Adhere to the Objectives of Conceptual Framework

Conceptual Framework for Financial Reporting is considered as a major element for the business organizations. More precisely, Conceptual Framework for Financial Reporting deals with different kinds of fundaments accounting issues like various objectives of financial statements, characteristics of financial information, basis of preparation of financial statements and many others (Barth, 2013). For this reason, it is necessary for the business organizations to develop their financial statements by taking into consideration all these aspects. The main aim of this report is to analyze and evaluate the fact that the financial statement of one of the Australian companies is prepared based on the standards and principles of Conceptual Framework for Financial Reporting (Horngren et al., 2012). For the preparation of this report, Amcor Limited is selected. The company was founded in the year of 1860 and got the name ‘Amcor’ in 1986. The company is headquartered at Melbourne, Victoria, Australia (amcor.com, 2017). In this context, it needs to be mentioned that Amcor Limited is listed among top hundred companies in Australian Stock Exchange (ASX) and the code of the company in ASX is ‘AMC’ (asx.com.au, 2017). This particular report analyzes and evaluates various aspects of its financial statements according to Conceptual Framework for Financial Reporting.

The above discussion shows that the conceptual framework for financial reporting is an important aspect for the Australian companies in the preparation of financial statements. In Australia, it can be seen that all the Australia companies follow the standards and framework of the conceptual framework of Australian Accounting standards Board (AASB) that helps in the preparation of financial statements of both private and public companies. According to 2017 annual report of Amcor Limited, the company has developed their financial statements by complying with the standards and principles of AASB (aasb.gov.au, 2017). Now the fact is that whether Amcor have met the objectives of the accounting conceptual framework of AASB. It can be seen that there are three major objectives of conceptual framework for financial reporting. The first objective of conceptual framework is to provide the investors and creditors of the companies with useful and correct information for making investment, credit and other decisions. According to 2017 annual report of Amcor, it can be observed that the company has provided their investors and creditors with all the required financial information in the form of various financial statements (aasb.gov.au, 2017). They are statement of profit and loss, statement of comprehensive income, statement of financial position or balance sheet, statement of change of equity, statement of cash flows and others. All these statements provide useful and necessary information to the investors and creditors of Amcor.

The second objective of conceptual framework is to provide useful information for assessing cash flow prospects of the company. It implies that the companies should provide information so that the investors and creditors can assess the amount, timing and uncertainty regarding future cash inflows and outflows. In case of Amcor, it can be observed that the company has provided all this necessary information with the help of their statement of cash flows along with the end noted related to cash flows (aasb.gov.au, 2017).

Adhere to the Recognition Criteria

The third objective of conceptual framework is to provide the investors and creditors with necessary information regarding various resources of the companies. In this regard, the economic resources are assets, liabilities and equities of the companies. From 2017 annual report of Amcor, it can be seen that the company has provided the investors and creditors with all the necessary information about organizational resources with the help of statement of financial position (aasb.gov.au, 2017). Thus, based on the above discussion, it can be seen that Amcor Limited has well met the objectives of conceptual framework.

According to the Conceptual Framework for Financial Reporting, some basic recognition criteria are required to be met in order to recognize them in their financial statements. First, they are needed to meet the definition as per the conceptual framework. Second, it is probable that future economic benefit of them will flow to or from the entity. Third, their cost values can be measured with reliability. In case of Amcor, it can be seen that the company has been following the rules and regulations of conceptual framework for recognition.

Amcor follows the principle of International Financial Regulatory Standard (IFRS) for asset recognition. Amcor recognizes their trade and other receivables based on their invoice value and then they are adjusted with the recoverable value from the customers. In case of inventories, the recognition is done based on the lower cost (amcor.com, 2017).

Property, plant and equipments are recognized by deducting accumulated depreciation and impairment costs from the cost of assets. Amcor recognizes their intangible assets including goodwill by cost less accumulated amortization and impairment losses (amcor.com, 2017).

In case of liabilities, Amcor also follows some specific criteria. Amcor follows the principle of IFRS for liability recognition. Provisions are recognized when Amcor has legal or constructive obligation due to past events. They are measured based on present value (amcor.com, 2017).

In case of net debt or interest bearing liabilities, they are recognized on fair value basis. For interest bearing and foreign currency liabilities, they are measured at amortization cost (amcor.com, 2017).

Amcor classifies their ordinary shares as equity that is fully paid with no par value. Incremental costs related to the equities are recognized as a deduction from equity (amcor.com, 2017).

Amcor recognizes the revenues when the significant risks and rewards related to ownership are transferred to the customers. In that case, the amount of revenue will be easily measurable. In case of uncertainty of the recovery of dues, no revenue is recognized (amcor.com, 2017).

The major components of financial expenses of Amcor are borrowing expenses, cost of interests, amortization costs and others. Revenues are recognized in the income statement at the time of their occurrence (amcor.com, 2017).

Thus, from the above discussion, it can be see that Amcor has complied with all the recognition criteria of conceptual framework for financial reporting under AASB and IFRS.

According to the conceptual framework of financial reporting under AASB, every business organization is required to satisfy the fundamental qualitative enhancing characteristic for their financial reporting. The same concept is also applicable for Amcor Limited. They are discussed below:

Assets

Relevance: The first characteristic is Relevance. This characteristic states that financial information is required to be relevant in order to be useful in different decision-making processes like investment, credit decisions and others. Relevant financial information helps the users in the evaluation of the effects of various past, present and future transactions on the future cash flows (aasb.gov.au, 2017). In case of Amcor, the company takes the values of assets and liabilities based on fair value. It implies that all the values ate relevant to the current market position.

Faithful Representation: The next characteristic of conceptual framework is Faithful Representation. In order to be a faithful representation, three major characteristics need to be met; they are complete, neutral and free from errors. According to 2017 auditor’s report of Amcor, the company has prepared all of their financial statement by complying with all required accounting standards of AASB, IFRS, Corporation Act 2001 and others. It implies that Amcor have faithfully represented their financial statements.

Comparability: The next major characteristic of conceptual framework is Comparability. The principle of comparability states that the users of financial statements are able to identify and understand the similarities and differences among the financial information (fasb.org, 2017). It can be observed that Amcor has presented their financial information based on two years that is 2017 and 2016. This aspect enables the users to compare the financial information of the company across years. In addition, Amcor has presented their financial results in graph forms that are helpful in comparing them with the financial results of other companies.

Verifiability: The next major characteristic is Verifiability. It is not fully possible for the users of financial statements to verify the information in financial statements. However, in order to assist them, Amcor uses to disclose all the underlying assumptions, the methods of compiling information and others.

Timeliness: Another major characteristic of conceptual framework is Timeliness (ey.com, 2017). It implies that the financial statements need to contain recent financial information as old information is less effective. In this context, it needs to be mentioned that the financial statements of Amcor consists of most recent financial information as the financial statements are based on the information of 2017 and 2016.

Understandability: The last major characteristic of conceptual framework is Understandability (aasb.gov.au, 2017). It implies that the financial information is needed to be classified and they need to be presented in the clearest way. From the annual report of Amcor, it can be seen that the company has provided the classification and justification of the major items in financial statements. It helps the users clearly understand every aspect of financial statements.

Conclusion

The above discussions show the Amcor Limited follows the standards and principles of the conceptual framework of AASB for the preparation of their financial statements. In addition, the company also follows the principle and standards of IFRS and Corporation Act 2001 for the preparation of various financial accounts. According to the above discussion, it can be observed that Amcor has been able to meet the four major objectives of AASB conceptual framework for financial reporting. In addition, for the recognition of various financial aspects like assets, liabilities, revenues, expenses and equities, Amcor follows the principles and standards of AASB and IFRS; and they all are recorded in the financial statements based on their fair values. Apart from this, the company has well satisfied the major qualitative characteristics of AASB conceptual framework.

References

Amcor – About us. (2017). Amcor.com. Retrieved 7 December 2017, from https://www.amcor.com/about_us/about_us

Annual Report 2017. (2017). Amcor.com. Retrieved 7 December 2017, from https://www.amcor.com/CorporateSite/media/Annual-reports/Amcor_Annual_Report_2017.pdf?ext=

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

Company details – AMC – ASX – Australian Securities Exchange. (2017). Australian Securities Exchange – www.asx.com.au. Retrieved 7 December 2017, from https://m.asx.com.au/m/company-info.xhtml?issuerCode=AMC

Conceptual Framework for Financial Reporting. (2017). Aasb.gov.au. Retrieved 2 December 2017, from https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf

Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information. (2017). Fasb.org. Retrieved 2 December 2017, from https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1218220340119&acceptedDisclaimer=true

Conceptual Framework: Objectives and Qualitative Characteristics. (2017). Ey.com. Retrieved 2 December 2017, from https://www.ey.com/Publication/vwLUAssets/Supplement_86_GL_IFRS/$FILE/Supplement_86_GL_IFRS.pdf

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial accounting. Pearson Higher Education AU.