Discuss about a Case Study for Financial Reporting Disclosures in the Australian Corporate Sector–a case of Australian Agricultural Company Limited (AACL)?
The financial report of the companies are liable to disclose the followed accounting policies in a financial year. It is necessary to disclose the policies as well as the sources of estimation of the various particulars of accrual statements in the financial reports for the understanding of the users of those reports. In this context, the main criteria of this report is to provide the conceptual framework of the users of the financial reports. The report of Australian Agricultural Company Limited is being assessed here to evaluate the requirements of the sources of estimation in accounting treatment. Further, the report has emphasized on the current practice of the company evaluating the difference between the accounting standards and current practice. The usefulness of the current disclosure is also discussed in this report.
The main users of the financial report is the investors and the analysts. The authority is also another party to assess the financial legitimacy of the data provided by Australian Agricultural Company Limited. In this regard, the employees are also accountable to use the report in suitable places. The investors and the on behalf of them, the analysts also use the annual reports of the company to evaluate the financial performance of the company from time to time. The creditors and the lenders in the market have direct business relationship with Australian Agricultural Company Limited for dong business (Charteredaccountants.com.au, 2015). Therefore, it is their business interest that makes them to check the financial report of the company to analyse the feasibility of doing business with it future. The employees are the only users of the report who deliver the input as well as take reference from the outputs. Australian stock exchange is another private party that use the report of Australian Agricultural Company Limited. The following figure explains the framework of the users of the financial report:
Figure 1: Framework of users of financial report of Australian Agricultural Company Limited
(Source: aaco.com.au, 2016)
Financial disclosures on assets, liabilities and income statement are very important as they provide the important insights on the accrual basis of accounting. Therefore, the statement is not presented on current cash transaction basis rather recognize the economic changes in the business. Hereby, the investors and other users need to know the basis of the accrual presentation of the accounts as well as the current value of the assets and liabilities. In this context, the future expense and the liabilities of the company can be understood by fair value of measurement of the liabilities and the assets (AASB 13) (Davies & Green, 2013). The employee benefits had to be presented in future value as per the AASB 119. The disclosures related to the changes in the accounting treatment from time to time are also necessary for defining the instrument of financial measurement (AASB 9) (ey.com, 2014). The companies have to provide the disclosure related to the investments made in the other entities so that shareholders may know the movement of the funds. AASB 136 is mandatory for providing information on recoverable assets from the non-financial assets (ifrs.org, 2014). It is seen that the companies have to make many disclosures while presenting the annual financial report to make the convincing way of presentation to the users of the annual reports. The financial expenses related to the future expenses for the annual benefits of the employees are the accrual liability of the companies, which are necessary to be explained as the deferred liability for the business. This liability is a long-term liability for the companies, as they need to meet their capacity of paying the liabilities. The accounting policies of the report have to be presented for understanding the criteria fulfilled by the company while providing the accounts. According to Brochet, Jagolinzer and Riedl (2013), the disclosure from the management for accounting statement and the policies are very important as it shows the accountability of the management. In this context, the main requirement is to disclose the future transaction of the agricultural derivatives of the business so that trading risk of the future can be understood. The main changes in the position of the risk hedging in sourcing the materials are important to be disclosed as it may provide the investors and other users like creditors an idea of risk assessment of the company (Mobile.deloitte.wsj.com, 2016). Ball, Jayaraman and Shivakumar (2012) saw that companies must provide the significant movement in the accounting policies for every reporting year for convincing presentation towards the users.
Australian Agricultural Company Limited had disclosed many accounting policies in line with the accounting standards in its financial report of 2014. From the financial report of the company, we could see that AASB 2011-9 amendments are maintained to present the comprehensive income of the financial year. The requirement of the consolidated financial statements has been presented in the annual report (AASB 10). The report consisted of details of the joint arrangements made by the company using some other vehicles. AACL had disclosed the interests in other entities where the direct business of the company was not associated with its core operation during the reporting period. It had followed the AASB 12 as per the mandated rules of the report presentation. The fair value measurement of the assets and the liabilities had been presented in the report of FY2014 (AASB 13) (Pta.wa.gov.au, 2015). The employee benefits of the period was been disclosed in the report as per the mandated rules due to accounting standard of AASB 119. The disclosed items like improvement in the financial as well as operational related financial matters have been disclosed in the accounting presentation of Australian Agricultural Company Limited in FY2014. The amendments towards disclosing the offsetting financial assets and liabilities from the final accounts and transferring the same in the equity were being provided with the report in FY2014. The company had provided the information and related inclusions of data for withdrawing from the old interpretation method of 1039 to resolve the issue of amendment in AASB 1048. The transition period of the guided principles of the accounting standards were disclosed as per the AASB 2012-10. Foreign currency translation, receivables, payables, inventories and derivatives of the agricultural products were been disclosed in the annual report of FY2014. The recognition system of property, plant and equipment with impaired value were being disclosed in the report(Thecorporatecounsel.net, 2015).
There were some of the gaps in the reported financial presentation found as per the Australian accounting standards. The main gap was the financial instruments, which was not disclosed in the financial report (AASB 9). The company had not reported the responsibilities of the key personnel in governing the entire business process as per the recommendations of AASB 2011-4 (Hribar, Kravet & Wilson, 2014).
The present report was still useful in delivering the important information regarding the company’s performance. The investors and the creditors of the company could make important decision while investing or lending money. The recognition of the operating as well as the financial income has provided the insights on fair value of both types of the assets (Ormiston & Fraser, 2013). In this context, the equity control on other entities has been understood from the disclosure made for interest in other entities. The employee benefits and the deferred liabilities towards paying the employees after their retirement were provided with the report. The analysts and the users of the report could analyse the provision for the future liabilities from the long-term responsibilities of the company whereas the income or expense from the joint arrangements of AACL could be seen too. The users of the report could find the consolidated statement and might make the separate analysis to compare the performance of the two different entities and find the profitable investment region for them (Lusardi & Mitchell, 2013). The equity holding in other entities as well as minority interest in some companies (may be termed as subsidiary) could be analysed from the disclosure of other interest. It expressed the opportunities for Australian Agricultural Company Limited in different portfolio of business.
Conclusion
The report had shown the final touch for the users. It was seenthat Australian Agricultural Company Limited had already amended many of the accounting standards in disclosing the policy of the accounts at the time of presenting the accounting report in FY2014. However, many of the gaps were found from the annual report of the company, which must be fulfilled by the management in future. The management of the Australian Agricultural Company Limited had aimed to use financial instrument in presenting the financial report in future for better interpretation of the accounts.
References
aaco.com.au,. (2016). Annual Report. Retrieved 5 January 2016, from https://www.aaco.com.au/media/…/2014-15_aaco_fy14_annual_report.pdf
Charteredaccountants.com.au,. (2015). AASB 101 Presentation of Financial Statements. Retrieved 5 January 2016, from https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards/Analysis-of-AASB-standards/AASB-101–Presentation-of-financial-statements
ey.com,. (2014). Improving disclosure effectiveness. Retrieved 5 January 2016, from https://www.ey.com/…Improving_disclosure_effectiveness/…/Applying-DisclEf..
Hribar, P., Kravet, T., & Wilson, R. (2014). A new measure of accounting quality. Review of Accounting Studies, 19(1), 506-538.
Ormiston, A., & Fraser, L. M. (2013). Understanding financial statements. Pearson Education.
Lusardi, A., & Mitchell, O. S. (2013). The economic importance of financial literacy: Theory and evidence (No. w18952). National Bureau of Economic Research.
Ball, R., Jayaraman, S., &Shivakumar, L. (2012). Audited financial reporting and voluntary disclosure as complements: A test of the confirmation hypothesis. Journal of Accounting and Economics, 53(1), 136-166.
Brochet, F., Jagolinzer, A. D., &Riedl, E. J. (2013). Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research, 30(4), 1373-1400.
Davies, H., & Green, D. (2013). Global Financial Regulation: The Essential Guide (Now with a Revised Introduction). John Wiley & Sons.
ifrs.org,. (2014). IASB makes progress on improving the effectiveness of disclosure in financial reporting. Retrieved 5 January 2016, from https://www.ifrs.org › Alerts › Publications
Mobile.deloitte.wsj.com,. (2016). The road to effective disclosure. Retrieved 5 January 2016, from https://mobile.deloitte.wsj.com/cfo/2014/09/05/the-road-to-effective-disclosures/
Pta.wa.gov.au,. (2015). Summary of significant accounting policies. Retrieved 5 January 2016, from https://www.pta.wa.gov.au/portals/0/annualreports/2014/content/financials/notes/2-summary-of-significant-accounting-policies.asp
Thecorporatecounsel.net,. (2015). Study: Companies Voluntarily Enhancing Disclosure Effectiveness : TheCorporateCounsel.net Blog. Retrieved 5 January 2016, from https://www.thecorporatecounsel.net/blog/2015/12/study-companies-voluntarily-enhancing-disclosure-effectiveness.html
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