In the current business environment, the importance of the conceptual framework for financial reporting is immense for developing the financial statements. The organisations are provided with all the significant course of action coupled with the doctrines and techniques required for the preparation of the financial statements (Cajaiba-Santana 2014). Besides, with the help of the application of techniques and doctrines of the conceptual framework, it is possible to resolve numerous business issues. This validates that the conceptual framework has an important role to play for the financial aspects of the business organisations.
“International Accounting Standard Board (IASB)” has introduced this framework back in 1989 for financial reporting purpose. Therefore, this report would focus on investigating the compliance with the criteria of recognition, objectives, enhancing and fundamental qualitative characteristics of the conceptual framework of the business entities. In order to improve the quality of this report further, Newcrest Mining Limited is chosen as the firm, which is one of the biggest gold mining firms in the world. It focuses on three main drivers that include increasing reserves, maintenance of low costs and efficient use of capital and production. The organisation is listed under the top 100 ASX listed entities and its ASX code is NCM (Newcrest.com.au 2018). Hence, this report would evaluate the adherence of Newcrest with numerous requirements related to the conceptual framework for financial reporting.
It is clearly evident from the above section that the conceptual framework related to financial reporting is a vital need for financial management of the business organisations. All the crucial information is inherent in the annual report of Newcrest Mining Limited about the compliance with the various conceptual framework aspects. As per the latest annual report of the organisation, all the doctrines and regulations of the “Australian Accounting Standard Board (AASB)” and “Corporations Act 2001” are adopted in the context of general purpose financial reporting (Kogan, Sudit and Vasarhelyi 2018).
In addition, the financial reports are developed depending on the standards and doctrines of “International Accounting Standard Board (IASB)” and “International Financial Reporting Standards (IFRS)”. Hence, the organisation fully adheres to the norms laid down in the conceptual framework of IFRS for financial reporting. However, this framework has three specific objectives and it is necessary for Newcrest to satisfy all of them. These three objectives and the extent to which the organisation adheres to them are elucidated briefly as follows:
Providing useful financial information:
As per the conceptual framework, every business organisation is accountable to provide valuable and meaningful financial information to their users for helping in their process of decision-making (Cheng et al. 2014). After evaluating the annual report of Newcrest, it could be said that crucial financial information is provided to the users through the financial statements timely. The financial statements of all the ASX listed entities mainly comprise of income statement, balance sheet statement and cash flow statement. Along with this, accounting notes are mentioned in the annual report, which help the users in extracting the necessary information.
Assessing timing, amount and uncertainties:
According to this objective of the particular framework, the information supplied to the users need to be beneficial in evaluating timing, amount and uncertainties pertaining to the cash flows of the entity (De Villiers, Rinaldi and Unerman 2014). The detailed assessment of the annual report of Newcrest validates that the cash flow statement is prepared timely and it provides vital information to the users associated with its cash flows.
Information about organisational resources:
According to the third objective of the conceptual framework, the firms need to reveal all crucial information about their organisational resources for assisting in the financial decision-making process. Newcrest prepares its statement of financial position in such a way that it complies with all the AASB regulations and necessary information regarding economic resources of the information is disclosed.
Hence, it is inherent from the above analysis that all the objectives of the conceptual framework for financial reporting are fulfilled successfully on the part of Newcrest Mining Limited.
As mandated by this particular financial reporting framework, all the business firms are required to fulfil the criteria of realisation associated with assets, revenues, liabilities, expenses and equity. In other words, it needs to satisfy three primary requirements. Firstly, the financial aspects are to be represented with pertinent information. Secondly, there needs to be faithful representation of each financial aspect. Finally, information associated with these aspects is beneficial for the users. The below-stated evaluation represents the fulfilment of recognition criteria on the part of Newcrest.
Assets:
An organisation has various groups of assets. In case of property, plant and equipment, it is disclosed by taking into account depreciation less the cost of the asset. These costs are realised, if the future benefits are transferred to the organisation.
For the intangible assets of the organisation, impairment is imposed on them. The realisation of impairment loss is made on the carrying amount of these certain classes of assets. In case of Newcrest, there are particular useful lives for the intangible assets and hence, no amortisation is imposed on them (Garrett, Hoitash and Prawitt 2014).
Liabilities:
Certain kinds of liabilities are present in Newcrest. For deferred tax liabilities, the realisation is made based on the tax rate variations.
For contingent liabilities, the primary items comprise of income tax matters in Indonesia, other matters and bank guarantees. The management of Newcrest states that provision is not needed for these matters, since there is lower probability regarding the future outflow of economic benefits or the amount is not able to measure reliably (Macve 2015).
Equity:
The ordinary shares are categorised in the form of equity for Newcrest Mining Limited. Hence, the subtraction of incremental is made from the overall equity of the organisation.
Revenues:
For revenues, the management of Newcrest realises them during the point of sale after the subtraction of taxes. Moreover, the provisions related to sales are realised depending on the overall evaluation. Therefore, the sales value comprises of the revenue from selling products.
Expenses:
In relation to the expenses of Newcrest Mining Limited, the realisation is made depending on various categories. The main expenses of the organisation constitute of depreciation and amortisation expenses, employee benefit expenses, financial costs along with net gains/losses on foreign exchange. These expenses are disclosed and realised when they take place.
Thus, based on the above evaluation, Newcrest has fulfilled the criteria of recognition related to the conceptual framework in order to disclose its assets, expenses, liabilities, expenses and revenues.
Various qualitative characteristics of the conceptual framework are inherent for improving the overall quality related to financial reporting. It is necessary for Newcrest in meeting all the qualitative features. The below-stated discussion represents the degree of conformance with such qualitative features of the conceptual framework on the part of the organisation.
Relevance:
This feature depicts that relevance needs to be ensured in the provided financial information for enabling in the decision-making process of the organisation. Newcrest conforms to all the current regulations and doctrines of IFRS, AASB and Corporations Act 2001. Along with this, the organisation takes into account the existing rates related to depreciation, others and tax (Morioka and De Carvalho 2016). Hence, the financial information disclosed in the annual report of Newcrest is pertinent to financial decisions.
Faithful representation:
Based on this feature, it could be stated that it is necessary for the business firms to represent their financial information fairly and transparently. This signifies that obtaining the trust of the stakeholders is of utmost importance. According to the audit report of Ernst & Young, the financial statements of the organisation are depicted faithfully by adhering to all the needed standards of accounting. Hence, it could be cited that Newcrest has depicted its financial information adequately and faithfully.
Comparability:
With this help of this specific feature of the conceptual framework for financial reporting, the stakeholders are able to gain an insight of the similarities and variations in the provided financial information among different financial statements. It is noteworthy to mention that Newcrest has depicted its financial information in graphs and tables for enabling the users to understand in a better fashion (Nobes 2014). Therefore, the creditors and investors could contrast the financial position and performance of Newcrest with other similar organisations.
Verifiability:
This signifies that the users of the financial reports are required to be capable of verifying the disclosed financial information on the part of the organisation. In order to meet this purpose, Newcrest provides the categorisation of each aspect of accounting in the notes to the financial statements.
Timeliness:
This denotes that financial information needs to be provided within the specified schedule. For Newcrest, it could be observed that the organisation discloses its financial reports both quarterly and annually (Simnett and Huggins 2015). Hence, it could be observed that the users could obtain the financial information within the specified schedule from the financial statements of the organisation.
Understandability:
In compliance with this feature, the organisations are needed to prepare their financial statements in a manner for ease of understanding to the users of the same (Zhang and Andrew 2014). Newcrest Mining Limited reveals its financial statements in a precise format for easy understanding of the users.
Conclusion:
According to the above discussion, it could be cited that Newcrest Mining Limited has adhered to the AASB conceptual framework for general purpose of financial reporting. Besides this, the organisation has complied with the doctrines and regulations of IASB, IFRS and Corporations Act 2001 to develop its consolidated financial statements. In addition, it could be found out that the organisation has fulfilled three primary objectives of the conceptual framework as a portion of financial reporting. For recognition criteria of liabilities, assets, equity, expenses and revenues, Newcrest adheres to the doctrines related to AASB.
Along with this, the organisation takes into account the existing rates related to depreciation, others and tax. Hence, the financial information disclosed in the annual report of Newcrest is pertinent to financial decisions. With this help of the conceptual framework for financial reporting, the stakeholders are able to gain an insight of the similarities and variations in the provided financial information among different financial statements. Finally, all the significant qualitative characteristics of the conceptual framework are met in order to meet the overall quality of financial reporting. This validates that the conceptual framework has an important role to play for the financial aspects of the business organisations.
References:
Cajaiba-Santana, G., 2014. Social innovation: Moving the field forward. A conceptual framework. Technological Forecasting and Social Change, 82, pp.42-51.
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.
De Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), pp.1042-1067.
Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Kogan, A., Sudit, E.F. and Vasarhelyi, M.A., 2018. Continuous online auditing: A program of research. In Continuous Auditing: Theory and Application (pp. 125-148). Emerald Publishing Limited.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Morioka, S.N. and De Carvalho, M.M., 2016. A systematic literature review towards a conceptual framework for integrating sustainability performance into business. Journal of Cleaner Production, 136, pp.134-146.
Newcrest.com.au., 2018. 2017 Annual Report | Newcrest Mining Limited. [online] Available at: https://www.newcrest.com.au/investors/reports/annual/2017-annual-report [Accessed 7 Apr. 2018].
Nobes, C., 2014. International Classification of Financial Reporting 3e. Routledge.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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