Discuss About The International Financial Management Account.
The present report is developed to provide a critical analysis of the effectiveness of the corporations in Australia listed on ASX to comply with the conceptual accounting framework. Australian Accounting Standards Board (AASB) are emphasizing on implementing the conceptual framework of accounting on the Australian business entities for improving the quality of their financial reporting. The report has specifically analyzed the effectiveness an ASX listed entity ‘Lamborghini’ to comply with accounting principles stated in the conceptual framework. The report has examined the effectiveness of the company in complying with the objectives of general purpose financial reports through examining its complying with the fundamental and enhanced qualitative characteristics of conceptual framework of accounting.
Lamborghini, is a recognized Italian company involved in manufacturing of luxury supercars, sports cars and tractors. The company carries out its operations actively in Australia and offers its exclusive collection of vehicles in wide markets of the country such as Perth, Melbourne and Sydney. The company as such has to comply with all the relevant accounting standards and regulations of Australia in order to effectively carry out its operation within the country. The general purpose financial reporting objectives have laid to the development of the conceptual framework of accounting. The financial reports are developed to provide quality financial information about the performance of a reporting entity to the present and future end-users. The information provided to the end-users such as investors, lenders and creditors should be able to facilitate them to take investment decisions whether to purchase, sell or hold its equity or debt instruments (Conceptual Framework, 2017). The annual report of the parent group of Lamborghini, Volkswagen Group, is analyzed for examining whether the company has met the purpose of objective of financial reporting.
The company for meeting with the objective of general purpose of financial report needs to disclose the complete financial information through the preparation and development of financial statements. The company, as such, in its notes to financial statements section has disclosed all the information in relation to the development of its general purpose financial statements (Maines and Wahlen, 2006). The relevant accounting standards and principles applied for measuring the value of different elements of financial statements have been specified in the notes section. The financial report have provided all the relevant information in relation to the financial position of the Group through depicting the values of assets, liabilities and equity (Psaros and Trotman, 2004). The Group has prepared and presented its consolidated financial statements that are, statement of equity, balance sheet, profit and loss statement, statement of cash flow and income statement that have provided detained information about the past, present and future financial growth prospects.
The parent Group of Lamborghini, that is, Volkswagen Group has prepared and published all the necessary financial information in its annual report to meet effectively the needs of the target audience, that are, investors, creditors and lenders. The general purpose financial reports of the Group have provided detailed information about its economic resources. The notes to financial statements section have adequately discussed the impact of the transaction and other events on the economic resources and claims of the Group. The consolidated balance sheet has provided information about the assets and liabilities owned by the Group and the amount invested in the business. The consolidated income statement has provided information in relation to the revenue and expenses incurred by a business entity over a period of time (Rezaee, 2003). The statement is highly useful for the investors in providing an assessment of what areas of the business are over or under budget of the Group (Volkswagen Group: Annual Report, 2017).
The cash flow statement has provided an assessment of the amount of cash generated by a company from its operations, investing and financing activities. The investors can gain help from the cash flow statement in order to analyze the cash transactions occurred throughout a given accounting period. This will helps them to evaluate the inflow and outflow of cash and thus developing an estimation of the future cash movement (McDaniel, Martin and Maines, 2002). The consolidated statement of changes in equity provides an estimate of the profit earned or loss incurred over the reporting period by the company. The consolidated profit and loss statement presented by the Group has provided important information related to the revenues, costs and expenses incurred during the reporting period (Soderstrom and Sun, 2007). It can be used by the investors for reviewing the overall growth and profitability position of the Group. Therefore, it can be said that the consolidated financial statements developed by the Group are adequate in proving sufficient knowledge to the investors regarding the present and future financial performance of the Group and thus supporting their investment related decision-making (Volkswagen Group Annual Report, 2017).
The recognition criteria set out in the conceptual accounting framework states that a reporting entity should disclose the information in relation to the recognition of an element in the financial statement. An element is recognized n the financial statement if it is expected to provide any future economic benefit and its cost or value can be precisely determined (Tarca, 2004). The annual report of the parent Group of Lamborghini, that is, Volkswagen Group, has specified the recognition criteria for different financial statement in its annual report. It ahs implemented IFRS 9 accounting requirements for classifying and measuring the financial assets. IFRS 15 is adopted for recognizing the revenue and IFRS 16 for recognition of leases (Hoffman, 2016). The purchased intangible assets are recognized at costs and are amortized over their remaining useful lives. The financial instruments are measured at their fair value or amortized cost as per the IAS 39 standard. The sales revenue, interest and other income from the financial services are recognized only when the specific service has been provided or all the goods have been delivered. The deferred tax and liabilities are recognized and measured as per the difference in the individual balance sheet as per the accounting requirement of IAS 12 (Mazhambe, 2014). Therefore, it can be said that the Group has complied with the standard accounting requirement and regulations in recognizing the different financial statement during its financial reporting process requirements (Volkswagen Group Annual Report, 2017).
The fundamental qualitative characteristic of financial reporting is relevance and faithful presentation as stated in the conceptual framework of accounting (Conceptual Framework, 2017). The relevance qualitative characteristic means that financial information provided in the annual report is able to make any change in the decisions undertaken by the end-users. The financial information disclosed should have both predictive and confirmatory value for ensuring that it is relevant. The financial information should have predictive value if it can be used for making predictions about the future and has a confirmatory value if it provides information regarding the present financial state of a reporting entity. As such, it can be stated from analyzing the annul report of the Group that the financial reporting has provided relevant financial information. The value of different financial transactions is appropriately measures to provide confirmatory value and also there is use of certain accounting estimates and assumptions for predicting the future value of the different financial elements (Van der Meulen, Gaeremynck and Willekens, 2007). In addition to this, the other qualitative characteristic of financial reporting is that a reporting entity must provide faithful present of financial information, that is, it should be complete, neutral and free from error. It can be ascertained from the financial report of the Group through the auditor’s statement which has stated that the Group has developed the financial reports as per the standard accounting requirements (Volkswagen Group: Annual Report, 2017).
The enhancing qualitative characteristics stated in the conceptual accounting framework of financial reporting are comparability, verifiability, timeliness and understandability (Conceptual Framework, 2017). Comparability is the qualitative characteristic that enables the end-users to compare the financing condition of a company from the current year to that of the previous year. As per this characteristic, the Group has presented the financial information in a comparable manner during the development of the financial statement. The different values of elements in the financial statement can be measured and compared with that of the values from the previous year. As per the verifiability principle, the financial information should be verifiable and if it is not possible then underlying assumptions used for presenting the information must be disclosed. The company in the notes to financial statement has disclosed all the policies and methods used for recognizing the value of different financial elements and also underlying assumptions for those whose values cannot be measured appropriately (Whittington, 2008). As per the timeliness characteristics, the Group discloses its financial formation annually so that it is relevant for decision-making and as per the understandability principle it has provided detailed information about all the accounting standards used in preparation of financial statements.
Conclusion
Thus, it can be said from the overall discussion that the parent Group of Lamborghini, that is, Volkswagen Group has effectively complied with the conceptual accounting framework principles as analyzed from its annul report review. It has adequately met the general purpose of developing financial report and provided the required information to the end-users as per the qualitative and enhanced characteristics of conceptual accounting framework.
References
Conceptual Framework. 2017. IFRS Foundation. [Online]. Available at: https://www.frascanada.ca/international-financial-reporting-standards/resources/unaccompanied-ifrss/item71833.pdf [Accessed on: 15 April 2018].
Hoffman, C.W. 2016.Revising the Conceptual Framework of the International Standards: IASB Proposals Met with Support and Skepticism.World Journal of Business and Management 2 (1), pp. 1-32.
Maines, L. and Wahlen, J. 2006. The Nature of Accounting Information Reliability: Inferences from Archival and Experimental Research. Accounting Horizons 20(4), pp. 399- 425.
Mazhambe, Z. 2014. Review of International Accounting Standards Board (IASB) Proposed New Conceptual Framework. Journal of Modern Accounting and Auditing 10 (8), pp. 835-845.
McDaniel, L., Martin, R. and Maines, L. 2002. Evaluating Financial Reporting Quality: the Effects of Financial Expertise vs. Financial Literacy. The Accounting Review 77, pp.139-167.
Psaros, J. and Trotman, K. 2004. The Impact of the Type of Accounting Standards on Preparers’ Judgments. Abacus 40(1), pp. 76-93.
Rezaee, Z. 2003. High-quality financial reporting: The six-legged stool. Strategic Finance 84(8), pp.26-30.
Soderstrom, N. and Sun, K. 2007. IFRS Adoption and Accounting Quality: A Review. European Accounting Review 16(4), pp. 675-702.
Tarca, A. 2004. International Convergence of Accounting Practices: Choosing between IAS and US GAAP. Journal of International Financial Management and Accounting 15(1), pp. 60-91.
Van der Meulen, S., Gaeremynck, A. and Willekens, M. 2007. Attribute differences between U.S. GAAP and IFRS earnings: An exploratory study. The international Journal of Accounting 42, pp.123-142.
Volkswagen Group: Annual Report. 2017. [Online]. Available at: https://www.volkswagenag.com/presence/investorrelation/publications/annual-reports/2018/volkswagen/en/Y_2017_e.pdf [Accessed on: 15 April 2018].
Whittington, G. 2008. Fair Value and the IASB/FASB Conceptual Framework Project:An Alternative View. ABACUS 44 (2), pp. 139-16
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