general objective of financial reporting. As per the framework, the objective of the financial reporting is to provide the financial information that is useful to the primary users that are potential investors, lenders and creditors. The information is to be used in making the investment decisions of the primary users of financial information. In addition to this, the financial reporting should be able to useful in determining the cash flows arising from the company’s operational activities. Also, the financial reporting should effectively address the changes in the assets, liabilities and the equity resources to the end-users (Macve, 2015). The CSL Limited also effectively follows the objectives of the conceptual accounting framework as analyzed from its annual report. The company provides all the relevant financial information necessary for the end-users through disclosing all the relevant financial statements (CSL Limited: Annual Report, 2017).
The financial statements of cash flows, balance sheet, income statements and equity position have provided all the necessary details about the financial position of the company to the primary users. The income statement of has provided all the significant details about the operating revenue, profit before income and the net profit for the respective financial period. The balance sheet has provided the information regarding the asset and liabilities of the company. The equity statement has disclosed the information about the changes in equity resource of the company for the respective year. Thus, the company has effectively addressed the general reporting objective of providing details regarding the change in the assets, liabilities and equity through its balance sheet. The cash flow statement has provided all the necessary details about the cash inflows and outflows incurred by the company during the period (CSL Limited: Annual Report, 2017). Therefore, it can be said that CSL Limited has developed its financial reports as per the objectives of the financial reporting as depicted in the following screenshots:
Recognition is the process in which items of the balance sheet and income statement meets the definition and meets the criteria defined in the conceptual framework. There are five major financial reporting elements that are shown in the financial statements and they are divided two statements. Assets, Liabilities and equity are shown in the statement of financial position, and income and expense are shown in the income statement. Definition and recognition criteria of each item are shown below together with the recognition criteria followed by the CSL Limited:
The conceptual accounting framework has addressed the fundamental characteristics of the financial information that provides guidance to the business entities in developing their financial reports. As per the conceptual framework, the two fundamental characteristics of the financial information are relevance and faithful presentation. The relevance characteristics of the financial information state that the financial information must be capable of making a difference in the decision-making process of the primary users. Thus, as such the financial information must have both have a confirmatory value and a predictive value (Alexander and Archer, 2008). The confirmatory value refers to the confirmation of investor expectations through providing them complete information regarding the present income generating ability of a company. The predictive value is based on predicting the future cash generating ability of the company through analyzing the future financial performance with the help of the financial statements. For example, the revenue information of the current year can be used to predict the future year revenue generation (Kieso, Weygandt and Warfield, 2010). The CSL limited in order to provide relevant financial information and has not provided any unnecessary financial information in its financial reports. The company has developed the financial reports in compliance with the AASB (Australian Accounting Standards Board) and IFRS (International Financial Reporting Standards). This is done to ensure that all the information is disclosed as per the standard guidelines without incorporating any irrelevant information in the financial report (Stickney, Weil, Schipper and Francis, 2009).
The faithful presentation of the financial formation ensures that financial reports developed are free from any materialistic error, neutral and provide complete information. In this context, the CSL limited financial report has effectively represented the underlying economic transactions and events in both numerical and narrative form. The underlying accounting policies used to develop the financial statements is completely disclosed in the notes to the financial statements section of the annual report. The auditors’ report has also stated that the company financial statements are in accordance with the AASB principles and Corporations Act 2001 ensuring the information to be free from any error (CSL Limited: Annual Report, 2017).
The conceptual framework has identified comparability, verifiability, timeliness and understandability as the enhancing qualitative characteristics of financial information. As per the comparability characteristics, the financial information disclosed by CSL Limited is comparable with the performance of the previous year. The verifiability refers to the financial information can be easily verified. The financial information presented in the financial statements is stated in the numerical figures by the company that can b easily verified. As per the timeliness characteristics, the company discloses its financial report on an annual basis to depict its current financial position (Macve, 2015). The understandability refers to presenting the financial information in a clear and concise manner as per the IFRS principles. The financial report of CSL Limited presents all the necessary facts and figures in a sequence manner by properly disclosing the accounting policies adopted for carrying out a particular economic transaction. This ensures that financial statements are prepared as per the understandability qualitative characteristics of conceptual framework (CSL Limited: Annual Report, 2017).
Conclusion
Thus, it can be inferred from the overall report that CSL Limited effectively follows the principles and guidelines of the conceptual accounting framework.
References
Alexander, D. and Archer, S. 2008. International Accounting/Financial Reporting Standards Guide. CCH.
Annual Report. 2017. CSL Limited. [Online]. Available at: https://www.csl.com.au/docs/802/1/CSL_AR17%20(secured),0.pdf [Accessed on: 14 December, 2017].
Deloitte. 2017.Conceptual Framework for Financial Reporting 2010. [Online]. Available at: https://www.iasplus.com/en/standards/other/framework [Accessed on: 14 December, 2017].
Kieso, D., Weygandt, J. and Warfield, T. 2010. Intermediate Accounting: IFRS Edition. John Wiley & Sons.
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, or Threat. Routledge.
Stickney, C., Weil, R., Schipper, K. and Francis, J. 2009. Financial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning.
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