Regulations Of Conceptual Framework: Analysis Of Annual Reports Of Volkswagen And 7-Eleven

Background of the companies

Discuss about the Regulations of Conceptual Framework.

The following report aims to present the evaluation and analysis of annual reports of the two organizations registered in Australia. To present the analysis of conceptual framework and AASB standard based on the recent year’s annual report two companies Volkswagen and 7- Eleven have been selected. The report covers the discussion on compliance of accounting conceptual framework, prudence level of reporting financial information and necessary disclosures to understand the true and fair view of the financial report. The study also highlights the prudence level by considering the disparity in Corporate Reporting for the selected companies. Identification of relevant accounting disclosures in the financial report have been chalked out by comparing and contrasting for the selected organization. Accordingly, necessary principles of conceptual framework and regulations of Australian Accounting Standards Board (AASB) have been considered to critically analyze the annual reports.

Volkswagen is a public company founded in the year 1937 by German Labor Front that is a public company and based in the automotive industry. The company serves its business activities across the globe for automobile products whose key person is Matthias Muller, CEO of the company (Volkswagen 2017). During the current year, the production output of the organization was 10.17 million units while total revenue amounted to $244.98 billion and profitability amounted to $13.39 billion, being the largest automaker group across the world. It has been observed that the company has total assets valued at $424.98 billion with the employed number of employees of around 610,000 (Volkswagen 2017).

On the contrary, 7- Eleven based on retailing industry serves several parts of the world as an “international chain of convenience stores”. At present the company serves and operates in 18 countries having around 56, 600 stores while the company was founded in the year 1927 with its first outlet named “Tote’m Stores” (7-eleven.com 2017). The organization conducts the business in trading several products including soft drinks, beverage and other food products having total number of employees around 45,000 as per the current records. As per the current records, net profit of the company reflected equivalent amount of $12.89 million while total revenue during the recent year equivalent amount to $13.22 million (7-eleven.com 2017).

Conceptual framework is an analytical model involving various variations and regulations to recognize and represent organizational financial information. In case the companies are registered in Australia, the management is required to follow the conceptual framework as per the regulations of AASB to determine the use of financial report in terms of nature, time and extent of financial information (Soltani and Maupetit 2015, pp.259-284). The conceptual framework principle requires the organizations to prepare financial statements based on the prudence and accrual basis for recording incomes and expenditures. It is important to recognize assets and liabilities as per conceptual framework to collect relevant information to obtain true and fair view of the organizational performance and financial position (Iliev et al. 2015, pp.2167-2202).

Compliance of conceptual framework and AASB standard requirements

In view of Volkswagen’s annual report, it has been analyzed that the company complied the requirements on accrual and going concern basis to prepare the financial statements that reflects the increase in earnings. It has been evaluated that the organization reported its sales revenue according to the business group before and after tax resulting in net profit available to the investors. Additionally, the company recorded the revenue income as per the prudence and accrual basis as well as based on the consolidated accounting standards reflecting $224 billion (Volkswagen 2017). Similarly, expenses of the company including other financial charges have been recognized in the income statements as per the payments while outstanding dues have been recognized in the statement of financial position (Volkswagen 2017). For example, financial charges paid have been recognized in the income statement whereas financial and other liabilities have been recorded in the financial position statement as current liabilities (refer appendix 1 and 2).

As the key characteristics of the conceptual framework is providing relevance, reliable and prudent understanding on the financial performance on the company’s business function, Volkswagen followed such principles. 7- Eleven organization presented all the relevant information and disclosures for the benefit of the stakeholders to provide them useful information along with the reliable and material financial information (7-eleven.com 2017). The organization also followed the principle of prudence while recognizing incomes and expenses as the incomes are not overstated or expenses are not understated to avoid the reflection of unrealistic profitability (refer appendix 3). Apart from that, Volkswagen and 7- Eleven recognized the financial information of the subsidiary companies by translating the foreign exchange transactions into local currency for presenting better understanding to the users (7-eleven.com 2017). It has been observed that the company presented relevant disclosures on material future events as per the estimates along with the segment reporting as per AASB that represents compliance of accounting conceptual framework (refer appendix 4).

As mentioned above, prudence level under conceptual framework requires the organization to prepare and present the financial estimates with the reasonable estimates for incomes, expenses, profits and losses (Bushee, Carter and Gerakos 2013, pp.123-149). Besides, corporate reporting requires the organization for recognizing and disclosure of relevant financial information in terms of integrated reporting, corporate governance, financial reporting and corporate responsibility statement. It is essential for the organizational management to record the financial information to reflect transparent and accountable results for the benefit of users following the requirements of GAAP and International Accounting Standards (Barth 2015, pp.499-510).

Prudence level addressing the disparity in Corporate Reporting

In order to present the corporate governance report, company is required to consider directors’ contribution, management’s effective performance on the business activities and confirmation on compliance of necessary regulations. The corporate governance report discloses the relationship strength with the customers, community and stakeholders of the company (Zhang and Andrew 2014, pp.17-26). Consequently, Volkswagen’s corporate governance statement presents the number of shareholding information, group management report stating key figures of the company’s share, compliance of corporate ethics, confirmation and statement of co-operation of the management board and supervisory board (refer appendix 5). Similarly, corporate governance statement of 7- Eleven presents the board charter, code of ethics followed, compliance of regulations to maintain sustainability, responsibilities and performance of the board and remuneration committee along with the details of composition. The statement of the organization also represents principles on reinforcing independence, commitment on fostering including details and responsibilities of key personnel and board members of the company (Wang 2014, pp.955-992). 7- Eleven disclosed managing risks, financial reporting integrity and other relevant disclosures stating the responsibility of the organizational board to present the financial results in true and fair view (7-eleven.com 2017). Further, framework on internal control for planning and monitoring on the necessary financial budget, business strategies, safeguarding of assets that were insured against the probable loss from natural calamities, theft or any other substantial loss has been disclosed (refer appendix 6).

Moreover, conceptual framework compliance is required to be revised in each reporting year to present the provisional expenses or losses. The statement is required to be prepared stating the consideration of standard rates and limits in recognizing the value of provision on the basis of organization’s income benchmark to reduce the corporate reporting disparity (Albu, Albu and Alexander 2013, pp.61-90). In view of the annual report of Volkswagen, reported provisions have been estimated for the benefit of employees, insurance and restricting based on the annual leave and long service leave for 12 months along with the standard discounting rates. Moreover, financial report of 7- Eleven states the estimation of provisions has been done on the basis of service amounts of the employees in terms of cost rate and reporting date (7-eleven.com 2017). On the other hand, lease provisions have been recognized on the basis of future inflation, investment return and administration claim (refer appendix 7 and 8).

It has been analyzed that the recognition and presentation of financial information of both the companies i.e. Volkswagen and 7- Eleven are in compliance with the conceptual framework and AASB standards. However, certain distinctions have been identified in the financial report of both the companies with respect to reporting the incomes, expenses, assets and liabilities along with the relevant disclosures. The financial report of Volkswagen provides statement on business risk whereas 7- Eleven has not presented such report in its recent annual report. In addition, financial report of Volkswagen Company, statement of shares and bonds, business operation results and statement of financial position valuing net assets has been presented in details (7-eleven.com 2017). On the contrary, 7- Eleven presents detailed statement on corporate and business structure, financial summary of the business group along with the list of properties and compliance information. The financial report of Volkswagen provides information and understanding on the capital management plans and rollout space. Similarly, the company used the estimates and judgments to value incomes, expenses, liabilities and assets based on the historical records and current economy conditions. However, 7- Eleven measured and recognized financial information based on the future events estimates and judgments to value inventories, fixed assets, provisions and other liabilities (7-eleven.com 2017). It has been identified that Volkswagen presented the annual report by disclosing capital management, funding activities for repayments and borrowing proceeds along with the details on acquisition or discontinued operations (Volkswagen 2017). On the contrary, such information is not present in the financial report of 7- Eleven to provide clear understanding on the company’s ability to manage funds and resources required to maximize the business profitability and sustainability. Further, disclosure of segmentation reporting of the organizations is different which is based on the operating and geographical segment for Volkswagen whereas 7- Eleven presented financial result based on different store locations (Volkswagen 2017). For presenting the value of dividend, Volkswagen reported financial charges in the income statement based on the franked credit while 7- Eleven reported the same on the basis of interim and final dividend.         

Corporate Governance Statements

Considering the evaluation and critical analysis on recognition and presentation of financial report of the selected companies Volkswagen and 7- eleven registered in Australia, it is recommended that the management should provide complete and appropriate disclosures. it has been noted that the organizations have complied the regulations of AASB standards and conceptual framework but the companies are suggested to follow reporting format as per the benchmark provided by the Board of Accounting. Certain financial information and business information material to the performance of the company has been presented by Volkswagen but missing in the annual report of 7- Eleven. Hence, management of 7- Eleven is recommended to provide clear and separate information on material business risk, capital management plans, strategic plan and information on borrowing funds. In addition, Volkswagen presented the estimates and judgments based on historical records that may not disclose fair and accurate valuation with respect to inflation or other economic changes. Hence, the company is suggested to consider the estimates based on future events to determine the value of necessary assets and liabilities and provisions.

Conclusion

In view of the above discussion on compliance of conceptual framework and AASB regulations for presenting the annual report of the companies, it is concluded that both the companies duly complied the requirements. Volkswagen and 7- Eleven represented the financial report mentioning the relevant disclosures and followed appropriate methods to value inventories, fixed assets and other liabilities. It has been noted that both the companies prepared and presented corporate governance and corporate social responsibility statement to ensure the responsibilities and performance of the management and key personnel towards the benefit of stakeholders and community. The companies recognized the financial information stating true and fair view along with the compliance of conceptual framework principles to ensure the going concern and prudence level of the business activities. Even though there are certain differences in presenting and recognizing financial information in the annual report of the companies, it has been analyzed that there was no material misstatements or non- compliance of GAAP or AASB principles. Moreover, certain changes in the presentation and disclosure of financial information would provide better and clear understanding on organizational performance to the users.

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