Contemporary Issues in Accounting for Conceptual Framework

Question: Write about theContemporary Issues in Accounting for Conceptual Framework. Answer: Introduction Conceptual accounting framework is developed for making the accounting information more useful by providing standard guidelines and procedures for developing the financial statements. It has been developed by IASB (International Accounting Standards Board) for developing a uniform process of presenting the financial information to the end-users. The framework has helped the IASB in developing standard accounting rules and procedures to improve the quality of financial information disclosed by the entities worldwide. As such, AASB (Australian Accounting Standards Board) is also directing the entities listed on ASX to develop their financial reports as per the principles and characteristics of conceptual accounting framework (Mazhambe, 2014). In this context, the present report is developed for examining the compliance of a selected entity listed on ASX with the framework of conceptual accounting. The business entity selected for this is Casales,Com, an online automotive company of Aus tralia involved in purchasing and selling of cars and motorcycles listed on ASX. General Purpose of Conceptual Framework Met by the Selected Company The main objective of developing financial reports as per the standard framework is to disclose the financial information that facilitates the investors to make decisions whether to invest in the stock of a particular business entity or not. The financial statements should be able to provide an estimate of the future profitability position of an entity through predicting its future net cash flow position. The future growth and development prospects of an entity can also be analyzed through examining the efficiency of the management and the governing board in carrying out their responsibilities (Rezaee, 2003). The annual report analysis of Carsales.Com that company has adequately disclosed all the required financial information for decision-making to end-users in its financial reports. The company has developed and presented its consolidated financial statement as per the AASB standards and the conceptual accounting framework as stated in its notes to financial reports section of the annual report (Van der Meulen, Gaeremynck, and Willekens, 2007). The financial statements have provided the value of all the financial elements such as assets, liabilities and equity and also stated the accounting methods and rules applied for measurement of their value. The financial report has also provided separately the performance of each business segment of the company so that investors can easily gain understanding of its highest performing area (Soderstrom and Sun, 2007). The company has appointed a competent leadership team for carrying out its operational activities as depicted in the annual report. The annual report ahs adequately disclosed the key roles and responsibilities of the leadership team of the company. In addition to this, the key financial performance required by the investors for investment decisions as presented clearly in the directors report of the company. Therefore, it can be said that the company has adequately met the general purpose of conceptual accounting framework for developing financial reports (Carsales Com Ltd: Annual Report, 2017). Usefulness of the Financial Reports as per the Requirements of the Target Audience The target audience is the end-users of the financial reports developed by a reporting entity such as investors, creditors and lenders. They need to analyze the current and past financial information provided by an entity so that they can predict the future growth position on its basis (Tarca, 2004). The financial report of Carsales. Com can be stated to be developed as per the needs and requirements of the end-users. The key financial highlights are presented in the starting of the annual report of the company along with its cumulative annual growth rate. The report is presented in a simplified format having a systematic flow of information so that it can easily understand by the end-users. The company has incorporated the use of accrual accounting practices for reporting the impact of the financial transactions occurred on the economic resources in the period in which it occurred as per the principle of conceptual accounting framework. The use of accrual accounting has helped in as sessing accurately the past and future ability of the company in generating net cash flows (Rezaee, 2003). The impact of the changes in the market conditions on the financial information of the company by reflecting their impact on the market price and interest rates have also been sufficiently explained in its financial report. The consolidated financial statements are prepared in compliance with the standard accounting framework and principles as stated in the auditors report. This ensures that financial information disclosed is free from any material errors and can be used in decision-making process of the end-users (Carsales Com Ltd: Annual Report, 2017). Recognition Criteria The application of the standard framework of conceptual accounting requires companies to clearly state the measurement and recognition criteria used for reporting the value of different elements of the financial statements. The different financial elements are identified and recognized during the process of preparation of financial reports by business companies only when they are expected to provide some future economic benefits as per the standard framework of IASB (Psaros and Trotman, 2004). Carsales. Com has sufficiently explained and stated the identification and recognition criteria used for reporting the values of financial elements. For example, the recognition and measurement criteria used for reporting the revenue is at the fair value for its major business activities such as advertising, goods sale, finance, dividends, RD rebate. The expenses are recognized in the profit and loss and the past services are identified and measured through the use of straight-line basis. It has also classified the investments in major categories of financial assets at fair value, loans, receivables and held-to-maturity investments. The borrowings of the company are also recognized and measured at the fair value that is overall transaction cost incurred. The difference between the proceeds and the redemption amount is reported in the profit and loss over the accounting period through the use of interest method. The income tax expense or revenue for the accounting period is recognized through the use of applicable income tax rate. The cash and cash equivalents are reported and measured at their value of maturity or less when the assets are readily converted to cash (Carsales Com Ltd: Annual Report, 2017). Fundamental Qualitative Characteristics Used by the Company in Financial Reporting The conceptual accounting framework has provided that fundamental qualitative characteristics of financial reporting are relevance and faithful presentation. The financial information for meeting the criteria of relevancy need to have a confirmatory and predictive value in order to make a difference in the decision-making process of the end-users (Maines and Wahlen, 2006). Carsales.com as per these characteristics of framework has provided both confirmatory and predictive value of financial elements in its financial reports. The confirmatory of different elements are stated in the financial statements whereas the accounting estimates and assumption used for measuring the predictive value of the financial elements are also disclosed in the report. For example, the assumptions used by the company for determining the recoverable amount of CGUs and income tax is disclosed in its annul report that can be depicted as follows: The second qualitative characteristics of conceptual accounting framework is faithful presentation that is the information provided in the financial statement by a reporting entity should be free from any error and complete in all respects (McDaniel, Martin and Maines, 2002). The company financial information can be regarded as faithfully presented on the basis of the auditors report. The company has carried out its auditing and the auditors statements have disclosed that its financial information is free from any material error and complete in all respects (Carsales Com Ltd: Annual Report, 2017). Enhancing Qualitative Characteristics Used by the Company in Financial Reporting The financial information should be comparable, verifiable, understandable and timely as per the enhancing characteristics of the financial reporting stated in the conceptual accounting framework. As per the comparability characteristic, the information presented in the financial statements for the current year can be compared with that of the previous year for depicting the percentage increase or decrease in the financial performance (Gerber, Gerber and Van der Merwe, 2014). It can be depicted from the financial statements of the company as follows: The company in accordance with the verifiability characteristic of financial reporting has provided the quantitative information in its financial statements that can be measured and verified. The investor can assess the verifiability of the financial information through the use of ratio analyses with the help of quantitative value stated of different elements in the financial information. The different ratios such as profitability, liquidity, efficiency can be used for verifying whether the information presented is accurate or not (Gore and Zimmerman, 2007). The company reports its financial information on an annual basis ensuring that it is latest and available to the end-users in time. It has also provided all the information in the notes to financial statements section that ensures it is understandable to the end-users (Carsales Com Ltd: Annual Report, 2017). Recommendations It is recommended to the company on the basis of the overall analysis that it should adequately met the fundamental and enhancing qualitative characteristics of financial reporting as provided in the conceptual accounting framework. The company should adequately disclose all the accounting policies and practices used for evaluation of different financial elements in its notes to financial statements section. The accounting policies and practices adopted should be as per the AASB standards and any change in the accounting policies must be disclosed in the financial reports for meeting the qualitative characteristics of financial reporting. Conclusion It can be stated form the overall discussion held in the report that Carsales. Com effectively complies with all the principles of conceptual accounting framework. It has met the varying needs and requirements of the target audience through providing the financial information as per the qualitative characteristics of the standard framework of accounting developed by the IASB. References Carsales Com Ltd. 2017. Annual Report. [Online]. 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