The Conceptual Framework of Accounting

The conceptual accounting framework of Accounting includes the following sections:

Chapter 1 deals with the objectives for which the general purpose financial statements are prepared. The main users of these financial statements are the potential investors that want to invest into the company, the creditors to whom the company owes money. This is the information which helps in making them decisions all about buying, selling or holding the equity or the debt instruments. This information also helps them in providing or settling loans and extend other such form of credit. 

Chapter 2 is concerned with the qualitative characteristics of the useful financial information. These are the characteristics about the financial reporting of the company which is most likely to be useful for the users that use the information contained in the financial statements and such is the information which helps them in making the most apt decisions. These traits of the financial information is very much useful in the general purpose financial reports as is the financial information which is provided in the other ways. The financial information is only helpful when the facts contained in it is relevant and the facts contained are capable of being compared, verified and understandable. The fundamental characteristics of the financial statements states the following:

• Relevance:this means that the financial information should be able to make the difference when it comes to making the decisions by the decision maker. The facts contained should be such that the user is able to make the difference in the decisions in case the same has some predictive value, confirmatory value or both. Both of these concepts are inter related.
• Materiality:this means that the facts and the figures contained in the financial statements should be such that it should be material for the users of the financial statements.
• Faithful representation:the financial facts and figures in the financial statements must be free from any material error. Only then, would the users would be able to use the financial information contained in the financial statements. Prudence has to be exercised when it comes to making decisions and judgments have to be exercised under the relevant conditions of certainty.

The information contained in the financial statements must be relevant and useful.

In terms of enhancement of the qualitative characteristics, the financial information must be capable of being compared, verified. The information must be provided in the timely manner. The information must be capable of being compared with an utmost certainty.       

The facts stated in the financial statements helps in verifying the facts about the company and the same must be able to be represented with an utmost efficiency.  

The information must be made available at the correct time so that it helps the decision makers to make their decisions.

In term of understand ability, the facts contained in the financial statements must be classified, characterised, be presented and be made understandable (IAS plus, 2018). 

All of the above stated financial characteristics must be present in the facts contained in the financial statements since that would enhance the use of these financial statements.

Chapter 3 which relates with the objective and the scope of the financial statements divides the entire financial reporting between income, expenses, assets, equity and liabilities. But it is also true that even the presence of these characteristics in the financial statements cannot serve the purpose if these are irrelevant or are not presented faithfully.

Assets are defined as the resources that the company due to which the future cash flows into the entity.

Liabilities are the present obligations of the company which arises from the past events from which the future economic benefits flows in to the entity.

Expenses are amounts spent towards earning the revenue for the company (FASB, 2018). 

The basis on which the financial statements have been prepared are as per the Australian Accounting standards along with the Interpretations that have been issued by the AASB and the Corporations Act, 2001. The consolidated financial statements that have been prepared are in line with the International Financial Reporting standards that have been adopted by the IASB. The company under review, 88 Energy Limited, is a not for profit company when it comes to preparing the financial statements.

Application on the Company

The consolidated financial statements of the company have been prepared keeping in mind the going concern assumption of the company. All of the assets and the liabilities have been reported at the historical cost. This is in line with the Accounting Standards. The Group has successfully adopted all of the new, revised or the changed Accounting standards and the Interpretations that have been issued by the Australian Accounting Standards Board or AASB.

These standards and interpretations are compulsory to be followed by each and every company. The annual report of the company states the fact the new accounting standards that have been issued do not affect the business reporting of the company.

Not 16 of the Annual report of the company deals with the financial risk management objectives and policies. It states that the activities of the company are exposed to many of the risks which includes the foreign exchange risk and the interest rate risk credit risk and the liquidity risk.  The overall risk management program of the company concentrates on the facts that the financial markets are not capable of being predicted and this goes for the minimisation of the bad effects that has on the financial performance of the company. The company uses many of the different ways to mitigate the different types of the risks to which the company is exposed to. These include the monitoring levels of expose to the rate of interest and the risk of foreign exchange along with the assessment of the market forecasts for the purposes of interest rate and the policies of foreign exchange. The company also does ageing analysis and considers and assesses the credit risk by the way of some specific credit allowances. The liquidity risk is something which is considered by the way of development of all of the future forecasts of cash flows. The risk management is carried out by the management and is also seen in by the Board of directors with the help of some qualified external advisors. The Board is duty bound to review their policy of management these risks on an annual basis and take the initiatives or actions accordingly.

The company recognises and records the revenues to the tune the same would flow in to the entity and to the tune the same would entail economic benefits for the company. The revenue is recorded only when the same can be measured accurately. The revenue is recorded in the financial statements if the same is same can be measured with reliability, irrespective of the fact if the payment has been received or not.

The company records the revenue at the fair values of the consideration that has been received to be receivable. This considers the account that has some defined terms of payment and excludes the taxes or duty. The company believes that is the principal when it comes to the revenue arrangements since it is the primary obligor of all of these revenue arrangements. The company measures the revenue at its fair value considering the duties and the taxes. The specific recognition criteria for the recognition of the revenue is considered before the same is recorded in the financial statements.

The management of the company is duty bound to consider its past experience, assumptions, estimates for the purposes of recording transactions in the financial statements. The company has to evaluate the judgment and the estimates connected with the various different assets, liabilities etc (Annual report, 2017).

Conclusion:

In the nutshell, it could be stated that the company follows all of the relevant accounting standards along with the various different interpretations. Also, an external auditor is hired who is required to express his opinion on whether the financial statements have been prepared in the most apt manner and whether the financial facts contained in the financial statements represents true and fair picture of the financial position of the company. Tis report is termed as the Independent auditors report. This report is good for the company and shows fair picture of the company. Hence, all of the relevant accounting standards have been prepared. The company has complied with all of the qualitative characteristics and the various other requirements such as measurement as have been load down in the conceptual framework of accounting. Further, if an investor would require to make a detailed investigation into the company, then he would have to consider the news and other such reports to make the decision of investing into the company. 

References:

Clients3.weblink.com.au. (2018). Annual report 2017. [online] Available at: https://clients3.weblink.com.au/pdf/88E/01965283.pdf [Accessed 9 Dec. 2018].

Fasb.org. (2018). The Conceptual Framework. [online] Available at: https://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1176168367774 [Accessed 9 Dec. 2018].

Iasplus.com. (2018). Conceptual Framework for Financial Reporting 2018. [online] Available at: https://www.iasplus.com/en/standards/other/framework [Accessed 9 Dec. 2018].