Analysis of the Annual Reports

Does the Current Accounting Framework meet the needs of the users of Financial Reports as prescribed in the Objective of the Conceptual Framework of Accounting? How the conceptual framework revision to include Prudence is likely to address the disparity in Corporate Reporting is a requirement in your analysis.

Companies Selected for the current analysis are:

Cimic Groups Limited (industrials)  and Brambles Limited (industrials).

CIMIC Group is very well known contractor company present in the fields of engineering , telecom equipment’s and mining and environmental resources as well. The company was founded in the year 1949 and has currently present in Australia, New Zealand and Middle east.

On the other hand, Brambles Limited is engaged in industrial production (supply chain) company primarily engaged in pooling of equipment’s and related services and is currently present in more than 60 nations worldwide. Brambles Limited works to enhance the effectiveness of the clients business operations through efficient transportation of goods and creates a better environment for transported goods. it works through two main brands such as IFCO and CHEP and employs more than 14,500 people worldwide.

Conceptual framework

The conceptual framework is the backbone of financial statement presentation. The conceptual framework issued by the AASB make sure the financial statements prepared by all the listed entities are prepared with the sole purpose of providing the investors and the public in general with a fair and unbiased view of the operations of the business in the last 12 months. The adherence to the conceptual framework makes sure that the financial statements are not only a fair presentation but also reliable as well. On the basis of the CF only the entities concerned would be able to stick to the qualitative characteristics of the CF (Picker, 2015).

The conceptual framework is a framework of basic regulations and tools which are used by both AASB and IFRS to develop the accounting standards and the same intends to bring an identical provisions into effect and interpret the standards soundly all the events and accounting transactions in the normal operation of the business. The same tools are used to develop the existing standards and their interpretations as well in due course of time.

The provisions and regulations contained in the conceptual framework is extremely helpful in the presentation of a fair and unbiased financial statements as follows:

1. The annual reports of the companies concerned would contain the financial statements which would be used by the shareholders and investors for taking decisions.
2. The conceptual framework is also quite helpful in the overall development of the accounting standards over a period of time and also useful for the correct interpretation of the existing accounting standards.
3. The right interpretation of the CF would be extremely helpful for presenting unbiased statements and maintaining fairness of the presentation.

Analysis of CIMIC Group Limited

CIMIC Group Limited has gone on to present the current (2016 financial statements) as per the provisions and regulations approved by AASB and also follows the Australian corporation Act ,2001. The financial reports which are consolidated for the group has followed the guidelines and standards issued by IFRS which was adopted by the IASB.

Are the annual reports in compliance with the conceptual framework and AASB standard requirements?

The functional currency for presentation is the AU$ and the report has been reportedly prepared under the historical convention method except for the assets which are considered to be available for sale and other derivative instruments which were presented under the Fair value method. Revenue recognition details are detailed as well. Construction contract related revenue has been reported under % completion method and the revenue form the contracts related to mining has been reported under value of the work completed or certified methods.

Other streams of revenue has been reported as services including telecom and environmental services etc. losses related to business operations were presented and reported as they became apparent. Interest costs and revenue were recognized under accrual basis. Income under the head of dividends are recognized in the books once they were declared. Revenue from construction contracting services is recognized using the percentage complete method.

The board of directors of the CIMIC Group Limited has gone on to represent the financial reports assuming:

1. The business to be a going concern. This has allowed the company to report the accounts payables and receivables etc.
2. Used the standards of AASB 101 for preparation of the financial reports following the IAS 1.
3. Equity method has bene used to represent the consolidated statements.
4. AASB 101 is used for preparation of these statements. This complies with the IAS 1 as well.
5. AASB 108 has bene used for presenting the Consolidated Financial Statements of the business combinations.
6. Revenue of the company is measured asper the benefits the management estimated to receive till 31 December 2016.
7. AASB 11 has been used for dealing with joint venture agreements as well.
8. Extracts and Screen shots from the Annual reports.

CIMIC Group Limited has gone on to present the current (2016 financial statements) as per the provisions and regulations approved by AASB, Australian Accounting Standards (AAS) and also follows the Australian corporation Act ,2001. The financial reports which are consolidated for the group has followed the guidelines and standards issued by IFRS which was adopted by the IASB.

• The functional currency for presentation is the US$
• The financial annual report has been reportedly prepared under the historical cost method.
• However, assets which are categorized as available for sale and other derivative instruments are presented under the Fair value method.
• The company has reported that in the last financial year there have not been any significant accounting method changes.
• Revenue of the company is measured asper the benefits the management estimated to receive till 6.2016.
• The company has proceeded to write of bad debts as and when the same was identified. Provisions were established when the recoverability of the A/R is quite uncertain.
• The business to be a going concern. This has allowed the company to report the accounts payables and receivables etc.
• Used the standards of AASB 101 for preparation of the financial reports following the IAS 1.
• Equity method has bene used to represent the consolidated statements.
• AASB 101 is used for preparation of these statements. This complies with the IAS 1 as well.
• Extracts and Screen shots from the Annual reports.

Both the sets of the financial statements have duly recognized the amounts of Net Revenue, cost of sales, Operating expenses, gross margin and EBIT and finance costs and net profit  before and after taxes apart from the EPS as well. Thus the financial statements have been successful in disseminating a fair view of the business operations of the company is last fiscal year.

From the above discussions, it has become quite apparent that the companies has made conscious efforts to comply with the conceptual frameworks. However, the annual reports of large firms are sometimes lack certain details regarding the exact interpretation.

Some of the assets were brought up in their values in the recent financial year (using fair value) but a detailed discussion of the method used to arrive at the fair value is missing in both set of annual reports. Thus, revaluation of the some of the long term assets are fully not interpretable by the users of the financial statements (Belverd E. Needles, 2012).

Two different sorts of conceptual frameworks are now being used by the accounting fraternity worldwide. One of the conceptual framework is prepared by the IFRS committees and the other being brought into practice by IASB. Currently there is a process going on under which both IFRS and IASB are making a conscious effort to bring both these CF practices to unison by eradicating the overlapping provisions. The objective of the process to combine the both sets of CFs is to make sure the objectivity of the framework is better analyzed and understood and one conceptual framework be used world over. The process as and when completed would be expected to mitigate the overlapping ambiguities and eradicate the differential interpretations of the CF altogether and bring unity of analysis and use (Dagwell, 2014).

Analysis of CIMIC Group Limited

The conceptual framework is a framework consisting of basic concepts and regulatory tools which are used by both AASB/IASB and IFRS to develop the accounting standards and the same intends to bring an identical provisions into effect and interpret the standards soundly all the events and accounting transactions in the normal operation of the business. The same tools are used to develop the existing standards and their interpretations as well in due course of time. If there is ambiguity in the interpretation of a new item of accounting and opinions are divided as how the same would dealt with by the concerned accountants and companies the starting point of the debate is the conceptual framework guidelines. The new standards to be issued by the IFRS and IASB must confirm to the existing frameworks. So CFs are the starting point from where the standards would be updated and changed to suit the new requirements (Dyson, 2007).

Until the FY 2010, prudence concept was part of the then CFs. However, in 2010 the IFRS committee on CF took a decision to exclude prudence from the CFs. In 2015 onwards the IFRS is pitching again to include the concept of prudence into the CF’s and there is a debate as to how prudence fits into the CF’s. this is where the IFRS CF draft differs form the IASB draft and there is ambiguity as what would be the final decision and how inclusion of the concept of prudence would improve the CF.

Prudence is the concept of using general and rational decision making aspect of managers day to day work and prudence requires the managers to make use of the best available tools to take the optimal decision to optimize outputs. However, this is quite contrasting to the general interpretation of the output form these decisions. The managers are only required to make the best judgement on the basis of the available inputs. Their judgement must be rational and result oriented. However, the actual results can be different considering that economic environment is quite fragile and flexible. There is no consensus as to if the inclusion of the concept of prudence would make the managers more shy to make difficult decisions and thus differ decision making till more favorable economic condition is made available. This means the company’s having limited natural and other resources would not be able to make the best use of the same (Dagwell, 2014).

Analysis of Brambles Limited

One likelihood from the inclusion of prudence in the conceptual framework is the fact that the managerial staff in charge of reparation of the financial statements would be more circumspect in valuing assets or while making decisions regarding fair values. The directors of an organization preparing the financial statements for inclusion in the annual report would be fairly cautious and this is more likely to remove personal biases form financial reporting. The inclusion of prudence is therefore most likely to attract opinions to be debated and the best possible judgement to be exercised. Fairness would increase and personal bias would decline. There is a possibility that the managers and directors would become more neutral and unbiased. So it would be quire pertinent that prudence is made part of the CF and help in increasing the neutrality aspect of financial reporting (Deegan, 2015).

Both Cimic Group Limited and Brambles Limited Optus being companies incorporated in Australia have Followed the AASB standards confirming to the IAS 1 for presenting their financial statements (Atrill & Eddie, 2012).

Both the companies have presented balance sheet for the last two years, income statement for two years and the CFS for the last two years along with necessary notes to the understanding of the statements.

Both the sets of financial statements also include a detailed analysis of the statement of changes in equity including shared based payments and retained earnings etc(Mclaney, 2013)

Conclusions

From the above analysis it has become apparent that the board of directors of the company has successfully followed the regulatory provisions of AASB 101 and presented the financial statements in a manner to disseminate the results in an unbiased and objective manner and fulfilled the requirements adequately. Cimic Groups Limited  and Brambles Limited have duly recognized the amounts of Net Revenue, cost of sales, Operating expenses, gross margin and EBIT and finance costs and net profit  before and after taxes apart from the EPS as well. Thus, the financial statements have been successful in disseminating a fair view of the business operations of the company is last fiscal year. However the notes to the financial statements still can be improved by additional measurements undertaken such as the calculations of the consolidation and fair value measurement details.

Atrill, P. a. M. E., 2013. Accounting and finance for non-specialists. 8th ed. Harlow: Financial Times/Prentice Hall. .

Atrill, P. & Eddie, M., 2012. Accounting and Finance. 5th ed. LONDON: Prentice Hall Financial Times.

Belverd E. Needles, S. V. C., 2012. Principles of Accounting. NEWYORK: South-Western Cengage Learning.

Chambers, R., 2012. Accounting: LAw, Theory & Ethics. Chicago: McGrawHill Publications.

Dagwell, R., 2014. Corporate Accounting in Australia. 4th ed. Sydney: NewSouth Publishing.

Deegan, C., 2015. Australian Fiancial Accounting. 8th ed. Sydney : McGraw-Hill Education – Europe.

Dyson, R. J., 2007. Accounting for Non-Accounting Students.. 6th ed. London: Financial Times/Prentice Hall..

Eisen, P. J., 2013. Accounting (Business Review Series). 6th edition ed. NewYork : Barron’s Educational Series Inc.,U.S.

Hall, J. A., 2012. Accounting Information System. Chicago: South Western Cengage Learning.

Hoggett, J., 2011. Company Accounting. 9th ed. Brisbane: John Wiley and sons.

Jerry J. Weygandt, 2012. In: ACCOUNTING PRINCIPLES. s.l.:WILEY.

Mclaney, P. &. E., 2013. Financial Accounting for Decision Makers. 7th ed. London: Pearson Educaitonal publishers .

Melancon, B., 2002. A new accounting culture. AICPA Journal of Accounting , 23(2), pp. 34-43.

Picker, R., 2015. Australian Accounting Standards. 1st ed. Melbourne: Earnst and Young Publications.

Sterling, R., 2012. A Statement of Basic Accounting Theory. Journal of Accounting Research, 5(1), pp. 95-112.

Weirich, T., 2013. Accounting and Auditing Research: Tools and Strategies. 8th Revised edition ed. London: John Wiley & Sons; .

Weygandt, J., 2014. Accounting for Business Decision Making. 6th ed. Chicago: John Wiley and Sons INC.

Wyatt, A., 2003. Accounting Professionalism – They just don’t get it!, Chicago: https: aaahq.org/AM2003/WyattSpeech.pdf