Accounting and Economics of Standards †Free Samples to Students

Question: Discuss about the Accounting and Economics of Standards. Answer: Introduction An appropriate and faithful representation of the financial statements is the most vital foundation for every entity existing in this competitive world because these can directly influence public reputation and confidence of the investors. Furthermore, the intentional fault of representation can also facilitate in business crime (Spiceland et. al, 2011). Furthermore, disclosures must be given due consideration by companies so that reporting quality can be enhanced. The example of Woolworths has been analyzed with the help of this study so that it can be analyzed whether its disclosures on PPE are appropriately aligned with the requirements of AASB 116 standard and conceptual framework. Objectives of GPFR and qualitative characteristics of financial reporting General Purpose Financial Reporting assists in portraying the financial information of businesses who are obligated to prepare such reports in order to address the requirements of users. The GPFR comprises of income statement, balance sheet, cash flow statement, etc that are required to be prepared based on the current accounting standards. Further, estimates of liabilities, assets, and expenses are also depicted through GPFR so that a list of companys monthly expenses can be offered in net sums to ascertain how much amount is expended every month. GPFR also do not accommodate conclusions regarding particular qualities information must possess, form, nature, and number of financial reports to be prepared. Based on the conceptual framework for financial reporting, qualitative characteristics assist in recognizing different types of information that can be used by users in their decision-making processes. Nevertheless, reliability, faithful representation, and relevance are the most fundamental qualitative characteristics of corporate reporting. Relevant financial information assists in making a difference in the process of decision-making only if it pursues predictive, confirmatory value or both. However, faithful representation also plays a vital role in restricting errors or fraud from forming part of the financial information, thereby assist in enhancing completeness, neutrality, and freedom. Further, reliability also assists the users in implanting confidence and dependence on the part of users. Extent to which the annual report addresses PPE disclosures based on AASB 116 In relation to the annual report of Woolworths Ltd, it can be seen that the company has efficiently attempted to disclose the requirements of PPE based on AASB 116 standards. The PPE of the Group is recorded at cost minus accumulated amortization or depreciation and accumulated losses of impairment. Further, the cost of its self-constructed assets comprise of overhead, direct labor, and cost of materials. In addition, it can be seen that the Groups assets are depreciated on a straight-line basis over their useful lives (estimated). The Group also discloses that the anticipated useful lives of its PPE possess 2.5 to 10 years of useful lives while its property has 25-40 years of useful life. Moreover, based on the annual report of Woolworths, the total carrying values of PPE at the initial period is $19000.4 million while the net accumulated depreciation or amortization reports at $10737.6 million. Hence, the carrying value at the end of the period reports at $8262.8 million. Woolworth s has also disclosed relevant information regarding the reconciliation of carrying values at the beginning ($9600.7 million) and end of the period ($10062.1 m). Further, the company through this report has also showed additions of $2120.7 million Accounting. Besides, losses of impairment of the company have also been disclosed and it reports at $439.4 million that is reversed and identified in the companys profit and loss statement. Based on paragraph 76 of the AASB 116 standard, it can be seen that disclosures may also derive from variations in estimates in relation to residual amounts and present method of depreciation. However, in relation to the annual report of Woolworths, adequate information on the depreciation method and residual value is not being disclosed for its Property, Plant, and Equipment (Melville, 2013). Besides, enhanced information regarding the sale of such property, plant, and equipment of the Group can also not be found in their annual report. On a whole, the annual report of Woolworths does generally meet the disclosure requirements of PPE based on AASB 116 standard but few detailed information regarding such PPE is nowhere to be found in such annual report. Extent to which PPE disclosures satisfied fundamental and enhancing characteristics of useful financial information It can be observed from the annual report of Woolworths that the company has satisfied the fundamental qualitative characteristic of financial reporting. Since faithful representation and relevance are the most fundamental characteristics, it can be seen that the carrying values of the companys PPE at the end of 2015 and 2016 is clearly present and the recognized depreciation of the past years have not been changed. This means that the value of PPE at the year-end can be easily predicted through the provision of such information. Hence, relevance is adequately addressed by the company as such information not only has confirmatory value but also predictive value. This means that with the help of information regarding the carrying value of the companys PPE, prediction can be easily done regarding the amount that will be witnessed at the end of the year. Further, in relation to faithful representation qualitative characteristic of financial reporting, information is said to be faithfull y represented if all required details associated with the concept is prevalent in the annual report. However, the Group has not adequately endeavored in addressing the requirements of this characteristic because the sale value of its PPE together with their respective residual values have not been disclosed by it in their annual reports. Hence, the company has failed to satisfy the concept of faithful representation. In relation to enhancing qualitative characteristics, it can be seen that understandability is one of them. This means that the users have presumed to possess significant accounting knowledge and hence, they are able to conduct an evaluation and diligent review of such information. Extent to which PPE disclosures align with the objectives of GPFR The major objective of general purpose financial reporting is to offer financial information in such a way that potential creditors and investors can easily anticipate or predict the future economic value of such information. In simple words, this means that with the help of such information, users must be able to extract the same to make relevant decisions for the future (Lapsley, 2012). Moreover, it can be observed from the financial statements of Woolworths that the financial information forming part of the annual report is clearly relevant in nature. In other words, it can be seen that the carrying amounts of the property, plant, and equipment of the company have been adequately and efficiently disclosed at the end of 2015 and 2016. With the provision of such information, users like investors can easily predict their return on investment, thereby satisfying the requirement of general purpose financial reporting. However, since the company does not properly consider faithful repre sentation, the information is not entirely complete in the annual report, which means that users can also face issues while making decisions based on such information (Needles Powers, 2013). However, other characteristics serving as a major requirement in obtaining the objectives of general purpose financial reporting have been efficiently addressed that means the disclosures of PPE have mostly aligned with such objectives. Conclusion It can be seen from the annual report of Woolworths that the company has adequately disclosed relevant information relation to its property, plant, and equipment, thereby satisfying the requirements of AASB 116 standards and conceptual framework for financial reporting as a whole. However, some important information like the sales of PPE and their respective values is nowhere to be found in the annual report that is a bad indicator. Therefore, it is recommended that if the disclosures regarding the companys PPE can be more comprehended, the qualitative characteristic of faithful representation can also be attained (Williams, 2012). Overall, since the company has expended massive resources and time to obtain its objectives, it must also endeavor to make enhanced disclosure measures so that the users are not dissatisfied from the same. Therefore, disclosures must be given due consideration by Woolworths so that they can assist users in proper decision-making processes. References Lapsley, I. 2012, Commentary: Financial Accountability Management, Qualitative Research in Accounting Management, vol. 9, no. 3, pp. 291-292. Meeks, G Swann, G.M.P 2009, Accounting standards and the economics of standards, Accounting and Business Research, International Accounting Policy Forum, vol. 39, no. 3, pp. 23-44 Melville, A 2013, International Financial Reporting A Practical Guide, Pearson, Education Limited, UK Merchant, K. A. 2012, Making Management Accounting Research More Useful, Pacific Accounting Review, vol. 24, no. 3, pp. 1-34. Needles, B.E. Powers, M 2013, Principles of Financial Accounting, Francisco: Mc Graw-Hill Brook co. Spiceland, J, Thomas, W Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin, University Press Williams, J 2012, Financial accounting, New York: McGraw-Hill/Irwin. Spiceland, J, Thomas, W. Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin,University Press Martin, K , AJ Martin, JD 2016, Financial management: principles and applications, 7th edn, Pearson Australia, Vic.