Adherence to the Measurement Requirements

Accounting conceptual framework provides the companies with the required standards, principles and guidelines for the correct preparation and presentation of the financial statements so that the users can extract required information about the companies for decision-making purposes (Weil, Schipper and Francis 2013). In this report, the adherence of one Australian company with various requirements of accounting conceptual framework is considered. For this specific purpose, Astron Corporations Limited (Astron Corporation) is taken into consideration. There are certain aspects that this study considers such as the requirements of general purpose financial reporting, measurement requirements, requirement of knowledge for the analysis of the financial statements, qualitative characteristics of financial reporting and others.  

As per International Accounting Standards Board (IASB), measurement can be considered as the process to determine the amounts that are required to be included in the financial statements (aasb.gov.au 2018). Thus, the measurement of assets and liabilities has direct implications on the recognition of income and expenses and profit as well. According to the conceptual framework of IASB, companies should not adopt one single measurement mechanism for measuring all of their assets and liabilities as the adoption of one single approach for all assets and liabilities fails to provide the relevant information for decision-making (aasb.gov.au 2018). According to the conceptual framework of IASB, there are four basis available for measuring the assets and liabilities; they are Historical Cost Method, Current Cost Method, Realizable Value Method and Present value or Fair Value Method. The following discussion shows the compliance of Astron Corporation with these measurement requirements of IASB:

(Source: astronlimited.com.au 2018)

Through the above statement, Astron Corporation has mentioned that they have not adopted a single mechanism of measurement for different aspects of their financial statements as the company has used both the historical cost method and fair value method for measurement purposes. More evidences of this compliance can be obtained from below discussion:

(Source: astronlimited.com.au 2018)

(Source: astronlimited.com.au 2018)

The images from the annual report of the company provides the evidence that the company has complied with the prime requirements of IASB conceptual framework that is not to adopt a single measurement mechanism for all assets and liabilities. It can be seen that Astron Corporation has adopted both the historical cost method and fair value method for the measurement of different assets and liabilities with the aim to provide the users with the relevant financial information about the asset and liability position of the company (astronlimited.com.au 2018).

Adherence to the Fundamental Qualitative Characteristics

Relevance and Faithful Representation are the two fundamental qualitative characteristics of financial reporting; and the discussion is shown below:

Relevance: Financial information is relevant in case it can influence the decision of the users for the allocation of scarce resources. In addition, relevant information is capable to make positive difference in the decision-making process. For this reason, financial information must have predictive and confirmatory values. In the presence of predictive value, the users can make their own prediction; and in case of confirmatory value, users can get the feedback of previous evaluation (Maimbo and Melecky 2014).

(Source: astronlimited.com.au 2018)

According to the above image, Astron Corporation has provided the information about revenue for the current year; and the users can use this information as a basis to predict revenue in future years. The users can also compare this information with revenue prediction for the current years that was made in the past years. The users can correctly improve the processes with the help of the result of the comparison.

Faithful Representation: Financial information of the companies must be complete, neutral and free from errors in order to be faithfully represented (Zhang and Andrew 2014).

(Source: astronlimited.com.au 2018)

(Source: astronlimited.com.au 2018)

(Source: astronlimited.com.au 2018)

As per the above table, property, plant and equipment is considered as example. It can be seen that Astron Corporation has provided complete description of the asset, description of the nature of the asset and the complete numerical description of the asset.

(Source: astronlimited.com.au 2018)

The above discussion shows that the auditors of Astron Corporation has confirmed that there is not material misstatements in the financial statements of the company. All these aspects together support that the financial statements are faithfully represented.

Comparability, verifiability, timeliness and understandability are the four enhancing qualitative characteristics; and the discussion is shown below:

Comparability: Financial information of the companies become more useful when they can be compared with the similar information about the other companies and with the similar information of the same company for another accounting period (Wang 2014).

(Source: astronlimited.com.au 2018 and annualreports.com 2018)

The above images provide the evidence that the financial information of Astron Corporation can be compared with the same class of financial information another company of the same industry, Orica Limited. In addition, the company provides the financial information of the previous year in the current annual report so that they can compare the financial information of the same company from another financial period.

Adherence to the Enhancing Qualitative Characteristics

Verifiability: Verifiability refers to the ability that ensures that the represented information has been provided as per the chosen method of measurement for eliminating the errors or bias (Barth 2013). It can be seen from the annual report of Astron Corporation that the company has disclosed all the required assumptions and judgments for the preparation and presentation of the financial statements.

(Source: astronlimited.com.au 2018)

As per the above image, impairment can be considered as an example where the company has provided the required assumptions and estimates for impairment.

Timeliness: It is the responsibility of the companies to deliver the financial information of them in such a manner so that the users can obtain them at the time to make decisions; and it is due to the fact that older information does not have the same importance to them as the current information (Abernathy et al. 2014). In case of Astron Corporation, all the recent financial information of the company is available in their annual report.

Understandability: Financial information must be presented in clear and concise manner for the ease of understanding of the users (Sytnik 2014). The presence of notes can be seen in the annual report of Astron Limited that includes the required justifications and clarifications for the ease of understudying of the clients.  

It is needed for the users of the financial reports to acquire the required financial information of the companies for the purpose of decision-making. The presence of certain financial reports can be seen in the annual report of Astron Corporation that contain the required financial information about the company; they are shown below:

It needs to be mentioned that the users of the financial statements can obtain the information about the financial performance of the company from the statements of the statement of profit and loss and other comprehensive income. After that, they can obtain information about the financial position and cash flow position from the statement of financial position and the statement of cash flow. In addition, they can obtain addition information about these financial statements from the notes as they contain the required justifications and clarifications (astronlimited.com.au 2018).

As per the compliance of Astron Corporation with the ‘understandability’ characteristic, the users of the financial statements can understand the financial information with the application of basic accounting knowledge and independent observation. Apart from this, the principles of IASB and IFRS help the company in disclosing the financial information in user-friendly manner. However, the presence of certain items in the annual report can be seen that need expert’s opinion to understand such as foreign currency transactions and others (Henderson et al. 2015).

(Source: astronlimited.com.au 2018)

These aspects require advanced financial knowledge to understand. However, most of the aspects can be understood with the application of basic knowledge.

The requirement of general purpose financial reporting is to deliver financial information about the reporting company that is useful for the existing as well as potential investors, lenders and other creditors so that they can make effective decisions about the resources of the company (ey.com 2018). Following are the evidence of the compliance with this requirement by Astron Corporation:

(Source: astronlimited.com.au 2018)

Astron Corporation has provided all the financial information related to revenue, expenses, profitability and others from the above statement (astronlimited.com.au 2018).

(Source: astronlimited.com.au 2018)

After that, the company has delivered information about their assets, liabilities and equity from the above financial statement (astronlimited.com.au 2018).

(Source: astronlimited.com.au 2018)

The users of the financial statements can ascertain the inflows as well as outflow of the company from the analysis of the above statement.

(Source: astronlimited.com.au 2018)

Lastly, users can analyze the change in the financial performance of Astron Corporation from the analysis of the above statement.

Conclusion

By complying with the measurement requirements of IASB conceptual framework, Astron Corporation has not adopted the same measurement requirement for their assets and liabilities. After that, the compliance with the fundamental and enhancing qualitative characteristics makes the financial information of the company more acceptable to the users for the decision making purpose. In addition, by complying with the requirements of general purpose financial reporting, the company has provided all the required financial statements like the statement of profit and loss, statement of financial position, cash flow statement and others.

References

Aasb.gov.au., 2018. [online] Conceptual Framework for Financial Reporting. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf [Accessed 12 Dec. 2018].

Abernathy, J.L., Beyer, B., Masli, A. and Stefaniak, C., 2014. The association between characteristics of audit committee accounting experts, audit committee chairs, and financial reporting timeliness. Advances in Accounting, 30(2), pp.283-297.

Annualreports.com., 2018. Orica: Annual Report 2015. [online] Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/o/ASX_ORI_2015.pdf [Accessed 12 Dec. 2018].

Astronlimited.com.au., 2018. Annual Report for the year ended 30 June 2017.  [online] Available at: https://www.astronlimited.com.au/getattachment/4448a261-a8b7-49fa-91a3-1c2d22a2d2c4/2017-Annual-report-to-shareholders.aspx [Accessed 12 Dec. 2018].

Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.

Ey.com., 2018. Conceptual Framework: Objectives and Qualitative Characteristics. [online] Available at: https://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$FILE/Supplement_86_GL_IFRS.pdf [Accessed 12 Dec. 2018].

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Maimbo, S.M. and Melecky, M., 2014. Financial sector policy in practice: benchmarking financial sector strategies around the world. The World Bank.

Sytnik, O.E., 2014. Comparative analysis of the guidelines for the preparation of financial statements in accordance with IFRS and formed the Russian accounting rules. Sworld, 27(2), pp.27-31.

Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.