For carrying out business operations, organisations need to assure compliance with financial and accounting needs of the conceptual framework for financial reporting. This report is formulated for evaluating the objectives as well as requirements of the conceptual framework with reference to Arowana International Limited. Arowana International Limited is an investment holding organisation involved in providing renewable energy, diagnostic testing and education services in Australia (Arowana 2018). The organisation mainly operates through Funds Management, Operating Companies and Enterprise Office. This paper has emphasised on few particular aspects like the needs of the conceptual framework in order to gauge assets and liabilities, characteristics of the framework, meeting the needs of general purpose financial reporting and others.
1. Measurement requirements:
All ASX listed firms have to abide by the doctrines mentioned in the conceptual framework by AASB and thus, Arowana International Limited automatically fits into this category. For measurement needs of the organisations, the conceptual framework enforces the obligations on them for adopting the historical cost method and fair value method (Aasb.gov.au 2018). Along with this, Arowana International Limited requires complying with the recognition criteria laid out in the AASB conceptual framework. Therefore, the following discussion is made to assess the extent of conformance of the organisation with the measurement needs of the framework.
The above extract makes it inherent that Arowana International Limited has mainly used the historical cost method for measurement purpose. Additional evidences could be observed from the below-stated discussion.From the above extracts, it is evident that Arowana International Limited has ensured adherence to the measurement needs of the framework by adopting both fair value method and historical cost approach for valuing business assets.
The above extract depicts that Arowana International Limited has ensured framework requirements by applying fair value approach in order to value its liabilities.
Moreover, in compliance with the conceptual framework of AASB, the organisation has made its asset recognition in the statement of financial position at the time of likely future economic benefits coupled with reliable measurement. On the other hand, liabilities have been realised when there is likelihood of outflows associated with future economic benefits from the organisation and the liability costs could be gauged effectively (Hotcopper.com.au 2018).
2. Fundamental qualitative characteristics:
Relevance and faithful representation are two fundamental qualitative characteristics, which are evaluated in the context of Arowana International Limited as follows:
Relevance:
When there is positive effect on the decision-making process of the users, the financial statements are deemed to be relevant (Byrne and Lees 2018). From the annual report of Arowana International Limited in 2017, necessary financial statements are disclosed based on which the users could gather necessary financial information to make decisions. They are depicted as follows:
By using the above extract, the investors could accumulate information regarding the financial performance of the concerned entity for the years 2016 and 2017.
The above extract would aid the investors in analysing the financial position of the organisation over two years. Moreover, the “statement of changes in equity” would assist the investors to evaluate any change in financial condition of the entity. Therefore, by combining all these statements, relevant information is provided to the users.
Faithful representation:
The financial statements of an organisation are said to be represented faithfully, when they do not contain any errors, bias and they are complete. Moreover, the standards and policies mentioned in the conceptual framework of AASB help in assuring faithful depiction of the financial statements, since the organisations are provided assistance to report material financial information (Byrne 2018).
The above extract depicts the conformance to Arowana International Limited with the necessary standards of AASB, IASB, AIFRS, IFRS and Corporations Act 2001. All these compliances have assured faithful representation of the financial information of the organisation.
3. Enhancing qualitative characteristics:
There are four enhancing qualitative characteristics of financial reporting, which include verifiability, understandability, timeliness and comparability. These characteristics are evaluated in the context of Arowana International Limited as follows:
Verifiability:
Direct or indirect verification could assist the users in assuring the faithful depiction of financial information by applying independent observations and knowledge. In case of the users of Arowana International Limited, the provided information could be verified by recomputing them using the disclosed assumptions and provided inputs as notes to the accounting statements (Dey 2018).
Understandability:
The organisations are responsible in providing financial information in concise and clear formats for ensuring its understandability (Henderson et al. 2015). It has been observed from the 2017 annual report of Arowana International Limited that adequate financial information is disclosed in simple layout coupled with adequate justifications as financial footnotes. This has ensured the understandability of financial information of the concerned organisation.
Timeliness:
For undertaking decisions, the users need to possess the ability of collecting needed financial information and hence, they do not emphasise on older information (Hoque 2018). Arowana International Limited has presented its financial statements of 2016 and 2017 in its latest annual report so that the users could undertake their decisions accordingly.
Comparability:
With the help of comparability, the users have the scope of contrasting the financial statements of an organisation with other organisations and various timeframes of the similar organisation (Johal 2018). In case of Arowana International Limited, all necessary financial statements are published containing financial information of the past years for better comparison of its current financial condition.
4. Users’ ability to use report for decision-making:
In order to understand the financial information of an organisation, the users such as potential investors need to be able to extract the information from the financial statements. For Arowana International Limited, when all needed financial statements are present in annual report, the users could extract valuable information in order to undertake sound decisions (Schaltegger and Burritt 2017).
As the organisation has disclosed all its financial statements in the annual report, the users could use information regarding different aspects such as expense, revenue, profit and others from the income statement and other comprehensive income statement. After this, the users could seek information regarding assets and liability bases of the organisation as well as shareholders’ equity from the balance sheet statement. Finally, it is possible for the users to accumulate the change in financial position and cash position of Arowana International Limited from the “statement of changes in equity” and “cash flow statement”. Therefore, following this discussion, it could be stated that the financial reports of the organisation could be considered by the users in their decision-making process.
5. Requirement of basic knowledge more than accounting:
In accordance with the previous discussion, the financial statement users could obtain crucial information for evaluating the financial condition of Arowana International Limited. Moreover, the adherence of the organisation with the guidelines mentioned in IFRS and IASB ensures the understandability of financial information to users for analysing the financial statements when they possess basic accounting knowledge (Walters 2015). However, in this regard, it is noteworthy to mention that there are various items in the annual report of the organisation needing the opinion of the professionals for understandability. These include financial risk management, translations related to foreign currency as well as others, since higher degree of accounting knowledge is required for these aspects.
6. Requirements for general purpose financial reporting:
All listed business organisations are involved in issuing general purpose financial reports for their creditors and investors and the reason behind such issuance is discerning the financial outcomes and conditions of the organisations (Aasb.gov.au 2018). Henceforth, the primary requirement is to disclose different statements, which constitute of balance sheet statement, cash flow statement, statement of changes in equity and income statement as well as notes to the financial statements.
From the extracts obtained, it is evident that Arowana International Limited has conformed to the general purpose financial reporting requirements by disclosing the required financial statements with the intent of disclosing its financial information. Such information includes its financial position, financial performance, change in equity position and cash position. By taking into account all these aspects, the primary requirement of general purpose financial reporting is to deliver useful financial information to the users for aiding in their decision-making procedures.
Conclusion:
The above discussion clearly states that Arowana International Limited has adhered to the measurements needs of the conceptual framework of AASB and it has followed the requirements and guidelines mentioned in IFRS, AIFRS, IASB and Corporations Act 2001. For gauging its assets and liabilities, the organisation has implemented the fair value approach as well as the historical cost approach. The paper has provided evidences where the organisation has followed the necessary fundamental and enhancing qualitative characteristics mentioned in the conceptual framework for financial reporting in preparing its financial statements.
Therefore, by taking into consideration all the above-stated aspects, it could be inferred that Arowana International Limired has met the primary requirements of general purpose financial reporting. This is because it has provided all necessary financial information to the users of the financial statements through which they could undertake effective decisions by analysing the financial performance and position of the concerned organisation in the operating market.
References:
Aasb.gov.au., 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content102/c3/SAC2_8-90_2001V.pdf [Accessed 12 Dec. 2018].
Aasb.gov.au., 2018. [online] Conceptual Framework for Financial Reporting. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 12 Dec. 2018].
Arowana., 2018. AROWANA. [online] Available at: https://arowanaco.com/ [Accessed 12 Dec. 2018].
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Dey, C., 2018. Contemporary Issues in Social Accounting. Social and Environmental Accountability Journal, 38(2), pp.157-158.
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Hotcopper.com.au., 2018. [online] Available at: https://hotcopper.com.au/documentdownload?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4w2%2FzxXzv%2FZu8bFiGug%3D [Accessed 12 Dec. 2018].
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